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Chicago's Willis Tower Debt in Special Servicing, Fitch Says

JUN 3, 2014 5:03pm ET
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Debt on Willis Tower, formerly the tallest U.S. building, was put in special servicing after the borrower requested a loan modification, Fitch Ratings Inc. said.

"The borrower anticipates significant capital costs going forward in order to secure additional new leases," the ratings company said in a report yesterday, citing commentary from the servicer. The Willis Tower debt, which was packaged and bundled into commercial mortgage-backed securities, was transferred to special servicing because of "imminent monetary default," Fitch said.

The building has almost $499 million of senior debt that was sliced up and packaged into four commercial-mortgage bond deals, according to Barclays Plc. The total loan balance is $774 million, according to Fitch. The property was appraised at $1.22 billion in May 2013, Barclays analysts led by Keerthi Raghavan said in a report today.

Occupancy at the tower has climbed to 84% from 74% at the end of 2012, according to Barclays. The property is performing well financially compared with other office buildings in Chicago that have been put into special servicing this year, the analysts said.

"Based on this performance, there is no reason to assume that the valuation of the property has fallen considerably" since the appraisal last year, the Barclays analysts said.

A loan on a 1.5-million-square-foot office building in downtown Chicago that's facing climbing vacancies was sent to a special servicer last month, according to Barclays. The property at 131 South Dearborn St. may be half empty by 2017, the analysts said.

Special servicers are firms that negotiate with borrowers on behalf of commercial-mortgage bond holders. CWCapital Asset Management LLC is managing the Willis Tower loan, according to Fitch.

Brian Rehme, a Willis Tower spokesman, said yesterday he had no comment on the debt transfer.

There is a chance that the owners of the building, including New York-based investors Joseph Chetrit and Joseph Moinian, could receive a rate modification on the current loan, according to Barclays.

Willis Tower, which used to be known as Sears Tower, lost its title as tallest U.S. building in November, when the Council on Tall Buildings and Urban Habitat determined that 1 World Trade Center in New York, which is almost fully developed, had surpassed it. Willis Tower had been the nation’s tallest tower since its 1973 completion.

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