After falling into foreclosure during the last recession, an Orland Park shopping center is facing the same fate in the current one.
A loan servicer has filed a $13.9 million foreclosure suit against 66 Orland Square, a 164,000-square-foot building next to the Orland Square Mall, alleging that the property’s owner stopped making monthly mortgage payments in May.
The shopping center is among the first of many Chicago-area retail properties likely to be seized by their lenders, the result of a pandemic and severe recession that has devastated retailers and pushed some landlords into default. COVID-19 has been especially cruel to entertainment and fitness tenants, an unfortunate consequence for 66 Orland Square, which leases space to three of them: Gizmo’s Fun Factory, Sky Zone Trampoline Park and Charter Fitness.
The owners of the shopping center, BlitzLake Partners and GW Properties, are waving the white flag, relinquishing the property to its lender, according to a report on the shopping center’s loan from Bloomberg.
“The borrower is no longer interested in owning the asset,” the report says. “Title is being transferred back to the lender.”
A BlitzLake representative declined to comment, and GW Principal Mitch Goltz, citing the pending foreclosure case, wouldn’t discuss the property or foreclosure case. He spoke broadly of the challenges facing retail and restaurant tenants as they try to survive the pandemic. Many simply don’t have the financial staying power.
“Long term, I think people feel confident, but can you get to the long term?” Goltz said. “The short-term obligations that these businesses face now are often too crippling.”
With many tenants not paying their rent, more retail landlords are struggling to pay their mortgages. Owners of some big local shopping malls, including Gurnee Mills, Yorktown Center in Lombard and the Louis Joliet Mall, have stopped making mortgage payments, raising the prospect that they also could face foreclosure.
The delinquency rate on commercial mortgage-backed securities loans on Chicago-area retail properties stood at 29.6 percent in August, up from 7.9 percent in February, before Gov. J.B. Pritzker imposed restrictions to slow the spread of the coronavirus. That figure includes 66 Orland Square, which secured a $10.7 million CMBS loan.
CMBS loans differ from traditional bank loans that sit on a bank’s balance sheet. After making the loan, a lender will pool it with other commercial real estate mortgages and refashion the entire package into bonds that are sold off to investors. BlitzLake and GW, both based in Chicago, refinanced 66 Orland Square with its CMBS loan in 2017.
The shopping center has ridden the market down, up and back down again. The property ran into financial trouble after the last recession, and PNC Bank, its lender at the time, filed a $10.9 million foreclosure suit against it in 2010.
A court-appointed receiver sold the shopping center to BlitzLake and GW for just $3.4 million in 2014, according to Cook County property records. They turned the property around, leasing its vacant space to Gizmo’s, Sky Zone and Charter Fitness. The building was appraised at $17.4 million when they refinanced it in 2017, according to Bloomberg.
Even though 66 Orland Park looks like a bad investment today, it probably wasn’t. Here’s why: BlitzLake and GW financed their 2014 acquisition with a $3.95 million mortgage. When they refinanced in 2017, they borrowed $11.15 million.
In a rising market, real estate investors will pocket much of the difference between a new loan and an old one, allowing them to profit from a property’s higher value without selling it. So BlitzLake and GW could have pulled $7 million or more out of 66 Orland Square when they refinanced in 2017.
Given the current market, the shopping center isn’t worth much today. Carson’s closed a furniture store there in 2018. The property is just 51 percent occupied, according to Bloomberg. Last year, even before the pandemic swept into the U.S., the property was not generating enough cash flow to cover its debt payments, according to Bloomberg.
Charter Fitness has closed its gym at 66 Orland Square, according to its website. Gizmo’s and Sky Zone are still operating, but the village is aiming to revoke Sky Zone's business license because of a fight this month, according to the Daily Southtown. Including default interest and late fees, BlitzLake and GW owe $13.9 million on the property’s mortgage, according to the foreclosure complaint, which was filed earlier this month in Cook County Circuit Court.
An attorney for Rialto Capital Advisors, the loan servicer overseeing the mortgage, declined to comment.
Goltz, meanwhile, hasn’t lost faith in the retail market. GW is developing a 16-acre parcel in Melrose Park and has lined up commitments for nine of the 10 retail buildings planned on the property, from chains including Panda Express, Starbucks, Aspen Dental and Raising Cane’s, he says. Goltz expects to complete the first spaces in the next 60 days.
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