Chicago's real estate community is abuzz in recent days after word emerged that one of the city's tallest skyscrapers is set to sell for about $70 million, a steep discount from the last time it changed hands, although the object of their chatter is not primarily the sale price.
More tantalizing is the long-shot prospect that the sale of the 65-story office building could lead to the biggest voluntary demolition in world history, erasing a prominent part of the skyline.
Local investors John Murphy of Murphy Development Group and Gerald Kostelny of InSite Real Estate have a contract to buy the more than 1.3 million-square-foot tower at 311 S. Wacker Drive at a fraction of the more than $302 million it last sold for in 2014.
Those investors' involvement is significant, because they already have been working in recent years with development behemoth Hines on potential ground-up projects for vacant sites on each side of the 961-foot-tall tower at 301 S. Wacker and 321 S. Wacker.
If Kostelny and Murphy secure equity and debt to complete the purchase of 311 S. Wacker amid challenging real estate conditions, it opens several possibilities for the future of the site alongside the 110-story Willis Tower, the city’s tallest skyscraper. The 1,451-foot-tall former Sears Tower is at 233 S. Wacker.
One scenario for 311 S. Wacker would be working with Houston-based Hines to tear down the tower.
If it were to come to that, demolition crews would eliminate a 35-year-old building that has underperformed in the Chicago leasing market while creating a full-block parcel that eventually could include multiple new skyscrapers with well over 4 million square feet of space combined.
Hines has long discussed buying the tower out of financial distress and demolishing it, according to people familiar with the situation.
Such talks are preliminary, and there are other options on the table. Yet the involvement of Hines and its development partners on adjacent sites, coupled with the unique real estate circumstances that have led to the highly discounted price, make the idea at least plausible.
“I’m not surprised they’re contemplating that,” said Shawn Ursini, senior manager of the Council on Tall Buildings and Urban Habitat’s Skyscraper Center database of high-rises throughout the world.
Similar plans are playing out all over the world including in North American cities such as Detroit, Toronto and Miami, he said.
“This is something we’re going to see a lot more of,” Ursini said. “If you’re concerned about sustainability, this is a potentially worrisome trend.”
Hines has not publicly discussed the preliminary plan, and the firm did not respond to requests for comment from CoStar News.
High degree of difficulty
Hines would need to clear massive hurdles before a wrecking ball becomes part of the firm's ongoing joint venture to redevelop the overall site with Murphy and Kostelny, according to people familiar with the matter.
Demolition could cost tens of millions of dollars beyond the acquisition cost, potentially adding up to a total investment of $100 million or more just to clear the site and start over — at a time when developers already face steep hurdles.
If it were to happen, it would become the tallest building in world history to be voluntarily torn down, according to the Council on Tall Buildings and Urban Habitat.
Such a move would be one of the most jarring outcomes yet resulting from plunging office values. But the unusual plan also could be viewed as a positive sign that big, sophisticated developers such as Hines are taking the long view that today’s headwinds — such as historically low office demand, coupled with high construction and borrowing costs — will give way to the next construction boom.
If that happens, a clean slate along Wacker Drive’s Class A office towers and the Chicago River would be in high demand.
Murphy and Kostelny declined to comment.
Many Chicago real estate professionals view demolition as the least likely path.
“In reality, given the lay of the land in Chicago and where we are in the U.S. economy, no they’re not going to knock down the building,” said veteran Chicago developer J. Paul Beitler, who is not involved in the project.
“It makes no economic sense,” Beitler said. “The cost is prohibitive. At some point, the cost of doing it becomes too much just for the land.”
Record teardowns
The distinction of the world’s tallest “peacefully demolished” tower recently had been held by JPMorgan Chase, according to the Council on Tall Buildings, the Chicago-based organization that determines official building heights.
JPMorgan in 2021 completed the razing of its 707-foot-tall tower at 270 Park Ave. in New York, which the financial firm is now in the process of replacing with a 1,388-foot-tall new global headquarters.
That was followed by an even-taller teardown in Singapore in 2023, with the 770-foot-tall AXA Tower making way for what is planned as the tallest skyscraper in the Asian city-state.
The tallest building ever taken down in Chicago was the 596-foot-tall Morrison Hotel, which was demolished in 1965. It was replaced by the 850-foot First National Bank Building in the Loop, which was completed in 1969 and is now known as Chase Tower.
The list of tallest demolitions does not include the terror attacks of Sept. 11, 2001, that took down the World Trade Center twin towers that were 1,362 and 1,368 feet tall.
Original plan
Then with Lincoln Property, Kostelny was involved in the development of 311 S. Wacker as part of what initially was planned as a three-tower project.
Designed by Kohn Pedersen Fox and featuring a crowned top that lights up at night, the tower at 311 S. Wacker was completed in 1990.
It was the world’s tallest reinforced concrete building when it opened, a distinction it has since lost.
