Return-Path: Delivered-To: andrew@sterlingcal.com Received: from reseller401.webserversystems.com by reseller401.webserversystems.com with LMTP id 4GhOIl41EWgzdwQAchKAPA (envelope-from ) for ; Tue, 29 Apr 2025 15:23:58 -0500 Return-path: Envelope-to: andrew@sterlingcal.com Delivery-date: Tue, 29 Apr 2025 15:23:58 -0500 Received: from o13.ptr1224.officeinteractive.com ([168.245.9.66]:20700) by reseller401.webserversystems.com with esmtps (TLS1.2) tls TLS_ECDHE_RSA_WITH_AES_128_GCM_SHA256 (Exim 4.98.1) (envelope-from ) id 1u9rUj-00000001F4u-2SPz for andrew@sterlingcal.com; Tue, 29 Apr 2025 15:23:58 -0500 DKIM-Signature: v=1; a=rsa-sha256; c=relaxed/relaxed; d=jefftaborgroup.com; h=content-type:from:mime-version:subject:to:cc:content-type:from: subject:to; s=s1; bh=41keZocWHbr39QbgtKUuPvcKuUesQ1zy+sd5Tdg/D3s=; b=Iauq2OgZe1rVDzqP60sQ6PHkEWl9PdbbMmfh6IfIYMX0eN1QF8vE5+WTXEMnFRVmuhcW IqOt2s9E4IC6ciPIulPeiY75GWe3Qw4EpDJaQ8pMl0/rk0qOUDU7lEnVVBc31MDy7WfDZS bPJ/qvc1l4oSUN61QDKaAEt2uYLH0DkKK9DcNzROdD/LGEKV+uZV5+wCCCZeXNQBwqEeQG v1mDblWu3r6h5SlAMslyZ1SOYRj+hVtkPIZlRbLU8Ooex0xMUOwxAv++r21xE+nXxnzv7I gmCM15fUwTiYyIN0wIlj8aVdyHY/k8mlxccql6o1LOnT8vQIyDuCCvC0KfI4aWfA== Received: by recvd-545d4d4647-748np with SMTP id recvd-545d4d4647-748np-1-68113550-3B 2025-04-29 20:23:44.863362709 +0000 UTC m=+1808122.975431008 Received: from MjEzMTA1MDQ (unknown) by geopod-ismtpd-9 (SG) with HTTP id W5BEp1yeQc2uxJYncn34Rw for ; Tue, 29 Apr 2025 20:23:44.850 +0000 (UTC) Content-Type: multipart/alternative; boundary=3f91f755ae58338b4cb0587eb144818082dc0bc7b8432aa26d0e2cd3b209 Date: Tue, 29 Apr 2025 20:23:46 +0000 (UTC) From: Jeff Tabor Mime-Version: 1.0 Subject: Today's Wall Street Journal Message-ID: X-SG-EID: =?us-ascii?Q?u001=2E6XgS+aMGExnB1bqZZrdrz9qzQEbZ7BEjpKh5guDijZ5HYu1dYAKq1tDEG?= =?us-ascii?Q?Tygo2l3bpRSrRRtQO=2FYwkK2RsxQ5L7NWG3ebgm8?= =?us-ascii?Q?9wYSBM4hcyWiiqC1cf7O9xRMBQUpR6iBd5O+Ok0?= =?us-ascii?Q?mp9jHxAjpijZviKrAaruvpFCA046dZBHgvpigJ4?= =?us-ascii?Q?yfpXCbNisPMilF=2FEEuT29EQO88e5gTGohfYK54d?= =?us-ascii?Q?17g5+LQIJceGKlzai3g4UjCY3WbebcFApnMBhyO?= =?us-ascii?Q?7lue?= X-SG-ID: =?us-ascii?Q?u001=2ESdBcvi+Evd=2FbQef8eZF3Bkapn5YqgztonwgzHUKz81x8sbbE1V7J5Lpks?= =?us-ascii?Q?71PUuXF0hrrVXs+96ExX3Vfe0Q4u53+G9IudcU=2F?= =?us-ascii?Q?r3lIbMGaq=2FCK1dcjW3buOpJu3tcCIR1p7ng0a6g?= =?us-ascii?Q?a7vswWuVoR42Uig=3D=3D?= To: Andrew Sterling X-Entity-ID: u001.hZHiB6kKM9UW5e2fAO4iNQ== X-Spam-Status: No, score=-3.4 X-Spam-Score: -33 X-Spam-Bar: --- X-Spam-Flag: NO --3f91f755ae58338b4cb0587eb144818082dc0bc7b8432aa26d0e2cd3b209 Content-Transfer-Encoding: quoted-printable Content-Type: text/plain; charset=iso-8859-1 Mime-Version: 1.0

=20

And= rew, I saw the below article in today’s Wall Street Journal and I tho= ught you might find it of interest.

