West Loop Landmark in Chicago Trades for 90% Discount

How low can office values go?

We’re not sure if the Guinness Book of World Records is keeping tabs on this, but a recent transaction in downtown Chicago may have some Windy City building owners heading for the local tavern to drown their sorrows with a Guinness and several shots of whiskey.

A 96-year-old landmark across the street from the Willis Tower has traded for $4M, slightly less than $16 per SF and nearly 90% than the last time it traded, for $38M in 2012.

A Morgan Stanley-managed entity sold the 240K SF, 12-story building at 300 W. Adams Street, an asset it seized in 2021 with a deed-in-lieu-of-foreclosure. A local investor, Igor Gabal, bought the leasehold interest in the West Loop property, which was designated a landmark in 2009 and currently is about 50% occupied.

The building at 300 W. Adams was one of only two office investment sales completed in Chicago’s CBD in the fourth quarter, and both were heavily discounted, according to Transwestern’s latest market report.

Coastal Partners purchased 213 W. Institute Place from KBS for $17M, or $109 per square foot, which is 61% less that what KBS paid for the property in 2017.

“The majority of buildings currently on the market are likely to be worth less than the existing debt on the property,” the Transwestern report said. “It is difficult for buyers, sellers and lenders to know what the current value of a property is when there have been so few recent sales for comparison.”

The report paints a picture of worsening office market conditions in Chicago. The direct vacancy rate in Chicago’s CBD increased by 20 bps in the fourth quarter to 20.2%, up 160 bps in a year-over-year comparison. Class A direct vacancy rate increased to 18.3%, while the Class B and C rate jumped 40 bps to 24.9%.

Net absorption totaled negative 412K SF in the fourth quarter, bringing absorption for the year down to negative 1.6M SF. More than half of the negative absorption in Q4 2023 was in the Class A sector, at negative 208K SF.

The lion’s share of the negative absorption was seen in the West Loop submarket, where the Chicago Mercantile Exchange vacated 188K SF at 550 W. Washington Boulevard.

Transwestern said the trend of office downsizing continued in Q4, citing as an example Mesirow’s lease renewal at 353 N. Clark Street, which reduced its footprint in the building from 275K SF to 110K SF.

“More negative absorption can be expected [in 2024] due to these type of contractions,” the report said.

Direct leasing activity measured 1.5M SF in Chicago during the fourth quarter, about 40% lower than the pre-pandemic quarterly average of 2.6M SF.