Another Big Downtown Sale: Feeling Optimistic, New York-Based Nightingale Plunks Down $130M For 200 West Jackson
New York-based Nightingale Properties has completed its $130M acquisition of the 480K SF office tower at 200 West Jackson Blvd. It is the most recent of a lengthening list of significant downtown Chicago office sales that have gone forward despite the pandemic and its impact on the office market, as well as worries about the potential for higher property taxes.
The deal marks Nightingale’s first purchase of a Chicago office building and follows a $25M equity raise on CrowdStreet, the crowdfunding platform’s largest office property raise ever.
“We are typically capitalized on an institutional basis,” Nightingale Properties Director of Acquisitions and Capital Markets Will Hutton said in a statement. “However, given the size of 200 West Jackson, we felt the investment was an ideal pairing for retail participation.”
The CrowdStreet offering was 40% oversubscribed, with investors offering to pour in $35M, according to CrowdStreet Managing Director Ilya Gamer.
It is another sign that after two straight years of slow sales, the Chicago office market may now have some appeal for investors.
“Nightingale’s offering on CrowdStreet blew our performance expectations out of the water,” Gamer said in a statement. “The deal was oversubscribed within two hours after the investor webinar, and the maximum allocation was reached just days later.”
On the surface, Chicago’s office market does look troubled. The overall vacancy rate in downtown Chicago was 17.9% at the end of 2021, up from 15% one year earlier, according to Colliers International. And the omicron variant’s rise in December derailed the plans of tenants throughout the region to get offices fully opened. According to Kastle Systems, a security company that tracks card swipes around the U.S., Chicagoland’s office occupancy sank to 27.1% last week, a big drop from the 35.2% it hit just after Thanksgiving.
But Nightingale and other investors take the long view. Hutton said many office users will look to upgrade their spaces in a post-coronavirus environment, especially if they can secure leases in transit-friendly, Class-A properties like 200 West Jackson, which is adjacent to the Chicago Transit Authority’s Quincy station.
“We are firm believers in the future of office, and 200 West Jackson echoes our data-driven investment thesis for transit-oriented CBD office investments driven by a flight to quality by tenants in a post-COVID environment,” he said.
Colliers did find some slivers of hope in its year-end analysis.
“Though extensive office re-entry expectations in 2021 were delayed with the emergence of the delta and omicron variants, user activity in the Chicago office market is expected to pick up pace in 2022,” the firm stated. “With significant decreases in negative absorption in the final quarter of 2021, economic signs indicate a tipping point has been reached. It is expected that Class-A office assets will perform well this year and sublease offerings are expected to decline in volume.”
Most buyers over the past year stuck to well-leased trophies in the West Loop or relatively new projects in Fulton Market. Other downtown Chicago office sales underway include Oak Hill Advisors’ more than $1B purchase of Howard Hughes' controlling stake in the Bank of America Tower at 110 North Wacker Drive. In addition, Sterling Bay sold 210 North Carpenter St., a 12-story, 206K SF building completed in 2019, to Frankfurt, Germany-based Deka Immobilien for $169M in Q3 2021.
The sellers of 200 West Jackson are likely to profit on their deal, but perhaps not as much they originally hoped. A joint venture between White Oak Realty Partners and Angelo Gordon paid $73.3M for the property in 2015, according to Cook County property records. The duo then spent about $50M on renovations and upgrades, including a lobby redesign, a new barista bar, WiFi lounge, fitness center and other amenities. According to a report in Crain’s Chicago Business, when the property hit the market last May, the owners were expecting bids of around $150M.
In addition to the equity from CrowdStreet investors, Nightingale’s deal was financed by $86M in CMBS debt from Citibank and $17M in mezzanine financing from Kawa Capital Management.
The global headquarters of NielsenIQ, a consumer and data analytics firm, is the anchor tenant of 200 West Jackson, which is 83% occupied.