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Zombie Office Properties Stuck in Messy Restructurings
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Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Monday, April 28. In today's briefing, private-equity owners are abandoning souring office deals, leaving bondholders fighting and neighborhoods hurting.
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Jamie Kelter Davis for The Wall Street Journal
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The ‘zombie buildings’ at the heart of the office meltdown. A messy restructuring with creditors left one of the biggest office towers in Chicago’s River North district struggling to attract tenants after its owner, private-equity giant Blackstone, walked away. Now efforts to sell the building while it is in financial limbo have failed, and tenants are fleeing.
Private-equity firms that snapped up large office buildings—using money borrowed by issuing bonds called commercial mortgage-backed securities—are often writing off properties in ailing business districts. That is leaving the buildings in the hands of bondholders, who sometimes duke it out to recover as much as they can.
All of this is repelling potential tenants, who feel that creditors are only temporary landlords and are less likely to pay for the refurbishments.
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Private-credit investors remain upbeat amid recent turmoil. Investors in private-credit funds expect to increase their target allocations to the asset class, despite recent geopolitical turmoil and U.S. tariff actions that have raised worries about the economy and markets, according to industry executives and a recent investor survey.
Uncertainty has stalled some private-credit deal activity, but institutions that participate in new funds have largely been unstirred by changing trade policies. These big investors have found credit funds appealing as other asset classes like private equity and venture capital have struggled to return capital to investors by exiting from holdings.
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Andrew Harnik/Getty Images
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Trump badmouthed Chicago while buying its bonds. President Trump has called New York a city “in decline,” Philadelphia a place where “bad things happen,” and Chicago “worse than Afghanistan.” But all three cities show up in his personal municipal-bond portfolio. And during this month’s tariff turmoil, they turned out to be decent places to invest.
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