02/27/2013

Brokers Vying for Big Chicago Office Listing

The owner of a trophy office tower in Chicago is ready to sell, and brokers are jockeying for the assignment.

The 1.3 million-square-foot building, at 311 South Wacker Drive, is valued at about $320 million, or $250/sf. The ownership group, which includes Shorenstein Properties and Fremont Realty, is now auditioning brokers. Among the candidates are Eastdil Secured, HFF, Jones Lang LaSalle and CBRE, which leases space in the building.

The property was 90% occupied as of last September and was generating some $25.5 million of annualized net income, according to servicer reports on its $240 million securitized mortgage. That would suggest an initial annual yield of almost 8% at the estimated value. Leases for roughly 5-6% of the space expire each year through 2016. That includes CBREs 68,000-sf lease, which runs out in November 2014. Its unclear whether the firm will renew.

The 10-year securitized loan, originated in 2006, carries a 6.6% coupon, well above the current market rate, but it can be prepaid without penalty starting in September.

The 65-story building, constructed in 1990, has an illuminated crown that makes it a prominent fixture of the Chicago skyline. It has an underground garage, restaurants and other retail space. Major office tenants include law firm Freeborn & Peters (110,000 sf until 2022) and investment bank Duff & Phelps (82,000 sf until 2021).

San Francisco fund operators Shorenstein and Fremont teamed up with New York investor Mark Karasick in 2006 to acquire the tower for $292 million. At the time, it was 72% occupied. The partnership set out to lease up space, bringing it above the current 86% average for Class-A offices in the West Loop.

Leasing in downtown Chicago has received a boost as more companies look to relocate their offices from the suburbs. Last year was the strongest for leasing activity since 2007, according to CBRE.

The listing of 311 South Wacker would add to a crowded sales block in Chicago, where nine large office buildings are currently up for sale. Most recently, CBRE Global Investors put the 799,000-sf property at 190 South LaSalle Street on the market, as part of a larger portfolio listed via Eastdil (see article on Page 3).

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