Chicago’s Newest Office Owners Sound Off On The Sector's Big Comeback

Four of Chicago’s newest office owners have a bold proclamation about the state of the office market: Interest and activity are heating up, and it's finally time to jump in.

Panelists at Bisnow’s Chicago Office Summit who have bought office properties in the past year say they aren’t the only ones putting on a show. More deals have started trading hands at attractive price points, more tenants are exploring the market for available space and more investors are joining the fray.

“It's so much more competitive,” said Andrew Brog, managing director at Brog Properties, which bought a mostly empty 16-story office building at 550 W. Washington Blvd. earlier this year for about $18.5M.

“We used to go and bid on buildings, and I'm not sure there was another bidder. Now we're bidding on buildings and there's four or five bidders.” 

By the end of February and before the first quarter ended, office sales in Chicago’s central business district had already reached their highest quarterly dollar volume in more than two years, according to Avison Young.

Nationally, office investment volume reached $11B in Q1, growing by more than 60% from Q1 2024, the most sizable year-over-year increase since sales began slowing in 2022, according to JLL.

3Edgewood Head of Real Estate Jordan Mellovitz, whose company scooped up the 1.6M SF former Groupon headquarters at 600 W. Chicago Ave. for $88.7M earlier this year, said the company has generally gravitated toward larger assets across the country. Its new Chicago acquisition has a “great rent roll” and cash flow in place, which gives 3Edgewood a runway to make upgrades without rushing into them.

Mellovitz praised former owner Sterling Bay’s renovations to the building and said 3Edgewood would focus on small upgrades like a game lounge, race simulators and additional parking. The building’s large floor plates present a unique opportunity for tenants to park on their floor and then simply walk into their suites, he said. 

3Edgewood is approaching the building as if it will hold the asset long-term.

“It's really tough to have any visibility into an exit right now,” Mellovitz said. “We're lucky in that our capital is very flexible. This is not a closed-end fund or anything like that. So we treat the asset like all of our assets, like we're going to own them forever.”

Glenstar also scooped up an office property at a discount in January, buying 200 S. Wacker for about $68M. Glenstar, in partnership with Patrick Halloran, bought a $151M nonperforming loan on the 200 S. Wacker Dr. property from lender Bank of China.

Glenstar Executive Director Jeff Koukol said the company loves the building’s location along the river, though it has undergone a lot of piecemeal, half-measure renovations over the years. The company aims to make substantial upgrades to the lobby, create a tenant lounge with bar service, and add a conference facility and spec suites. 

“This is a great opportunity to build some momentum,” Koukol said.

In October, Glenstar partnered with the same investor to buy an office complex near O’Hare International Airport for less than half of what it sold for in 2018. 

Koukol said the building experienced some issues related to the pandemic, with tenants leaving or shrinking their space in the building. Still, Glenstar views the building as one that has fundamentally performed well and just needed a capital infusion and a new investor to build on that basis.

Michael Roy, Woodcrest Capital’s president of asset management, said his firm jumped on a Chicago office as the result of a small but rare window to get a property at a low cost per square foot. 

The Texas-based family office scooped up the roughly 800K SF fully vacant 4 Overlook Park office complex for just $6.2M, or about $7 per SF, in an all-cash purchase. A little over a decade ago, VEREIT dropped $148M for the same site.  

“The window of opportunity for purchasing always precedes the good leasing times,” Roy said. “We might not be in the perfect leasing times right now, but we think that they're coming.”

Woodcrest is a small, family-run company that launched in the 1980s, Roy said, adding that many of the properties it owns today were purchased in the ’80s and ’90s. Generally speaking, they are a “hold forever” company, he said.

An exit strategy isn’t built into any underwriting, Roy said. 

“Our underwriting, If I can't do it on my phone's calculator in a couple minutes, I don't want the deal,” he said. “We oversimplify, but the flip side of that is we don't have any exit strategies in place. We're here for the long haul, and we do think that that pendulum has started to swing on the office market.”

Some investors’ lack of appetite for Chicago properties — usually attributed to crime, the political climate or taxes  — reflects in some of the low prices at which buildings are trading, Brog said. 

“We’re just being opportunistic,” he said. “There's no rhyme or reason. We find a good deal, we just buy it.”