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'We Are Buying As Much Office As We Can Swallow': One Shark Is Circling Chicago’s Depressed Office Market

There are many reasons for investors to be bearish on Chicago’s office market at present. Occupancy rates are sagging, companies are downsizing their footprints and a potential new transfer tax could impact the prospects of virtually every city office property. 

But Quintin Primo III isn’t shying away. 

Primo’s Capri Investment Group has inked office deals in Chicago and Washington, D.C., over the past year, and is closing in on one in Los Angeles, part of a major bet on the future value of the discounted asset class.

“We love the office market right now,” said Primo, the keynote speaker at Bisnow's Chicago Capital Markets & CRE Finance event Thursday at Swissôtel Chicago. “We are buying as much office as we can swallow.” 

Transwestern's J.C. Griffin Sr. and Capri Investment Group's Quintin Primo III

It makes sense that Primo is optimistic about the city’s office market. His Capri Investment Group made one of the biggest splashes in the pandemic-era CBD when it partnered with The Prime Group to develop the James R. Thompson Center into Google’s Chicago headquarters.

But he is largely one of the lone sharks with the conviction and capital to hunt down the city’s small fry. 

Overall sales volume on office buildings has plummeted in the city’s urban core, and the majority of downtown office buildings currently on the market are likely to be worth less than the property’s existing debt, according to a fourth-quarter 2023 Transwestern CBD office report. It’s difficult for buyers and sellers in the market to determine property valuations when they have so few data points for comparison, authors of the report wrote.

The two lone office investment sales in the CBD in Q4 of last year were Coastal Partners’ purchase of 213 W. Institute Place from KBS for $17M and Igor Gabel snagging the leasehold interest in 300 W. Adams St. for $4M, according to Transwestern.

Both purchases represented substantial drops in property values. The building at Institute Place sold for 61% less than it did in 2017, and the Adams property had an appraised value of $38M at its last sale date in 2012.

Yet Primo said he believes there is exaggerated pressure to sell office assets while the market places an overemphasis on work-from-home offerings. Remote work trends are more cyclical than structural, he said, meaning that now is the perfect time to buy. 

“When the press is saying, ‘Flood the street, the world’s going to end,’ that is when you buy,” Primo said. “Every time I didn’t, I said, ‘God, why didn’t I?’”

Brennan Investment Group's Scott Mckibben, Ready Capital's David Kwitman, Wayland Real Estate Capital's Matthew Berry, Red Oak Capital Holdings' Paul Cleary, Alpha Capital's Anthony Longo and Lee & Associates' John Rickert

Other panelists at Bisnow’s event said they are looking to follow Primo’s lead and reinvest in the struggling downtown office market. They just need to find willing partners first. 

Wayland Real Estate Capital founder and principal Matthew Berry said that as interest rates have spiked over the past year and a half, he, too, is seeing an opportunity to acquire office assets. Existing lenders are willing to bring in new partners and restructure debt to kick out loan maturity dates, provided the new partner has money to put in for tenant improvements, he said.

But even though Berry is able to find lenders willing to partner on deals with good fundamentals, those that would allow an owner to offer below-market rents and steal market share, many potential equity partners had a “laundry list” of problems when he brought them those deals. Issues ranged from overexposure to Chicago assets to perceived risk arising from media headlines, he said. 

A lot of the potential investors Berry is dealing with are younger directors, inexperienced in a rising interest rate environment and operating out of a “check your ass” mentality, he said. 

“You don't get fired for passing on an office opportunity in Chicago,” Berry said. “You do get fired for saying yes to an office opportunity in Chicago.”

CRE Bridge Capital's Daniel Sobelman, Nuveen Green Capital's Darshak Shah, Essex Capital Markets' Darragh Griffin, JLL Capital Markets' Chris Knight, Midloch Investment Partners' Tim Donovan and DLR Group's Amy Haney

No matter how attractive Chicago’s rock bottom office prices make deals look for investors with an appetite for risk, it’s hard to convince decision-makers to commit capital, Red Oak Capital Holdings President and Chief Operating Officer Paul Cleary said.

“On the institutional investment side, institutions are telling us, ‘Don’t make a loan on office. Even if we're not in that fund, if we see you make a loan on an office, we’re out. We’ll stop following,’” he said. 

Cleary echoed Berry’s comments that some of institutional investors’ hesitation around the asset class is due to misleading headlines in the media, adding that it is the job of experts in the industry to educate those investors on the market environment in-depth.

Building relationships with institutional investors and developing trust with them sets the foundation for a more informed decision-making process, he said. 

If those investors still don’t listen to you after you build that relationship, there’s not much more you can do, Cleary said. 

Primo said his own big bet is based on employees realizing that if they want to succeed in business, they’ll have to show up in person. 

“Employees will ultimately realize … if you want to get promoted, you have to come into the office,” Primo said.