04/07/2010

Karasick Group Shops Chicago Office Tower

A partnership led by investor Mark Karasick is marketing a Chicago office tower with a large assumable loan.

The group is seeking a whopping $140 million for the building, at 550 West Jackson Boulevard in the West Loop. That would translate into a skimpy capitalization rate of 5.7%. The partnership acquired the 402,000-square-foot property in 2005 for $125 million.

Market players said that some partners were interested in selling the building, but others were reluctant. That prompted speculation that pricing expectations were set high to get all of the partners to go along.

In an unusual move for a Chicago offering, the partnership has given the listing to a New York brokerage, Cornerstone Property Group. Most of the partnership's members are based in New York.

The offering will likely appeal to core investors because the building is 94% occupied, with little near-term lease rollover. What's more, it has an assumable $97.5 million securitized loan - equal to 70% of the proposed price. The interest-only loan, with a 6.6% coupon, matures in 2017.

Shortly after the Karasick partnership bought the property, the largest tenant, Refco, unexpectedly filed for bankruptcy and vacated 200,000 sf. But the partnership was able to lease up much of the space.

The largest tenant is Newedge Group, formerly known as Calyon Financial, which leases 130,000 sf at $21.53/sf until August 2019. Other tenants include Corporate Executive Board (52,000 sf at $21/sf until February 2018) and the U.S. Food and Drug Administration (33,000 sf at $42.25/sf until September 2012). The leases have annual rent bumps. No leases are scheduled to expire until 2012, when 59,000 sf goes up for renewal.

The tower, directly across from Union Station, was built in 2001 and renovated in 2007.

There are some signs that the Chicago office market is starting to pick up after a long lull. Prime Group Realty of Chicago recently struck a deal to sell the 770,000-sf tower at 180 North LaSalle Street for $75 million. And Houston-based Hines is seeking $700 million for a newly developed tower at 300 North LaSalle Street that encompasses 1.3 million sf. Holliday Fenoglio Fowler is brokering both deals.

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