An ultrawide Chicago building that began as a Montgomery Ward warehouse and more recently served as the headquarters of Groupon is set to hit the market in an area where office properties have been selling for less than the value of their loans.
Eastdil Secured brokers have been hired to sell 600 West Chicago, an approximately 1.6 million-square-foot office building north of the Loop business district along the Chicago River, according to people familiar with the situation. The deal has not formally hit the market, but it is expected to do so soon.
The building at 600 W. Chicago Ave. has been owned by Sterling Bay since early 2018 when the Chicago developer paid $510 million. At the time, the eight-story building was almost fully leased and major tenant Groupon, the online deals company then headquartered at the property, was on better financial footing.
But the building has suffered from the loss of tenants, including Groupon’s recent move out of more than 290,000 square feet, as well as an overall soft office leasing market since the start of COVID-19. The property is now less than 62% leased, according to CoStar data.
Coupled with rising interest rates and other challenges, the building is considered to be worth less than the current value of the $373.8 million loan that Morgan Stanley provided when Sterling Bay bought it in February 2018, according to people familiar with the building.
Amid higher borrowing costs and a slowdown in deals nationally, some lenders in similar situations have offered new loans at relatively low interest rates to help facilitate sales and minimize their losses on loans made during boom times.
In one recent example, Chicago developer R2 bought the 41-story office tower at 150 N. Michigan Ave. for $60 million, just under half the previous sale price from 2017. MetLife Investment Management, which took a hit on the previous owner’s loan, provided seller financing to R2 in the new deal.
It’s unclear whether Morgan Stanley will offer seller financing for 600 W. Chicago.
Sterling Bay did not respond to requests for comment from CoStar News, and Morgan Stanley declined to comment.
Taking Less Space
Groupon last year issued a “going concern warning” and disclosed plans to pay a $9.6 million termination fee for its sprawling space at 600 W. Chicago, before the company later in the year signed a short-term sublease for about 25,000 square feet — slashing its headquarters size by more than 90% — in an office tower in Chicago’s Loop business district.
Another major 600 W. Chicago tenant, Echo Global Logistics, signed a long-term commitment to stay in 2022 but decreased its space to 185,000 square feet from a previous 225,000. Digital marketing firm VSA Partners also extended its lease in 2022 while cutting space, going to 25,000 square feet from 61,123.
That leaves large blocks to fill for a new owner, but the property had fared well in the leasing market for several years before the recent struggles.
The Chicago Avenue building opened in 1908 as a Montgomery Ward warehouse known as the Catalog House, from which mailed-in orders were shipped to customers. Like other ultrawide buildings in Chicago, such as the Merchandise Mart and the redeveloped Old Post Office, 600 W. Chicago was thriving before the run of recent move-outs and space reductions.
Other tenants in the building include Tempus Labs and the Big Ten Network.
Developments near 600 W. Chicago include Bally’s plans to break ground soon on the city’s first casino campus and Canadian developer Onni Group’s plans to build thousands of apartments on and near Goose Island.
For the Record
The seller is represented by Eastdil Secured brokers Bryan Rosenberg and David Caprile.