The owner of the Prudential Plaza office complex has pledged to invest more than $50 million on upgraded amenities and new leases, buying more time to turn around one of Chicago’s best-known properties and pay off its loan.
Wanxiang America Real Estate on Wednesday announced it has negotiated a modification that extends the maturity for a commercial mortgage-backed securities loan on the two-tower property along Millennium Park through 2027, with options to further extend the maturity through 2029.
As part of the agreement, Wanxiang said it agreed to pay an unspecified amount into reserves to fund new leases and to make extensive upgrades to an existing 11th-floor roof deck, expand amenities on that floor of the 41-story One Prudential tower at 130 E. Randolph St. and carry out other improvements to the complex.
“If office is dead, we’re in trouble,” Wanxiang Managing Director Larry Krueger told CoStar News. “We don’t believe that is the case. We believe well-funded buildings with quality amenities are going to be winners in a narrowed-down office market.”
Wanxiang’s announcement comes after CoStar News reported last week that insurance and financial services giant Prudential is finalizing a deal to move out of its longtime Chicago home and relocate to a smaller space in the 54-story tower at 150 N. Riverside Plaza across the Loop business district.
At the time, Krueger told CoStar News that it was close to an agreement to modify CMBS debt on the complex also known as One Two Pru. There is more than $385 million remaining on the loan taken out in 2018, according to CoStar loan data.
Prudential’s move means its highly visible sign near the top of the 41-story One Prudential tower will come down, giving Wanxiang the opportunity to use that signage space and naming rights to help land a big new tenant.
To further those efforts, Wanxiang said it plans to redesign the 11th-floor roof deck that extends from the southeast corner of One Prudential. New additions are set to include a pickleball court, a putting green and a bar area overlooking the sprawling park.
A food and coffee bar, golf simulators, coworking spaces and a podcasting room are planned to be added to the existing amenities area in One Prudential.
A new, glass-enclosed walkway will extend from the roof deck to the Two Prudential tower where a 20,000-square-foot conference center is planned. That area is designed to include a bar, employee lounge and coworking spaces.
The towers’ connected lobby will be updated with a new coffee bar with lounge seating, Wanxiang said. There also will be a new entrance from Randolph.
The real estate affiliate of a Chinese auto parts manufacturer and another Chicago-based developer, Sterling Bay, bought the roughly 2.3 million-square-foot property for $680 million in 2018.
That was before the arrival of COVID-19 in early 2020 created historically low demand for office space and devastated real estate values.
Unlike many investors who handed back towers to their lenders, Wanxiang has doubled down, agreeing to deepen its investment to try to re-lease a high-profile property along Michigan Avenue and Randolph Street on the eastern edge of the Loop.
Wanxiang already is looking for tenants to fill 22% of the space in the complex, even before Prudential moves out of about 50,000 square feet in the 64-story Two Prudential tower at 180 N. Stetson Ave.
Prudential has occupied space in the complex since One Prudential opened in 1955. The taller tower was completed in 1990.
Improved Financial Status
Wanxiang now has reserves to help pay broker commissions, build-out costs and other short-term expenses needed to land new tenants and create a bigger, long-lasting cash flow.
Cash reserves and solid footing on debt have become increasingly important amid waves of distressed office properties throughout the country since the onset of the pandemic, with brokers and tenants now taking a harder look at a landlord’s finances before agreeing to a lease.
“All tenants, even the smaller ones, are concerned about the strength of the owner and the status of building financing,” Krueger said. “It’s huge to be able to demonstrate support for the building and stability of the financing.”
Krueger said a portion of the funds added to reserves came from an October settlement of a $4.8 million lawsuit filed against the parent company of the Chicago Tribune in 2021 after the landlord said the newspaper vacated its large space in One Prudential and stopped paying rent early in the pandemic.
The Tribune declined to comment on the settlement to CoStar News. Krueger declined to provide specific details.
Although it has never missed a loan payment, Wanxiang earlier this year had the CMBS loan moved to special servicing so it could negotiate a loan modification and extension. The special servicer on the loan, CWCapital, declined to comment on the deal with Wanxiang on behalf of bondholders.
Krueger said the latest move came after already paying off its preferred equity investor in the property, Blackstone. He declined to say how much Wanxiang paid in that deal.