Deals near for two downtown Chicago skyscrapers

The sales represent two of the biggest bets on downtown office space since the start of the pandemic

311 South Wacker Drive with Firenze Group president Aldo Saavedra and 225 West Washington Street (Zeller, Firenze, Google Maps)
311 South Wacker Drive with Firenze Group president Aldo Saavedra and 225 West Washington Street (Zeller, Firenze, Google Maps)

Two deals for skyscrapers in the Loop show there’s still demand for downtown office properties, albeit at a discount.

Virginia-based real estate firm Firenze Group is close to a $310 million deal for the 65-story tower at 311 S. Wacker Drive, according to Crain’s, citing sources familiar with the deal.

Miami-based Agave Holdings, the real estate arm of the family-owned company that makes Jose Cuervo tequila, is nearing an $85 million deal for a smaller 28-story building at 225 W. Washington St., several blocks to the north.

They’re among the biggest sales of downtown office space since the start of the pandemic and the rise of work from home that has allowed companies to reduce their space. The market has been further tested by Cook County Assessor Fritz Kaegi’s increases to the assessed values of commercial properties, which will likely make it more difficult to sign leases, according to Crain’s.

Firenze Group is still negotiating a contract for the 1.3-million-square-foot building on Wacker Drive, meaning the terms of the sale could change significantly. But if the sale closes at about $240 per square foot, it would mark a significant loss of value for the sellers, a venture of Chicago-based Zeller Realty Group and Chinese investor Cindat Capital Management.

Zeller and Cindat paid $302 million for the building in 2014 and then invested another $78 million in the building through renovations and leases, according to a report last year by Real Estate Alert written when it hit the market. The owners upgraded the fitness center, added a tenant lounge and conference center and signed several new, small tenants in their first year of ownership. Zeller and Cindat refinanced the building in 2018 with a $215 million loan from Morgan Stanley, according to property records cited by Crain’s.

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But Zeller and Cindat saw tenants vacate more than 120,000 square feet of space even before the pandemic for new offices in Fulton Market and near Union Station. The 32-year-old Wacker drive building is now less than 75 percent leased, down from 86 percent just before the pandemic.

Agave’s purchase price for the Washington Street building is equivalent to the amount of debt the current owners have on it and below the $95 million investors thought it would sell for when it hit the market last fall. It’s also $35 million below the price that owner Kinship Capital wanted when it listed the building in 2018. The building is estimated to be leased at 62 percent at the end of 2021.

The Kinship venture paid $69 million in 2010 for a controlling stake in the building through a deed-in-lieu of foreclosure.Property records show Kinship financed its 2010 acquisition with a $50 million loan. The group spent another $35 million on building renovations and leasing commissions since then, according to a flyer from Cushman & Wakefield cited by Crain’s. Kinship eventually refinanced the property with its current $85 million loan in 2019, according to Crain’s.

Sales of office buildings in the Chicago area bounced back in a big way in 2021, rising 35% year over year to $3.1 billion, according to data from research firm Real Capital Analytics city by Crain’s. That was slightly higher than the office sales volume in 2019, Real Capital data shows, Crain’s reported.

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[Crain’s] – Harrison Connery