The other towers never materialized, leaving a grassy plaza between it and Willis Tower and another development site on the opposite side of the property.
The existing tower’s octagon-shaped floors have led it to be viewed by some office tenants and brokers as inefficient, and the property has struggled to compete with a wave of newer towers along Wacker and both sides of the river.
It has been owned since 2014 by Chicago-based Zeller Realty Group and China’s Cindat Capital Management, which paid $302.4 million for the property. They refinanced it with debt that included a $215 million loan from lenders including Morgan Stanley.
The longtime owners and lenders have been working for years to agree to a deal to sell 311 S. Wacker at a huge hit to both the investors and the lenders, with at least one previous potential sale falling through at a considerably higher price.
Zeller and Morgan Stanley declined to comment. Cindat did not respond to a request for comment.
The building was 39% vacant when brokers put it back on the market in late 2022, according to a JLL brochure. Since then, tenants — including the largest one, law firm Smith, Gambrell & Russell — have continued to sign leases to move elsewhere.
As the building has struggled, owners of nearby properties have poured billions of dollars into real estate projects in the once-quiet southwest corner of the Loop.
That includes a more than $1 billion project by 601W Cos. to convert the sprawling, long-vacant Old Post Office into modern offices, Blackstone’s $500 million expansion to the base of Willis Tower to create new retail and entertainment, and the 52-story BMO Tower office project recently completed by Riverside Investment & Development and Convexity Properties.
Just to the south, Related Midwest plans The 78, a $7 billion mixed-use development along the river connecting the South Loop and Chinatown.
“The building was ahead of its time,” said Beitler, who in the early 1990s attempted to build the 1,999-foot-tall Miglin-Beitler Skyneedle on a site near 311 S. Wacker.
“What 311 S. Wacker needed was a neighborhood to grow up around it, which was going to take time,” said Beitler, who is not involved with the property. “Now it’s happening.”
Once the economy improves, Beitler said he believes the tower can thrive with a smaller block of offices combined with hospitality or residential space.
Chicago-area demolitions
After years of weak demand, office buildings throughout the country — particularly large suburban office campuses — have been targeted by developers for conversions to new uses or teardowns.
Prominent examples in Chicago’s suburbs include the former Allstate corporate complex being razed to be replaced by a logistics campus and the sprawling former Sears headquarters giving way to data centers.
Those projects involve knocking down much-lower buildings, which are surrounded by acres of open land.
Taking down 311 S. Wacker would be far-more complex because of the proximity to other skyscrapers. That includes the former Sears Tower next door, home to thousands of office workers and tourist attractions such as the Skydeck observatory.
There also are cautionary tales to teardowns undertaken without a concrete new project lined up.
A few blocks directly north of 311 S. Wacker, the Alfred S. Alschuler-designed, 17-story former Chicago Mercantile Exchange building was torn down in 2003 amid outrage from preservation groups.
Attempts to land an anchor tenant to start construction of a trophy office tower on the site at 130 N. Franklin St. have been unsuccessful since then, leaving a hole within a sea of high-rises more than two decades later.
Other cities
A majority of the world’s tall structures built before the 1990s are in the United States, Ursini said. Among buildings 100 meters or taller, the lifespan has continued to fall, now down to 41 years on average, he said.
“That’s around the point in a building’s life cycle when they’re going to need a major upgrade,” Ursini said. “You’re looking at a huge inventory of office buildings that might be underperforming the market, and some of these buildings may not work as a residential conversion. It’s an interesting time that we’re in.”
It’s possible the United States could see a wave of teardowns resembling the one that took place in the 1950s and ’60s, he said.
In Miami, a Brickell Bay Drive site now home to a 32-story office building completed in 1985 and a 31-story apartment tower completed in 1998 is under contract to be sold for $520 million. The site is valuable because it is one of the few areas of the city allowing the construction of supertall towers — those rising at least 300 meters, or 984 feet.
Because of that, the site was marketed as a chance to tear down the existing towers and replace them with something much bigger. One of the developers, Oak Row Equities, this month told CoStar News that it plans luxury condominiums on the site, but the firm declined to discuss potential building heights.
In Detroit, the seven-tower office complex that is the longtime headquarters of General Motors could be downsized and upgraded. In the recently unveiled plan for the Renaissance Center, GM and local developer Bedrock said they may demolish two towers and convert the others to hospitality and housing.
The towers set for demolition are each 509 feet tall.
Just across the border in Canada, the 25-story former Toronto Star Building is slated for demolition as part of Pinnacle International’s ongoing mixed-use development on Yonge Street, which is set to include structures as tall as 105 stories.
If high-rise demolitions continue to emerge, it could have major ramifications for the look, function and finances of cities, Ursini said.
“This is a conversation that’s happening, and cities probably need to be more proactive,” Ursini said. “This is a situation that cities need to take seriously. The office market may never come back for a certain segment of the office stock. You need to contemplate what your downtown may look like, and that could mean some buildings coming down.”