While Southern California is not= Chicago, there remain some very troubled buildings/landlords. Please reach= out if you have any questions.

Sincerely,

=

Jeffrey A. Tabor – Founder/CEO
= Jeff@JeffTaborGroup.com
JeffTaborGroup.com
(800) 5= 07-6673
RE License # 01015287

Connect with me on LinkedIn:&nb= sp;Jeffrey A. Tabor

The ‘Zombie Buildings’ at the Heart of t= he Office Meltdown

Private-equity owners abandon = souring office deals, leaving bondholders fighting and neighborhoods hurtin= g.

One of the biggest office towers in Chicago’s River North= district occupies some 1.7 million square feet. These days, too much of th= at space is empty—and the whole neighborhood is paying the price.

A messy restructuring with creditors left the b= uilding struggling to attract tenants after its owner, private-equity giant= Blackstone, walked away from the office complex two years ago. Lenders inc= luding Pimco and Oaktree Capital spent about a year battling each other for= control of the property, according to people familiar with the matter and = documents reviewed by The Wall Street Journal.

Efforts to sell the building while it is in financial limbo have = failed, and tenants are fleeing.

Five= years after the start of the Covid-19 pandemic, U.S. cities are still stru= ggling to avoid commercial real-estate doom loops that have claimed areas s= uch as downtown St. Louis. Fights like the one involving the River North bu= ilding’s creditors are making it much harder for communities to rebou= nd.

Private-equity firms that snapped= up large office buildings—using money borrowed by issuing bonds call= ed commercial mortgage-backed securities—are often writing off proper= ties in ailing business districts. That is leaving the buildings in the han= ds of bondholders, who sometimes duke it out to recover as much money as po= ssible.

All of this is repelling pote= ntial tenants. Buildings in foreclosure are the least popular because credi= tors are only temporary landlords and are less likely to pay for the refurb= ishments that renters demand.

“= The zombie buildings that are out there are going to cast a pall across the= entire office market for years to come because it will take time to reposi= tion the properties in a way that meets tenants expectations,” said L= ea Overby, head of commercial mortgage bond research at Barclays.

Debt investors considered bonds issued to purc= hase major office buildings safe, because they carried triple-A credit rati= ngs and involved brand-name firms such as Blackstone and Brookfield. That d= idn’t turn out to be the case with the River North building, where in= vestors have taken paper losses exceeding $200 million.

Office occupancy fell sharply across the country after 2020, as = many employers adopted hybrid or fully remote work schedules to cut costs a= nd to cater to employee preferences. Some companies are bringing employees = back in, but demand for space remains low. Companies are gravitating to new= buildings in a few hot neighborhoods—like Park Avenue in Manhattan o= r Chicago’s West Loop.

In less-popular neighborhoods like River No= rth, a three-square-mile patch nestled in a bend of the Chicago River, even= buildings with stable finances are struggling to keep existing tenants.

Inside the office tower Blackstone abandoned, = a handful of office workers rode escalators built for thousands on a recent= Thursday afternoon. A handmade Italian espresso machine in the lobby&rsquo= ;s coffee bar sat idle.

Surrounding b= usinesses that previously relied on the building’s throngs of workers= are losing out. For-lease signs plaster building fronts. Car and pedestria= n traffic in the neighborhood is sparser. Clerks in empty stores while away= the afternoon hours staring into their smartphones.

“Prior to Covid, on a typical Friday, we had a line o= ut the door for lunch, but nobody wanted to come back to work,” said = Mary Gabriel, the 71-year-old owner of Shamrock Club, a bar-and-grill aroun= d the corner from the building. Sales at the Shamrock are 10% lower today t= han prepandemic levels, and the upper floors that she rented out to beautic= ians before Covid are now vacant.

Off= ice utilization in River North is about 48% of its 2019 level, according to= commercial real-estate company Avison Young. That compares with an average= of 55% in Chicago’s central business district and 62% nationally.

