An Oregon investor has bought an office tower in Chicago’s Loop business district for $45 million, getting a huge discount from the property’s previous sale price amid a virtual standstill on office deals in the city as national demand slows.
Portland-based Menashe Properties on Thursday completed the purchase of the 29-story building at 230 W. Monroe St. for its first acquisition in Chicago, the company said. The building is about 40% vacant, according to the buyer.
That price is far below the $122 million that Florida-based Accesso Partners paid for it in 2014. The price is a little more than half the amount of an approximately $87.7 million loan Accesso took out from Morgan Stanley in a November 2019 refinancing, a few months before the arrival of a global pandemic that devastated office property values.
Even at a huge price cut, the sale offers a sign of life at a time when few office properties are attracting investors in downtown Chicago and when few lenders are financing office deals anywhere in the country. The slowdown comes from a variety of factors, including low demand since the onset of COVID-19 in early 2020 and more than a year of interest-rate increases, which have increased the cost of acquiring properties.
There hasn’t been a downtown office sale of $50 million or more since a July 2022 day when there were three such transactions, including a $105 million deal for the James R. Thompson Center, which Google plans to later buy from a developer and occupy.
Menashe Properties’ second-generation leader, CEO Jordan Menashe, said he was drawn to Chicago at a time when other investors are shying away from cities where there are overstated perceptions of crime, low office utilization and other problems.
“Is office dead? The answer is no,” he told CoStar News. “Is Chicago dead? The answer is no. Is San Francisco dead, Portland dead? No.
“It’s a contrarian play. When everybody goes left, we like to go right. We’re ready for another deal in Chicago.”
Accesso and Morgan Stanley declined to comment to CoStar News.
The sale price is less than $64 per square foot, down from nearly $173 per square foot paid by Accesso almost a decade ago.
The new owner will have to overcome the challenge of historically low demand for office space, as well as competition from recently built towers along the Chicago River and farther west in the high-demand Fulton Market district.
Crain’s Chicago Business previously reported Menashe’s deal for 230 W. Monroe.
The tower at Monroe and Franklin Streets was built in 1971. The largest tenant is Envoy Global, a firm that helps companies manage work visas. The firm leases 23,842 square feet, according to CoStar data.
Menashe Properties was founded in 1978 by Barry Menashe, Jordan’s father. The firm also owns office buildings in the Portland, Vancouver, Seattle, Denver and Dallas markets.
Earlier this month, Menashe Properties paid $13.6 million for the American Bank Building in Portland, which last sold for $53 million in 2017. Both deals this month were made without mortgages, with plans to eventually add debt when interest rates fall.
City Tour
The younger Menashe said he visited Chicago out of curiosity after hearing negative accounts of the city. While in town, Menashe said he walked 15 miles and toured more than a dozen buildings his firm might be interested in buying.
“When I got to Chicago, it was the polar opposite of what I was hearing about crime, about the downtown dying,” Menashe said. “What I saw was, it was packed, it was clean and it’s an exquisite city for architecture.”
The firm eventually settled on 230 W. Monroe, seeing a property with high vacancy but also high income in place from existing rents relative to the purchase price. The capitalization rate, or initial rate of annual return, is more than 11%, far higher than he could have expected to find a few years ago, Menashe said.
He said that would buy the firm time to try to add amenities and liven up the building, with a particular focus on making it more welcoming and improving the curb appeal.
“We’ve got to make it more fun,” Menashe said.
A low basis on the purchase will allow the new owner to be aggressive in seeking new leases, Menashe said. He said the firm is already in talks for a combined 45,000 square feet in new deals.
“Being open for business and being responsive and picking up the phone to talk with a tenant, no matter the size — we feel like the personal touch goes a long way,” Menashe said. “I’ve been able to save two tenants that we thought were gone just by picking up the phone.”
For the Record
The seller was represented by Eastdil Secured brokers Bryan Rosenberg and David Caprile.