Parkway Properties has agreed to pay Lincoln Property Co. and Carlyle Group $198 million for the 32-story, one-million-sf One Illinois Center building at the corner of Michigan Avenue and Wacker Drive. "This is a setback as far as the timing of a sale," says Parkway Properties president and chief executive officer Steven G. Rogers during his company's earnings conference call Tuesday. He adds the company already is discussing a package deal with 233 N. Michigan Ave. with other potential partners. A current Parkway Properties joint venture partner, Ohio Public Employees Retirement System, is a potential buyer of a majority stake in the Illinois Center buildings, Rogers suggests.

The attempt to sell a 70% to 75% stake in the Illinois Center properties is part of Parkway Properties' strategy to shift its emphasis from ownership to an operator, Rogers says. That will help increase the company's return on its investments, he notes.

At 86% leased, 111 E. Wacker Dr. has more vacancy than buildings Parkway Properties typically buys, Rogers says. The company will spend another $15.7 million on leasing costs and renovations. "We think the building needs tender loving care, much like 233 did when we bought it in 2001," Rogers adds. Two Illinois Center was about 89% occupied in 2001 when Parkway Properties paid $172.3 million. The most recent joint venture deal valued the property at $256 million.