A Florida-based investor is in negotiations to buy a 57-story tower in Chicago’s Loop business district in what would be the latest example of an office property selling at a massive discount to previous pricing.
FRI Investors is working on the deal to buy the building at 70 W. Madison St. for about $100 million, according to someone familiar with the deal.
That is far below the last sale price of nearly $375 million in August 2014. It also is expected to fall well short of the value of a $305 million loan that those buyers, led by Chicago-based Hearn, borrowed from lenders including Bank of America.
The deal is preliminary and still could fall apart amid high interest rates and scarcity of debt and equity in the office sector. It would be the first Chicago acquisition for West Palm Beach, Florida-based FRI Investors. It owns smaller buildings in its hometown and in markets including Nashville, Tennessee, and Greenville, South Carolina, according to the firm’s website.
The deal for 70 W. Madison was previously reported by Crain’s Chicago Business. FRI Investors did not immediately respond to a request for comment from CoStar News. Hearn and Bank of America declined to comment.
If the deal for the more than 1.4 million-square-foot tower is completed, it will be the latest situation where owners and lenders take losses on office properties bought before COVID-19 and the more recent challenges in lending markets.
In another recent deal, Allstate sold a 10-story building at 29 N. Wacker Drive to a low-profile local investor for just over $11 million, far below the $29.7 million it paid in early 2022.
Other completed deals at huge discounts to previous prices include a $125 million sale of the 36-story tower at 333 W. Wacker Drive, which previously sold for $320.5 million in 2015, and the $60 million sale of the 41-story tower at 150 N. Michigan Ave., which previously sold for nearly $121 million in 2017.
The 43-year-old tower on Madison Street was just 68% leased when it went on the market for sale in January, according to a brochure from brokerage CBRE. The CBRE brokers were hired by Bank of America, the tower’s biggest lender, with the property’s value far below the value of its debt.
Since that time, the lenders have filed a more than $275 million foreclosure suit against an ownership group led by Chicago-based Hearn, saying the venture missed a loan payment, The Real Deal Chicago reported in April.
Hearn, Chicago-based GEM Realty Capital and San Francisco-based Farallon Capital bought the tower for almost $375 million during a strong investment sales market in the city nearly a decade ago. Vacancy in the tower was below 10% at the time.
Those owners later refinanced the building with a $305 million loan from Bank of America and other lenders in 2018, helping fund more than $53 million in upgrades to the property. Those upgrades were completed ahead of the onset of COVID-19, which led to lasting remote and hybrid work trends and hammered office property values.
The foreclosure suit indicated Bank of America is owed almost $138 million, according to the Real Deal report.
Large tenants at 70 W. Madison include Canadian bank CIBC and law firms K&L Gates and Nixon Peabody. The weighted average lease term was 5.4 years when the building went up for sale, according to CBRE.
New owners could capitalize on major investments made to areas including the fitness and conference centers, lobby facades and entrances as they look to sign new tenants and increase rental income.
FRI Investors will have to overcome struggles of decades-old buildings in the heart of the Loop business district, but there have been recent signs for hope.
The Madison Street tower is across the street from 60-story Chase Tower, which JPMorgan Chase recently announced it would remain in after a major overhaul of the 1960s-era structure. Those buildings are a short walk from the James R. Thompson Center, where work recently began on a conversion of the formerly state-owned office structure into the future home of thousands of Google employees.
For the record
The sellers are represented by CBRE brokers David Knapp, Blake Johnson, Arthur Johnson and John Saletta.