Nuveen has taken ownership of the 35-story office tower at 321 North Clark Street, marking the latest slipup in a series of mezzanine loan gambles that have shifted from passive investments into losses or active ownership for the asset manager.
Chicago-based Nuveen, in partnership with Los Angeles-based Pacific Coast Capital Partners (PCCP) through a co-managed fund, completed a takeover of the 897,000-square-foot River North property. The transaction wiped out the equity of the previous ownership venture — consisting of Larry Levy’s Chicago-based Diversified Real Estate Capital, Houston-based Hines and Stanley Iezman’s Los Angeles-based American Realty Advisors.
The deal underscores the ongoing distress in the office market and risks associated with mezzanine debt positions taken before interest rates jumped in 2022. Nuveen provided a $296 million floating rate loan for the property in 2021, then sold off a $222 million first mortgage portion of the debt to a consortium of German banks, while keeping an approximately $74 million mezzanine position, according to public records and people familiar with the property’s financing.
Now, Nuveen’s mezzanine position has been converted into an ownership interest, according to a spokesperson for the firm, which is the real estate investment arm of the Teachers Insurance and Annuity Association of America, the pooled asset manager for educator retirement accounts. It’s unclear how much cash PCCP brought to the table to enter the deal, as Nuveen declined to answer detailed questions about the size of their respective stakes in the property.
Diversified, PCCP, Hines and American Realty Advisors didn’t return requests for comment.
For Nuveen, 321 North Clark adds to a series of office troubles where mezzanine loans it originated to Chicago office landlords didn’t go as planned, wiping out investments, or, in this case, requiring a pivot to hands-on ownership. Mezzanine loans Nuveen funded have sunk with borrowers such as Blackstone at 350 North Orleans Street, which is currently facing foreclosure, as well as Sterling Bay at 600 West Chicago Avenue, which sold for just $89 million last year after fetching $510 million in 2018.
Despite the circumstances of the takeover, Nuveen is signaling aggressive moves to stabilize the asset. The firm announced that it hired Telos Group as the new leasing agent for the tower, replacing Hines in that capacity. Hines will, however, retain its role as property manager.
Nuveen emphasized that the property is “open for business” and well-capitalized to compete for tenants in a fierce leasing market.
“We have capital available to invest in tenant improvements, leasing incentives and property enhancements — sending a strong signal to the leasing community that 321 North Clark has stable, well-capitalized ownership dedicated to creating a best-in-class tenant experience,” a Nuveen spokesperson said.
The firm’s venture with PCCP plans to deploy additional equity capital to modernize the building, including upgrades to the conference center and tenant lounge areas.
Nuveen declined to disclose specific occupancy figures but reaffirmed its confidence in the property’s long-term value. CBRE, the world’s largest commercial real estate brokerage, was previously one of the building’s prominent tenants until it left the property to move into 300 North LaSalle Street in recent months.
Read more
CBRE absorbs Irvine Co office leasing team in Chicago
Digging into Nuveen’s mezzanine loan pain
Nuveen racking up mezzanine loan losses on Chicago office deals
