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"The New York real estate firm that owns the Aon Center came up short on its mortgage payment last month and is asking its lender for more time to pay off the loan as a July deadline approaches, red flags that the city's second-tallest office tower could add to the rampant distress plaguing downtown real estate.... The mortgage trouble is a product of a downtown office landscape that has gone from worrisome to ugly for building owners."
Summary and audio linked here.
Chicago’s political leadership is floating a pension buyout program as evidence it is seriously addressing the city’s thirty-six-billion-dollar unfunded pension liability, but Mark Glennon, founder of the Illinois policy research organization Wirepoints, said that the proposal moves debt from one column to another rather than reducing it, and that the broader fiscal picture facing the city continues to deteriorate across every measurable dimension. Audio here.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
Full interview and summary linked here.
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Aon does not have the problem, the bank holding the loan has the problem. The building is going way down in value, like everything else in downtown.
In the early 90’s I was the food and beverage director at a 300 room full service hotel – part of a 23 hotel franchise that was in dire straights financially, even though occupancy chain wide was well over 70% at an above industry average daily room rate. I found that out when the corporation’s CFO called me early one morning, and told me that my property’s general manager had ‘retired’. He said that I was temporarily in charge, and that one of the corporation’s banking lenders was going to be at our property in a couple of days, with… Read more »
Just one of many more to come.
The West Loop is essentially poaching tenants from the Loop.
If Aon goes into foreclosure, the current steady stream of Loop default will become a balls-out tsunami.
Regardless of Aon, it’s rapidly becoming a bloodbath from anecdotal stories I am hearing.
commercial office real-estate is supposed to be the next giant financial disaster nationwide now just unfolding with a lot of pension funds invested as usual. From all the financial Youtube shows I watch, anybody who’s anybody is shorting commercial reits… I’m to wimpy to do that in my rink-e-dink 401K IRA.
It’s a huge topic. So huge, that I have not written about it so far because I’ve been uncertain about saying how catastrophic it is. More soon.
It may be worse than a catastrophe according to Morgan Stanley
https://www.newsweek.com/crash-worse-2008-crisis-predicted-commercial-real-estate-1792758
I don’t want to exaggerate or engage in hyperbole, but we are on the precipice of an abyss deeper than than the Long Depression if 1873, the Crash of 1929, and the GFC of 2008 combined. It’s being informally called the Everything Bubble. Every household and corporation is loaded up on debt that can’t ever be repaid. It’s going to collapse spectacularly, likely soon, followed by a decade of stagnation. It should have collapsed months ago, but like Warren Buffet once said, the market can stay irrational longer than you can stay solvent.
On a personal note, it makes me sad. My father grew his 70 office global firm from the top office floor of the Aon Building, facing the lake. On a clear day you could see St. Joe’s/Benton Harbor. He used to have walk-in visitors who wanted to see the view. He got a kick out of it, and invited them into his office. A grateful rancher from Wyoming gave him a valuable piece of Western art as a thank you gift. This was in the early 90’s, and the Loop and the lakefront brought people together.
It seems like a different era, doesn’t it – “gone with the wind“, one might say. Now many of us would not be caught dead even going downtown… we have left only nice memories of “what Chicago was” to cherish:
https://idioms.thefreedictionary.com/gone+with+the+wind
“gone with the wind
A phrase used to describe something that has disappeared, passed, or vanished, permanently or completely. The phrase was popularized by Margaret Mitchell’s 1936 novel of the same name…”
Younger people and lakefront residents are more likely to go into the office, from what I see. It’s the older residents, the city dwellers on the outskirts, and the suburbanites that don’t ever want to return. While Lori/JB certainly destroyed Chicago, our city’s problem is part of a larger structural issue. It never made any sense to funnel millions of people a day into a central business district. The congestion was horrible, the commuting times were awful, and everybody spent their evenings rushing around to *maybe* get home in time for dinner, especially parents with children. It’s a terrible lifestyle… Read more »
I am not a commercial real estate guy and frankly don’t know much about it. While working for one of the Big 3 law firms in New York decades ago I avoided real estate work and never regretted it. But Mark Glennon’s comments encouraged me to read up on the industry today. Certain issues call out. The marketplace is built on mountains of debt. Landlords don’t have much pricing power in terms of lowering rents. Loan conditions require a certain square foot of revenue clip or or else landlords must put capital into the financier’s accounts. So the vacancy rates… Read more »
Been there done that, you’ve just described a nightmarish scenario straight from the depths of hell, a scenario that no model or forecast from early 2020 would have ever predicted or ever thought possible. I don’t want to be crude, but if you haven’t crapped your pants by now, you’re not paying close enough attention. Keep in mind that before the 1929 crash, things were beginning to collapse in other areas of the market, particularly luxury real estate, and also greatly, commercial real estate. Florida in particular was a disastrous mess causing bankruptcies and lost fortunes in the years preceding… Read more »
Debtsor – no doubt things. Look bleak. I live in an isolated way with no debt of any kind so I plead a bit guilty to indifference at times. And each market needs to be taken on their own merit. There is a residential housing shortage so that market appears more resilient – of course the Govt like has issued a number of zero down FHA loans to people who can’t afford them but housing shortages are a problem overall. Auto loans are a disaster with ridiculous LTV amounts lent and a price point for all cars way too high.… Read more »
There’s no housing shortage anywhere. The shortage is completely artificial caused by the Fed messing with interest rates and encouraging speculation. You just wait and see, when housing prices start falling in Chicago, inventory will skyrocket as investors, specuvestors, airB&B barons and the like, head for the exits. Prices are falling nationally in many areas, lots of inventory, Chicago seems to be several months behind the nation trend.
I lived in the Western burbs at one point, if I caught the express either way it was 25 min. and a five min. walk to the office and I loved it. I also lived about a ten minute walk to home at the time and could work or read on the train. I’ll admit it was at peak performance and ontime in the late 90s and precovid was getting abysmal with the freight interference and daily delays. We get the transit system we pay and vote for. Likewise with CTA, I was easily downtown in 20 min. Now if… Read more »
I live in cook county not too far outside the city, within walking distance of the train. Door to door it was 55 minutes either way, but I worked in the east loop, so it was 12-15 to walk or take a bus down madison too. Don’t want to ever do that two hour commute again!
It was already a Tsunami, it’s why the FED backstopped the RIETs in 2019 – 2020. They knew, they took care of the top tier and now the pain can be eaten by everyone else. The same week the FED started the CMBS reverse repo program Trump issued an order to fast track flu vaccines, gee wonder that was about? The top recipients were Goldman Sachs, JP Morgan, Citi and Deutsch Bank, in fact the whole list is basically a repeat of the TARP payouts from 2008 except this time it was 5 times the 2008 amount and I bet… Read more »
The Fed caused all of this and only makes it worse. They’re flying blind with a $9T balance sheet full of toxic commercial and residential mortgage securities and low interest bonds. They’re also paying interest to banks on money that they lent to the banks in the first place! The masters of the universe have caused the biggest bubble the world has ever seen.