"With this investment First Union has gained a significant presence in a real estate market which we believe to be undervalued at an attractive price along with an opportunity to partner with one of the leading Chicago office owners and managers," says Michael L. Ashner, First Union's chief executive officer. "This transaction is consistent with First Union's plan to continue to grow and diversify its asset base through an opportunistic value investment strategy."

Under the terms of agreement, First Union retains the right to make convertible mezzanine loans with respect to an additional five office properties, some or all of which are expected to be completed in the near future, and to participate in additional investments in office buildings owned or subsequently acquired by the principals of the borrowers. Each loan bears interest at 7.65%, requires monthly payments of interest only and has a seven-year maturity.

The Chicago market may prove to be a more fruitful investment for First Union. Of late, the firm has been in a highly publicized dispute with New Orleans-based Sizeler Property Investors Inc.