Recent insights from Bisnow’s Chicago Office Summit indicate a notable resurgence in activity within Chicago’s office market, as several new office property owners express a confident outlook for the sector.
As interest and transactions accelerate, it appears that stakeholders are embracing the opportunity to buy into the market.
Panelists at the summit shared their experiences, highlighting a shift from a buyer’s market to a more competitive landscape. Andrew Brog, managing director at Brog Properties, remarked on the heightened competition for office buildings.
Earlier this year, Brog Properties acquired a predominantly empty 16-story office building located at 550 W. Washington Blvd. for approximately $18.5 million.
He noted, “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.”
According to recent data from Avison Young, by the end of February, office sales in Chicago’s central business district had achieved their highest dollar volume for a single quarter in over two years.
On a national scale, first-quarter office investment volume reached $11 billion, which marked a 60% increase from the first quarter of 2024, the most substantial year-over-year growth observed since the slowdown began in 2022, as reported by JLL.
Jordan Mellovitz, head of real estate at 3Edgewood, emphasized the company’s strategy of focusing on larger assets across the nation.
Earlier in the year, 3Edgewood proudly announced its acquisition of the 1.6-million-square-foot former Groupon headquarters located at 600 W. Chicago Ave. for $88.7 million.
Mellovitz praised the previous owner’s renovations and mentioned plans for smaller upgrades, such as incorporating a game lounge and race simulators, as well as adding additional parking options.
He noted, “The building’s large floor plates present a unique opportunity for tenants to park on their floor and then simply walk into their suites.”
3Edgewood’s approach is rooted in a long-term ownership perspective. Mellovitz stated, “It’s really tough to have any visibility into an exit right now. 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 made significant moves in the market, acquiring an office property for a bargain price in January.
The firm purchased 200 S. Wacker for roughly $68 million, benefiting from a partnership with Patrick Halloran, which involved acquiring a $151 million nonperforming loan on the property from Bank of China.
Jeff Koukol, executive director at Glenstar, expressed enthusiasm for the building’s prime location along the river. He acknowledged that the property has seen various incremental renovations over the years and plans for substantial improvements, including a revamped lobby and the addition of tenant amenities such as a lounge with bar service and conference facilities.
Koukol remarked, “This is a great opportunity to build some momentum.”
In October, Glenstar further expanded its portfolio by acquiring an office complex near O’Hare International Airport, purchasing it for less than half the price it commanded in 2018.
Despite tenant turnover and downsizing due to pandemic-related challenges, Glenstar remains optimistic about the property’s inherent value, suggesting it merely requires a capital infusion and new management to thrive.
Meanwhile, Michael Roy, president of asset management at Woodcrest Capital, highlighted the appeal of a recent acquisition due to a rare opportunity to acquire property at a low price per square foot.
Woodcrest secured the approximately 800,000-square-foot, fully vacant 4 Overlook Park office complex for $6.2 million, equating to about $7 per square foot in an all-cash transaction.
Roy pointed out that a decade ago, VEREIT purchased the same site for $148 million.
He noted, “The window of opportunity for purchasing always precedes the good leasing times. We might not be in the perfect leasing times right now, but we think that they’re coming.”
Woodcrest, a family-run firm launched in the 1980s, typically adopts a long-term investment strategy. Roy explained, “Our underwriting, If I can’t do it on my phone’s calculator in a couple minutes, I don’t want the deal. 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.”
The prevailing sentiment among investors indicates a positive outlook for the Chicago office market despite challenges, as some have hesitated to enter the space, often citing concerns related to crime, taxes, and the political climate.
Brog emphasized the opportunistic nature of their acquisitions, stating, “We’re just being opportunistic. There’s no rhyme or reason. We find a good deal, we just buy it.”
As the market evolves, it remains to be seen how these new strategies and acquisitions will shape the future of Chicago’s office landscape.
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