CHICAGO—The recent sale of 200 S. Michigan Ave. by Equus Capital Partners, Ltd., for $69 million is yet another sign that the office market on S. Michigan Ave. has changed in the past few years. Although the sleek 22-story tower stands out a bit from its older neighbors, Joseph Neverauskas, senior vice president and head of Equus' Chicago regional office, says the upgrade in its tenants since the private equity fund manager took over the building in 2000 reflects a neighborhood trend.
"South Michigan has developed because of Millennium Park and the influx of lots of new residents," he says. Although this corner of the CBD probably won't ever command the rental rates seen across the river on N. Michigan, its transformation into a more livable, residential neighborhood has brought in its wake public relations firms, companies involved in creative work, architectural firms and others. "Those are the types looking at South Michigan right now."
Those new arrivals certainly helped Equus attract investors from all over the world when it put the 357,777-square-foot building on the market last year. "It was a combination of private equity firms, local operating companies and institutional types," including ones from Asia and Canada. "We've seen a lot of positive absorption and Chicago has become a major market, maybe not as significant as the gateway cities, but there is a great demand for CBD properties."
The demand pushed the price paid by the investment group that bought the building to approximately $193-per-square-foot. "That's about where we thought it would be," he says. "There were several groups [bidding] that we felt did not have enough credibility," but several solid potential buyers hit or nearly hit the $193 price.
"There's more capital on the debt side," Neverauskas adds, and the greater availability of financing should keep investors coming back for more as significant Chicago office properties hit the market in 2014, especially if the sellers properly reposition their buildings. At 200 S. Michigan, for example, Equus locked in new leases and "there will be very little tenant turnover over the next few years." He estimates the average lease there now has about seven years remaining.
Equus had not sold a major office property in the CBD since 2006, according to Neverauskas, but even with the extra capital floating around looking for deals, he does not feel the whole office market has reached the pre-recession level. However, when it comes to "stable assets that have consistent cash flow and have low risk," that is, assets a lot like 200 S. Michigan, "we are almost where we were back then."
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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.
