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March 14, 2018  

Werner Team May Market West Loop Tower

A partnership led by David Werner is weighing whether to list a Chicago office trophy, after shoring up a lease with its anchor tenant.

The 1.1 million-square-foot building, at 540 West Madison Street, is virtually fully occupied on long-term leases. It’s valued at roughly $750 million, or $682/sf. A trade at that price would produce a capitalization rate in the vicinity of 5%, in line with other high-caliber office sales over the last few years.

JLL has the inside track on the listing, should the joint venture decide to launch a marketing campaign. The property backs $325 million of securitized debt that carries a 3.98% coupon and matures in 2026. It’s unclear if a buyer would have to assume the loan.

A joint venture including New York-based Werner, Joseph Mizrachi of Boca Raton, Fla., and other investors acquired the property for $345 million in 2012 from Bank of America, which leased back 757,000 sf, or 69% of the total space. But the bank’s 10-year lease allowed it to downsize — which it later did, reducing its footprint to about a third of the building.

In the past couple of months, the Werner partnership firmed up a lease renewal with BofA that increases its space to just over 400,000 sf and runs until 2032, according to local reports. Other tenants include DRW Holdings (until 2029), Evolent Health (until 2027) and insurer Marsh USA (until 2024). Market pros say the property is currently about 98% leased, with a weighted average remaining lease term of 12 years.

Houston-based Hines developed the 31-story building in 2003 as the headquarters for ABN Amro and LaSalle Bank, which was acquired by BofA four years later. The building is designated LEED platinum.

The Werner team has spent some $4.2 million on improvements, including a new fitness center and upgrades to the 300-seat conference center and lobby. There is an underground garage, a full-service cafeteria and some street-level retail space.

The building occupies a full city block, bound by Washington Boulevard and Clinton and Jefferson Streets, in the West Loop. It is adjacent to Ogilvie Transportation Center and surrounded by shops, restaurants and hotels.

Werner and his partners put the property on the block two years ago via HFF, but ultimately decided to refinance while working to firm up the rent roll.

Sales of large Chicago office properties declined almost 30% last year, to $2 billion. But activity appears to be picking up. Last month, a partnership between local shop Sterling Bay and J.P. Morgan closed on the $510 million purchase of the Groupon headquarters at 600 West Chicago Avenue. Eastdil Secured brokered the sale of the 1.6 million-sf property for Chicago REIT Equity Commonwealth. Meanwhile, Sterling Bay and another partner are under contract to pay $680 million for the 2.3 million-sf Prudential Plaza complex. JLL is brokering that pending sale on behalf of 601W Cos. of New York.