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The Future Of Downtown Chicago's Bull Office Market Rests On These 7 Buildings

Downtown Chicago office building sales have fallen far from their record 2015 peak. Through Q3, sales of downtown office buildings accounted for only $1.3B in volume, fueling speculation that interest in downtown offices is stagnating.

One takeaway from MB Real Estate's Q3 CBD report was the number of buildings on the market. There are nine buildings for sale; seven of them have asking bids totaling $1.94B. That is far from 2015 numbers but if these buildings found buyers before the end of the year, trading volume would eclipse 2016's $2.6B

The sales of these buildings would also determine how much runway remains for downtown offices. 

1. Leo Burnett Building (35 West Wacker)

Leo Burnett Building, Chicago
The Leo Burnett Building

Owner: UBS

Building Class: A

Size: 1.1M SF

Month Placed on Market: May

Asking Price: $450M

The building's longtime anchor tenant and namesake, ad agency giant Leo Burnett, is not going anywhere. Two other major tenants, law firm Winston & Strawn and ad company Publicis, signed lease renewals and expansions totaling 900K SF last year. But with a 95.5% occupancy rate, it may be hard for a new owner to realize the rent increases necessary to justify such a high ask.

2. 161 North Clark

161 North Clark Street, Chicago
161 North Clark

Owner: CBRE Global Investors

Building Class: A

Size: 1.1M SF

Month Placed on Market: May

Asking Price: $400M

The 49-story building is well-located near the central business district and benefits from tenant demand for office space in the market. The investor team is led by Korea Post, which has taken a keen interest in U.S. real estate the past couple of years. While Far Eastern investors have found safe havens with American real estate, ongoing tensions between the U.S. and North Korea may lead to economic tensions on the Korean peninsula and possibly have a global impact.

3. One South Dearborn

One South Dearborn, Chicago
One South Dearborn

Owner: Olen Properties

Building Class: A

Size: 829K SF

Month Placed on Market: September

Asking Price: $400M

The 40-story tower is occupied by Constellation Brands, Crown Imports and anchor tenant law firm Sidley Austin, which is locked in a lease through 2030. The building is 88% occupied and 107K SF will become available in January 2020. This gives a buyer an opportunity to push rents.

4. John Hancock Center

John Hancock Center, Chicago
John Hancock Center, Chicago

Owner: The Hearn Co.

Building Class: A

Size: 897K SF

Month Placed on Market: September

Asking Price: $350M

The Hancock Center has the biggest name recognition of the buildings on this list. Hearn and its partners invested $69M in capital improvements to the Hancock Center. Hearn secured $210M in refinancing for the building in January 2016, a sign of rising values. And a potential buyer could hold naming rights in an acquisition. But only the Hancock's office and parking components are for sale. Hearn has put the tower on the market before and changed its mind. The possibility of the Hancock Center being rechristened by a new owner would result in a civic outcry not seen since 223 South Wacker officially became Willis Tower in 2009.

5. 225 West Wacker

225 West Wacker, Chicago
225 West Wacker

Owner: Mirae Asset Global Investments

Building Class: A

Size: 651K SF

Month Placed on Market: June

Asking Price: $250M

Mirae bought the 31-story building for $218M four years ago. At 88% occupancy, there is an opportunity for a new buyer to push rents higher. But vacancy is trending up — the rate is a slight drop from when Mirae bought the building, and Merrill Lynch is vacating 67K SF when parent company Bank of America moves to 110 North Wacker.

6. 625 North Michigan

625 North Michigan, Chicago
625 North Michigan

Owner: CIM Group and Golub

Building Class: B

Size: 290K SF

Month Placed on Market: June

Asking Price: $67M

CIM and Golub have repositioned this 27-story building since acquiring it for $48M two years ago. The vacancy rate dropped from 29% to 13%. A potential buyer may see 625 North Michigan as an untapped value-add proposition. This is a rare case of CIM seeking to sell one of its Chicago holdings, and finding a buyer will allow the firm to focus on redeveloping Tribune Tower. 

7. 209 West Jackson

209 West Jackson, Chicago
209 West Jackson

Owner: Farbman Group

Building Class: B

Size: 142K SF

Month Placed on Market: September

Asking Price: $24M

Farbman Group bought the 12-story building for $13.1M in 2011 and would more than double its return if it can command bids near its ask. The building is 89% leased with one-third of its operating income generated from ground-level retail. Another factor in any bid is 209 West Jackson's proximity to Willis Tower. The $500M renovations to Chicago's tallest building would increase foot traffic to the Southwest Loop and benefit a new owner.