Trepp flags $802M Chicago office CMBS lease rollover before maturity

Trepp has identified $802 million of securitized debt on Chicago-area office properties where a significant tenant's lease expires before the loan matures. The research, published Oct. 22, counts 48 leases across 30 properties, with the median expiration falling about 20.5 months ahead of the loan's maturity date.

Four properties account for roughly $623 million, or 78%, of the $802 million, according to Trepp, and two of those four are already in distress. Westbrook Corporate Center is in foreclosure, and Continental Towers is more than 90 days delinquent; both have the tightest windows among the group.

For those two assets, lease rollover is happening inside an existing workout, not a future risk. Trepp says upcoming expirations "could further complicate efforts to resolve existing loan distress." That means renewals now have to be won by a borrower who may be losing the property, or by whoever ends up holding it after foreclosure, while the asset is hardest to sell.

The $802 million measures property exposure, not expected loss. Trepp defines a significant tenant as either the property's largest tenant or one occupying at least 10% of net rentable area. It assigns the full securitized loan balance to any property with such a lease expiring, including properties carrying multiple loans.

Using all five of the largest tenants at each property, regardless of square footage, brings the exposure to about $2.16 billion across 44 properties—14 more buildings and roughly 2.7 times the $802 million.

Twelve of the 30 properties, carrying $236 million between them, have a significant lease expiring within a year of maturity.

Trepp sorts the 30 properties by the time between lease expiration and loan maturity. Five properties with a significant lease expiring within six months of maturity carry $123 million. Seven in the six-to-12-month window carry $113 million. Eight with 12 to 24 months carry $73 million. Ten with more than 24 months carry $493 million, about 61% of the $802 million.

Trepp points to 135 South LaSalle St., the 1.3 million-square-foot Field Building, as evidence of what an anchor departure does to an office asset. Bank of America left about 827,000 square feet at the property late in 2020. A single lease of that size converts a performing office loan into a re-leasing project.

It is the same mechanism this publication identified in the 777 Hidden Ridge refinancing, where PRP Real Assets and Riyad Capital's $250 million CMBS loan priced a lease whose tenant had already left. The lease is the collateral; the building is the residual.