Anthony Stefani closed Bar Cargo, his f= amily’s Roman-style pizzeria, in December after years of struggling t= o adapt. “We had to stop the bleeding,” he said. Stefani had cu= t his staff to about 20 from a peak of 50 but was unable to cover his rent.=

Dylan Jackowiak, one of the last bic= ycle messengers left working in River North, said when the weather is nice = he takes a break in a parking garage that overlooks the once-bustling offic= e buildings. “I can see that a lot of the windows are dark, or it&rsq= uo;s just empty desks where you’d expect to see someone working at a = computer,” he said.

Buildings p= urchased by issuing commercial mortgage-backed securities are sometimes clu= stered together, which can worsen the economic blight when things go wrong.= Three buildings financed with such bonds are currently in financial distre= ss along a two-mile stretch of Market Street in Philadelphia’s Center= City.

One potential fix is to convert office= buildings into apartments, and Chicago has subsidized such projects in som= e neighborhoods. But giant properties, like the one in River North, are too= large to profitably repurpose.

3D"A

Blackstone bought t= he River North office complex in 2015 when it was full of tenants like adve= rtising giant Ogilvy. The owner refinanced in 2018 with about $300 million = of bonds and a $60 million loan from Teachers Insurance and Annuity Associa= tion of America.

By 2023, the building was = 30% vacant and Blackstone defaulted, triggering terms in the bond contract = that transferred stewardship to Wells Fargo as “special servicer.&rdq= uo;

A tug of war ensued over whom Wel= ls should take orders from: junior bondholders represented by Oaktree, or P= imco and other owners of the safest bonds. The senior bondholders peppered = Wells with requests for information that went unanswered for months, accord= ing to electronic messages reviewed by the Journal. Teachers booked a total= loss on the deal, according to its 2023 financial statement.=

Blackstone has “worked collaboratively with = the lenders on a sales process in an effort to reach a resolution,” a= spokesman for the firm said.

Pimco d= idn’t get control of the building until June, a year after the defaul= t. Now, it must unload a building with a high vacancy rate. Some tenants ha= ve mostly remote workforces but have been unable to break their leases, lea= ving their offices mostly empty.

“This buildi= ng is effectively offline,” said Matt Weinstein, co-chief investment = officer at Axonic Capital, a buyer of distressed real estate who looked at = the office tower in River North and passed on it. “That means the bui= lding and buildings like this across the country will continue to lose tena= nts.”

Jeff Tabor Group=A0| 501 W. Broadway, Suite 800= =A0| San Diego=A0| CA | 92101

Unsubscribe<= /a> | =20

--3f91f755ae58338b4cb0587eb144818082dc0bc7b8432aa26d0e2cd3b209 Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset=iso-8859-1 Mime-Version: 1.0

=20

Jeffrey A. Tabor – Founder/CEO
Jeff@JeffTaborGroup.com=
= JeffTaborGroup.com
(800) 507-6673
RE License # 01015287
Connect with me on LinkedIn: Jeffrey A. Tabor

The ‘Zombie Buildings’ = at the Heart of the Office Meltdown

Private-equit= y owners abandon souring office deals, leaving bondholders fighting and nei= ghborhoods hurting.

One of the biggest office towers in Chicago’s River North district o= ccupies some 1.7 million square feet. These days, too much of that space is= empty—and the whole neighborhood is paying the price.

<= span style=3D"font-size: 15px;">A messy restructuring with creditors left the building str= uggling to attract tenants after its owner, private-equity giant Blackstone= , walked away from the office complex two years ago. Lenders including Pimc= o and Oaktree Capital spent about a year battling each other for control of= the property, according to people familiar with the matter and documents r= eviewed by The Wall Street Journal.

E= fforts to sell the building while it is in financial limbo have failed, and= tenants are fleeing.

= Five years afte= r the start of the Covid-19 pandemic, U.S. cities are still struggling to a= void commercial real-estate doom loops that have claimed areas such as down= town St. Louis. Fights like the one involving the River North building&rsqu= o;s creditors are making it much harder for communities to rebound.<= /span>

Private-equity firms that snapped up large o= ffice buildings—using money borrowed by issuing bonds called commerci= al mortgage-backed securities—are often writing off properties in ail= ing business districts. That is leaving the buildings in the hands of bondh= olders, who sometimes duke it out to recover as much money as possible.

All of this is repelling potential tenan= ts. Buildings in foreclosure are the least popular because creditors are on= ly temporary landlords and are less likely to pay for the refurbishments th= at renters demand.

“The zombie = buildings that are out there are going to cast a pall across the entire off= ice market for years to come because it will take time to reposition the pr= operties in a way that meets tenants expectations,” said Lea Overby, = head of commercial mortgage bond research at Barclays.

