Chicago Retiree Tower Is Year’s Largest Muni Default

(Corrects disclosure source in the second paragraph of story originally published Sept. 22.)

A housing development for retirees in Chicago with about $229 million of long-term debt became the largest municipal bond default this year when it missed a Sept. 1 payment after occupancy failed to meet expectations.

The Clare at Water Tower, a 53-story apartment building with Lake Michigan views and near luxury retailers north of downtown, won’t make further payments until debt-restructuring talks are done, according to Sept. 20 disclosure statement by the Franciscan Sisters of Chicago Service Corp., which developed the property. The developer said it skipped a September payment.

The default is the largest in the $2.9 trillion municipal- bond market this year, said Richard Lehmann, publisher of the Distressed Debt Securities Newsletter in Miami Lakes, Florida. Including it, this year’s total topped $1 billion, while still trailing 2010’s $3.6 billion.

“In a typical year, we have about $1 billion of defaults,” Lehmann said.

The weak economy and a housing-market slump for the past three years led to “challenges” that kept occupancy rates and revenue below projections, Judy Amiano, president and chief executive officer of the Franciscan group, said in a statement.

First Step

“This is the first step in a process of working collaboratively with our lenders to identify a permanent solution for the structure of the Clare’s debt,” said Amiano, whose organization is based in Homewood, Illinois. The debt was sold through the Illinois Finance Authority.

The Clare bills itself as Chicago’s first and only high- rise retirement community. The building, on Loyola University’s Water Tower campus near Chicago’s Magnificent Mile, has 248 apartments in 600,000 square-feet of space and offers common dining rooms, three chapels and fitness and aquatic centers.

The bonds traded most recently on Sept. 6 at about 35 cents on the dollar, according to data compiled by Bloomberg. Other trades in recent months have ranged from 12.625 cents on the dollar to 38.188 cents on the dollar. The bonds have been held by BlackRock Advisors LLC, Lord Abbett & Co. and Invesco Ltd., according to the data.

The default triggered a mandatory tender for $125 million of the issuer’s variable-rate debt, the trustee for the securities, Bank of New York Mellon Corp., said today in a separate disclosure statement.

To contact the reporters on this story: Darrell Preston in Dallas at dpreston@bloomberg.net; Brian Louis in Chicago at blouis1@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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