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Spear Street Going Against The Grain By Forging Big Deals For CBD Towers

Spear Street Going Against The Grain By Forging Big Deals For CBD Towers
225 West Wacker Drive

Spear Street Capital is one of the few significant office investors that seems unconcerned with the prospect of rising property taxes in Cook County. After a year that saw the city’s new investment plunge to a historic low, the San Francisco-based investor decided to buy a second downtown office tower just months after completing one of the biggest deals in years.

The company will pay about $225M for 225 West Wacker Drive, a 31-story building constructed in 1989, and bought by the seller, South Korea-based Mirae Asset Global Investments, for $218M in 2013, according to Crain’s Chicago Business. The 651K SF building had been expected to bring in around $245M when Mirae announced a possible sale last year. 

In October, the company bought 500 West Monroe St. from Piedmont Office Realty Trust for $412M, the costliest Midwest transaction in 2019, according to CommercialCafé.com, beating out Starwood Property Trust’s purchase of Minneapolis’ Wells Fargo Tower by nearly $100M.

Although investor confidence was shaken last year when new Cook County Assessor Fritz Kaegi said commercial real estate was undervalued, and unveiled plans to rebalance the county’s tax burden away from homeowners, recent studies have shown the eventual tax increases may not be too burdensome.  

Cushman & Wakefield analyzed Kaegi's 2019 reassessment of commercial real estate in the northern suburbs, and found that although total assessed value rose 74.4%, Evanston will likely have a tax rate of 5.66% for 2019-2020, far below the 9.41% rate of 2018. That means if an owner saw its property's value increase 66%, the amount of tax owed would remain the same.

Tenants currently lease 96% of Spear Street’s new acquisition, but that could soon change. Some leases will expire over the next 18 months, which could drop the leased rate down to 70%, according to Real Estate Alert, which first reported the deal.