News Summary
Kohan Retail Investment Group has acquired a 65-story office tower at 311 S. Wacker Drive in Chicago for approximately $45 million, marking an 85% drop in value from its 2014 sale price of $302 million. The acquisition highlights challenges in the commercial real estate market, influenced by rising remote work trends and higher borrowing costs. Despite significant vacancy rates, Kohan plans to maintain the property as an office space, offering competitive rents to attract new tenants amidst a changing market landscape.
Chicago – A New York-based real estate investor, Kohan Retail Investment Group, has made headlines by acquiring the 65-story office tower located at 311 S. Wacker Drive for approximately $45 million. This sale price represents a staggering 85% decline from the $302 million valuation when the property was last sold in 2014, marking one of the largest value losses for a downtown Chicago office building in history.
The 1.3 million-square-foot tower’s declining value can be attributed to the rising trend of remote work and increasing borrowing costs, which have led many real estate investors to remain hesitant in the current market. Kohan’s CEO confirmed the acquisition but did not disclose the specific purchase price.
Despite facing significant tenant attrition, with the largest tenant, law firm Smith Gambrell & Russell, expected to vacate the space, Kohan plans to maintain the building as an office property. The firm aims to provide competitive rents to attract new tenants and leverage the advantageous purchase price. Kohan has over 21 years of experience managing distressed properties and sees potential leasing opportunities, even amid the daunting downtown office vacancy rates.
The state of the building when the pandemic hit illustrates the steep challenges ahead. Previously, the property was 86% leased, but current figures show it now stands over half empty, reflecting a broader trend in the commercial real estate sector. The previous owners, Zeller Realty Group and Cindat Capital Management, had invested an additional $38 million in renovations after acquiring the property in 2014.
In 2018, the property was refinanced at its peak with $295 million in new debt, backing from TIAA CREF for a junior loan, and a senior loan of $215 million from a consortium of banks including Morgan Stanley. However, the recent sale to Kohan effectively wiped out any equity held by Zeller, Cindat, and TIAA CREF, showcasing the significant financial impacts of the property’s value decline.
Kohan’s acquisition was supported by a $20 million loan from Hakimian Capital, based in Great Neck, N.Y. There was previous speculation from the former developers about converting sections of the building into alternative uses, including residential apartments or a hotel, but these plans never came to fruition.
Kohan is not the only investor taking advantage of distressed office buildings in the downtown area, as several firms are eyeing potential opportunities amid the challenges posed by the current market. A recent analysis indicated that 18 notable office properties have sold for a total of $712 million over the past 21 months, reflecting a 72% loss of over $1.8 billion when compared to their pre-pandemic values.
In summary, while the downtown office market continues to face record-high vacancy rates, Kohan remains optimistic about the potential for leasing opportunities within the space, suggesting that the market may eventually stabilize. This statement highlights the resilience within the real estate sector despite the mounting challenges presented by changing work habits and financial obstacles.
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Additional Resources
- Crain’s Chicago Business: New York firm buys 311 S. Wacker
- Wikipedia: Remote work
- CoStar: Magnificent Mile office tower back on market
- Google Search: Chicago office real estate market
- Commercial Search: Chicago Office Redevelopment Enters Phase 2
- Encyclopedia Britannica: Commercial real estate
- Wall Street Journal: Chicago Office Buildings Market
- Google News: Chicago office vacancies
