'It's A One Of One': Why The Mart Probably Won't Sell Anytime Soon

After Vornado Realty Trust Chairman Steven Roth told investors last week that The Mart could be on the market for “the right deal at the right time,” Chicago office insiders began envisioning how a sale might unfold.

The short answer: It probably wouldn’t.

The Mart’s prime location and stabilized rent roll typically would put the iconic property at the top of investors’ wishlists. But in today’s tricky capital markets environment swimming with investors looking for distressed properties, its strength and massive 3.7M SF footprint mean the potential pool of buyers is ankle-deep. 

“Given the size and magnitude of the deal, it would be an open question as to who would have the conviction and ability to pull it off,” R2 Cos. CEO and Chief Investment Officer Matt Garrison told Bisnow in an email.

Investors’ strongest appetite for office appears to be within either partially or fully distressed assets at discounted price points, and The Mart doesn’t fit those criteria, said Adam Pines, senior vice president at Madison Rose. There is a “very significant critical mass” of showroom users at The Mart that are choosing to stay at the building, and it has a significant pipeline of new deal interest, Pines said. 

That leaves only a small number of companies with the resources to make a deal work. 

“It’s got to be one of a handful of the biggest private equity companies in the world,” Pines said.

A deal for the property would be “threading a needle” for anyone who would want to purchase it outright, said Reagan Pratt, director at The Real Estate Center at DePaul University. The property is projecting about a $100M annual net operating income, Pratt said, so Vornado would not be incentivized to make a bargain. But the group of investors who would be interested in buying a large office would want to do so opportunistically.

Pratt, Garrison and Pines all said it would be difficult to pin down an accurate price range for the deal without a more thorough understanding of underlying metrics.

But there is no recent precedent for an office asset of this size trading, especially at a nondistressed valuation. A sale of The Mart would be a price discovery event that would provide a very interesting data point on stabilized trophy values, Garrison said. 

The disparity in leasing rates is wide in the Chicago office market, with Class-A buildings at a 19% vacancy rate compared to 31% for Class-B properties, according to a second-quarter downtown office report from Colliers. There is a “significant disparity in interest between well-capitalized buildings and those that are not financially well-positioned,” according to the report. 

Though The Mart opened in 1930, capital improvements and cultural cachet with prospective tenants position it closer to the haves than have-nots in the leasing market. 

“​​There’s nothing else like it,” Pines said. “It's a one of one.” 

Vornado has invested significant capital into building improvements over the past decade. The company completed a $40M renovation of some of the Mart’s common spaces in 2016 and finished an expansive renovation of the building’s amenities in 2023.

Prospective tenants often ask specifically to include The Mart in the list of buildings they tour, Pines said. It’s been a “category killer” on tours for years, he said. 

“Tenants will see a handful of buildings in a specific submarket, and also The Mart,” Pines said. “They're seeing all Class-A buildings along Wacker, and The Mart. That sort of narrative around including The Mart on big deals specifically …the tenant has to see it.” 

Garrison said a potential buyer would enter a strong leasing market. The biggest concern would be the cost of leases and the capital market environment, so a buyer would need to “defend the rent roll” and keep the building relevant while making improvements. Then, additional leases will follow. 

But a deal to sell the building is still not probable.

“Status quo is probably the most likely outcome,” Pratt said.