Third Millennium's West Loop Tower Hit With $310M Foreclosure

A trustee for bondholders has filed a $310 million foreclosure lawsuit in Cook County Circuit Court against an entity led by Third Millennium Group, the Boca Raton, Florida firm that owns the 31-story office tower at 540 West Madison Street, according to The Real Deal and Crain’s Chicago Business. The entity allegedly failed to pay off the loan when it came due in September; Third Millennium has not publicly responded to the allegation, and the claim has not been proven in court.

Third Millennium paid $350 million for the 1.1 million square foot tower in 2012, financing the purchase with a $250 million loan. That debt was replaced with a $325 million loan in 2016, the same year the building was appraised at $591 million, and the firm layered on a $75 million mezzanine loan, bringing the total debt package to $400 million, the outlet reported. The property sits across from the Ogilvie Transportation Center and is 81% leased, nearly 10 percentage points above the downtown Chicago office average of 72%, generating more than $18 million in net cash flow against a $5.3 million senior debt service payment, according to the reporting. Even that occupancy and cash flow could not close the gap left by falling office valuations: sales of comparable nearby towers, including 131 North Dearborn Street, show the building is worth far less than its pre-pandemic appraisal.

Third Millennium has not lost its appetite for the West Loop. The firm and developer Hines are reviving a decade-old plan for a 41-story office tower at 590 West Madison Street, directly across the street from the now-distressed property, a project the two firms first floated in 2012.

Why it matters

A fully-leased, cash-flowing tower still losing a foreclosure fight is the clearest signal yet that Chicago’s office distress is not confined to half-empty buildings. For developers and lenders underwriting Loop and West Loop office debt, occupancy above market no longer guarantees a refinancing will pencil against a decade-old valuation.

The numbers

The $310 million foreclosure suit targets a debt package built from a $325 million senior loan and a $75 million mezzanine loan, replacing an original $250 million acquisition loan from 2012. The tower was appraised at $591 million in 2016, generates over $18 million in annual net cash flow, and is 81% leased against a 72% downtown average.

What’s next

The case proceeds in Cook County Circuit Court’s Chancery division. Third Millennium’s parallel pursuit of a new 590 West Madison tower with Hines suggests the firm intends to stay in the West Loop even if it loses 540 West Madison to its lender. More on the market: Chicago.