CHICAGO—Stephen Hearn was in a celebratory mood yesterday, but remained conscious of the obligation he and his partners had just assumed. The president and CEO of the Chicago-based The Hearn Company, along with The Lynd Company and Mount Kellett Capital Management LP, had just completed their purchase from Deutsche Bank AG of the 900,000-square-foot office sector and 710-car parking facility of the John Hancock Center, perhaps Chicago's most notable building.
“A responsibility is the word I've been using to describe this,” Hearn said. “It's a chance that only comes along once every 20 or 30 years to make a difference in an iconic property. When we bought 55 West Monroe [in 2011], the truth is nobody except those in the building cared all that much who bought it. I think the John Hancock Center is different. It's part of the fabric of the city of Chicago.”
The purchase includes the offices on floors 13 through 41, the parking spaces on floors 4 through 12, and common areas such as the plaza, concourse and the entries and lobbies on Chestnut and Delaware. Condominiums occupy many of the upper floors in the 3.1-million-square-foot, 100-story tower, and Deutsche Bank AG had earlier sold off other remaining sections. The financial terms of this latest transaction were not disclosed.
“We think it's a tremendous opportunity to turn the [outdoor] plaza into a public gathering space,” Hearn added, “and the only one on the north end of Michigan Avenue.” The new owners will spend between $40 million and $45 million on the plaza and other projects to revitalize the building. They will place a special emphasis on increasing the visibility of the street entrance and using contemporary design to make the building more appealing to the younger workers now filling up nearby offices. Currently, “you can walk all the way around the building and not know where to come in if you're visiting an office tenant.”
“The profile of the typical worker in the John Hancock Center has changed,” he also said. Interpublic Group of Companies, Inc. anchors the office portion and will soon rent out 320,000-square-feet to subsidiaries like Draftfcb, GolinHarris, Weber Shandwick and Octagon Worldwide. The global advertising firm epitomizes the creative work increasingly done in submarkets just outside the Loop. And Hearn said they will attempt to draw even more of these types of workers into a refurbished Hancock. The older brick buildings in the adjacent River North neighborhood, what he called “the tech hub of the city right now,” have filled up and many of the growing firms need another option. “It's a natural progression for River North companies to spill over onto North Michigan Avenue where they can find space.”
When Draftfcb takes over about 160,000-square-feet early next year, the building's occupancy rate will exceed 90 percent. “That's the good news,” Hearn said. However, they will also soon lose other tenants, opening up a fresh vacancy of about 110,000-square feet. “Therein lays the leasing challenge.”
But although many high-tech start-ups have avoided glass and steel towers in favor of older loft-style buildings, Hearn believes the Hancock's architectural distinction and Magnificent Mile location will help CEOs convince their employees that it would make a good home. “If you need to take a break from work, what better break could you take in the city than taking a walk down Michigan Avenue?”
A team led by Jack McKinney Sr., Jack McKinney Jr. and Matt Lerner of J.F. McKinney & Associates will handle leasing duties.
The Hearn Company has spent years buying up space on the West Coast while avoiding its hometown, and Hearn said that buying 55 W. Monroe and the Hancock were a bit of a departure for the firm. However, the purchases were also a vote of confidence in the city's commercial real estate market. “Coming out of the downturn, we've found that the best opportunities we've been hearing about have been in our own backyard.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
