Betting on the continued strength of the downtown office market, Development Resources Inc. has hooked up with money partner Oaktree Capital Management LLC to finance construction of a speculative, 15-story office building on the edge of the West Loop.
Called Congress Center, the 525,000-square-foot development at 525 W. Van Buren St. will be the second downtown project for Development Resources. DRI has hired the Chicago office of Eastdil Realty Inc. to market its first project, a 330,000-square-foot structure at 550 W. Van Buren St. that is fully leased and nearing completion.
The latest development is on a 41,000-square-foot site at the corner of Van Buren and Canal Streets, one block east of the first project. Union Tower also was a speculative development, meaning one with construction starting without an anchor tenant.
Philip Hofmann, an Oaktree vice president, would not disclose the amount of the investment by the Los Angeles-based investment manager, which has a $16 billion portfolio, including about $1.4 billion in real estate. The Oaktree-DRI joint venture is negotiating for a construction loan for the development, estimated to cost $100 million.
“We fully intend to get construction financing, but we have the wherewithal to do whatever it takes to get the building done,” he said.
The joint venture has a contract to acquire the site, currently a parking lot. With zoning already in place, the building is expected to be completed by November, 2001.
Rising interest rates have sparked some concern about the real estate market, but the developers say that the short construction schedule of a building the size of Congress Center reduces the uncertainty.
“Over a 12- to 16-month period, you can encapsulate your risk, and we already have plenty of demand,” said Gene Ventura, a DRI vice president. “We had tenants looking for more than 100,000 square feet of space at Union Tower that we couldn’t accommodate.”
Executive decision: A long-running real estate bankruptcy case is drawing to a close now that the partnership that owns the office space at 203 N. LaSalle St. has bought out Bank of America’s mortgage for $70.7 million.
The partnership, which includes prominent real estate executives Richard Stein, Richard Hansen and Mark Wilkow, filed for protection from creditors in 1995, after it could not refinance or restructure a $93 million mortgage issued when the building was completed in 1985.
Many observers expected the 548,600 square feet of office space, valued at $54.5 million five years ago, to be handed back to the lender or sold. The partnership, which was facing a $20 million income tax bill if the non-recourse mortgage had been foreclosed, lost a major battle last year when the U.S. Supreme Court ruled against its reorganization plan.
“It was a Pyrrhic loss,” said attorney Malcolm “Mickey” Gaynor, a partner with Chicago-based Schwartz, Cooper Greenberger & Krauss. He would not confirm the members of the partnership, who could not be reached for comment
Under the old plan, the partnership again would have faced the refinance-or-default dilemma in 2005, when the mortgage again came due.
And the bank isn’t unhappy. Assistant General Counsel Kenneth Wile notes that under the old plan the present cash value of the bank’s settlement was about $60 million.
He’s back: Tenant rep Gregory Gerber, 46, returns to Chicago as a senior vice president with John Buck Co. after spending 17 months in San Francisco as western regional manager with Julien J. Studley Inc. The experienced broker had been co-branch manager of Studley’s Chicago office before moving to the West Coast.
