A Chicago loft office building with ties to architect Ludwig Mies van der Rohe and actress Mary Tyler Moore has been sold to a local investor that plans to convert the Streeterville structure into apartments.
Horizon Realty Group plans to convert the seven-story Pelouze Building at 230 E. Ohio St. into 72 apartments, Chief Operating Officer Jeff Michael told CoStar News.
The Chicago-based multifamily investor bought the mostly vacant, 75,340-square-foot building for just over $5.6 million this month, according to online property records. The seller was a local foundation, the Magnus Charitable Trust, which had owned it since 2004, according to CoStar data.
It will be the first office-to-residential project for Horizon Realty, Michael said, following a trend of outdated corporate space shifting to residential units.
“I’m excited that we can take a building that was distressed and facing abandonment and see if it can become an example for revitalizing some of these older buildings that were facing death sentences,” Michael said.
With remote and hybrid office trends continuing years after the onset of COVID-19, and with office values plunging, many developers from the comparatively stronger multifamily sector have been scouting similar opportunities.
Earlier this month, local firm Mo2 Properties said it will convert a seven-story vintage building at 116-122 W. Illinois St. in River North from loft offices to 36 apartments. Across the street, Chicago Development Partners plans to buy the office portion of a 10-story building at 111 W. Illinois St. and convert it into about 145 apartments.
“I’ve always been attracted to an adaptive reuse project, and I’ve lost on a couple other deals,” Michael said. “I was just waiting for a deal where the numbers made sense.
“Here, you have the opportunity to buy at a very low basis and create something while avoiding the high costs of a ground-up development.”
Larger projects are being eyed on the Magnificent Mile and in the city’s longtime financial center as part of the long-planned, city-backed initiative for buildings on and around LaSalle Street.
Because the building is already zoned for a residential conversion, Horizon Realty is not required to set aside 20% of the units as affordable, per the city’s Affordable Requirements Ordinance. That threshold is 30% to receive public dollars as part of the LaSalle Street Reimagined program.
“What’s driving the trend is that demand for office space has plummeted, and my personal feeling is that we need to do more to incentivize and make it easier for developers to convert these buildings,” Michael said. “We’re dealing with a housing crisis, not to mention how many of these buildings are going to be handed back to their lenders. We’ve got to be a lot more aggressive about creating a path for these buildings to be converted to something else.
“I don’t think my project would work if we were required to provide 30% affordable units.”
Colorful history
Built in 1917, the Pelouze Building was designed by architect Alfred Alschuler.
It is named for William Nelson Pelouze, whose scale-making company used the building for offices and storage, according to historical accounts.
The building later served as the longtime office of German-born, Chicago-based architect Mies van der Rohe and as the backdrop for a 1980s Moore television series called “Mary,” according to Chicago Tribune reports. The building’s exterior was used as the backdrop to the series, serving as home to the fictional newspaper for which Moore’s character wrote a column in the TV show.
Horizon Realty owns about 2,500 units in Chicago. Its largest property is the 344-unit Park Michigan tower on South Michigan Avenue, which it bought for $92.5 million in 2018.
A Thai restaurant, facial studio and an optometrist will remain as ground-floor retail tenants in the Ohio Street building, Michael said. He said the conversion is expected to start in January and take about a year to complete.
Michael declined to provide an estimated cost of the project, but he said a recent cut in interest rates, and expected cuts to come, will bring down costs because construction loans have floating rates.
Redevelopment plans include creating a rooftop deck with two pickleball courts, fire pits, grill stations and a dog walk. Units will be studios, one and two bedrooms.
About 70% of the building is vacant, and remaining office tenants’ leases are nearing expiration, Michael said.
For the record
The seller was represented by CBRE brokers Dominic Soltero and Marcello Campanini.