= Debt investors considered bonds issued to purchase major = office buildings safe, because they carried triple-A credit ratings and inv= olved brand-name firms such as Blackstone and Brookfield. That didn’t= turn out to be the case with the River North building, where investors hav= e taken paper losses exceeding $200 million.

= Office occupancy fell sharply across the country after 2020, as many employ= ers adopted hybrid or fully remote work schedules to cut costs and to cater= to employee preferences. Some companies are bringing employees back in, bu= t demand for space remains low. Companies are gravitating to new buildings = in a few hot neighborhoods—like Park Avenue in Manhattan or Chicago&r= squo;s West Loop.

In less= -popular neighborhoods like River North, a three-square-mile patch nestled = in a bend of the Chicago River, even buildings with stable finances are str= uggling to keep existing tenants.

Inside the= office tower Blackstone abandoned, a handful of office workers rode escala= tors built for thousands on a recent Thursday afternoon. A handmade Italian= espresso machine in the lobby’s coffee bar sat idle.

Surrounding businesses that previously relied on the= building’s throngs of workers are losing out. For-lease signs plaste= r building fronts. Car and pedestrian traffic in the neighborhood is sparse= r. Clerks in empty stores while away the afternoon hours staring into their= smartphones.

“Prior to Covid, = on a typical Friday, we had a line out the door for lunch, but nobody wante= d to come back to work,” said Mary Gabriel, the 71-year-old owner of = Shamrock Club, a bar-and-grill around the corner from the building. Sales a= t the Shamrock are 10% lower today than prepandemic levels, and the upper f= loors that she rented out to beauticians before Covid are now vacant.

Office utilization in River North is about= 48% of its 2019 level, according to commercial real-estate company Avison = Young. That compares with an average of 55% in Chicago’s central busi= ness district and 62% nationally.

Ant= hony Stefani closed Bar Cargo, his family’s Roman-style pizzeria, in = December after years of struggling to adapt. “We had to stop the blee= ding,” he said. Stefani had cut his staff to about 20 from a peak of = 50 but was unable to cover his rent.

= Dylan Jackowiak, one of the last bicycle messengers left working in River N= orth, said when the weather is nice he takes a break in a parking garage th= at overlooks the once-bustling office buildings. “I can see that a lo= t of the windows are dark, or it’s just empty desks where you’d= expect to see someone working at a computer,” he said.=

Buildings purchased by issuing commercial mortgage= -backed securities are sometimes clustered together, which can worsen the e= conomic blight when things go wrong. Three buildings financed with such bon= ds are currently in financial distress along a two-mile stretch of Market S= treet in Philadelphia’s Center City.

O= ne potential fix is to convert office buildings into apartments, and Chicag= o has subsidized such projects in some neighborhoods. But giant properties,= like the one in River North, are too large to profitably repurpose.=

3D"A

Blackstone bough= t the River North office complex in 2015 when it was full of tenants like a= dvertising giant Ogilvy. The owner refinanced in 2018 with about $300 milli= on of bonds and a $60 million loan from Teachers Insurance and Annuity Asso= ciation of America.

By 2023, the building wa= s 30% vacant and Blackstone defaulted, triggering terms in the bond contrac= t that transferred stewardship to Wells Fargo as “special servicer.&r= dquo;

A tug of war ensued over whom W= ells should take orders from: junior bondholders represented by Oaktree, or= Pimco and other owners of the safest bonds. The senior bondholders peppere= d Wells with requests for information that went unanswered for months, acco= rding to electronic messages reviewed by the Journal. Teachers booked a tot= al loss on the deal, according to its 2023 financial statement.

Blackstone has “worked collaboratively wit= h the lenders on a sales process in an effort to reach a resolution,”= a spokesman for the firm said.

Pimco= didn’t get control of the building until June, a year after the defa= ult. Now, it must unload a building with a high vacancy rate. Some tenants = have mostly remote workforces but have been unable to break their leases, l= eaving their offices mostly empty.

“This buil= ding is effectively offline,” said Matt Weinstein, co-chief investmen= t officer at Axonic Capital, a buyer of distressed real estate who looked a= t the office tower in River North and passed on it. “That means the b= uilding and buildings like this across the country will continue to lose te= nants.”

Jeff Tabor Group=A0| 501 W. Broadway, Suite 800= =A0| San Diego=A0| CA | 92101

U= nsubscribe | =20

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