The owner of Chicago’s Water Tower Place has hired brokers to sell or lease out the top five floors of the shopping venue as office space or other uses in a move that would reduce the vertical mall pioneer, long known for its soaring atrium, to a three-story retail property.
Such a conversion, involving one of Chicago’s best-known properties, would be one of the most dramatic examples of a U.S. urban retail positioning.
Metropolitan Life Insurance has hired JLL brokers to seek a sale of floors four through eight, according to people familiar with the situation. MetLife also will consider leasing the space to nonretail tenants, such as doctor’s offices, traditional office space or other uses, those people said.
“The location is great for a healthcare use,” said Savills office tenant broker Eric Feinberg, who is not involved in the Water Tower Place listing. “Space is at a big premium in that neck of the woods. In years past, the hospitals have gobbled up space when it’s been available.”
A MetLife unit previously was the lender for Water Tower Place. MetLife Investment Management became the owner last year when longtime owner Brookfield Property Partners walked away from its investment in the 818,174-square-foot mall. MetLife extended Brookfield’s maturity date on a $200 million loan at least twice before it matured last year.
Earlier this year, CoStar News first reported that MetLife was exploring the idea of redeveloping the upper floors of the mall at 845 N. Michigan Ave. into one or more new uses.
Now that plan is going into motion. JLL brokers have won the assignment but have yet to begin formally marketing the space to potential owners or tenants.
It’s not known what sale price or rental rate MetLife is seeking. A MetLife spokesman declined to comment to CoStar News.
The lower three floors will remain as retail in the iconic property, which was hit hard when the largest tenant — Macy’s, which had space on portions of all eight floors, as well as a mezzanine level — closed in 2021. Macy's had leased more than 323,000 square feet.
A sale of floors four through eight would not affect residential condos and a Ritz-Carlton hotel above the mall within the 74-story tower on the site near the northern end of the Mag Mile.
Many sprawling, suburban shopping malls already are undergoing major overhauls to replace big, unwanted former department stores with things such as apartments, medical offices and smaller retail spaces.
Water Tower Place’s upcoming major reduction in shopping space stands out because it is located on the Magnificent Mile, one of the country’s best-known retail avenues, and because its opening in 1975 was a key moment in the emergence of urban, vertical malls as destination shopping throughout the world.
But the lingering effects of the pandemic, economic woes, changes in shopping habits, worries about crime in Chicago and other concerns have led to 33% vacancy on the famed one-mile stretch of North Michigan Avenue. That is an all-time high for the approximately 3.2 million-square-foot retail market, according to Cushman & Wakefield.
Upper floors of vertical malls always have been challenging to keep filled because of lower foot traffic, even when surrounding retail is thriving.
Demand for traditional office space has been historically low since the onset of COVID-19 in early 2020, but the Water Tower Place offering could benefit from the continued rapid growth of nearby hospital systems, such as Northwestern Memorial HealthCare and the Ann & Robert Lurie Children’s Hospital of Illinois.
Medical organizations and other nonprofits often prefer to own their office space because of tax benefits in doing so. Last year, Northwestern paid $67.5 million for the nearby Hyatt Centric Magnificent Mile hotel, some of which it is expected to convert to new uses as it grows.
The owner of the office portion of the 100-story former John Hancock Center next to Water Tower Place in recent years has increased its focus on signing office tenants from the medical sector.
Mag Mile retail landlords continue to dig out from store closings in recent years, including the closure of the Signature Room restaurant and bar on the 95th and 96th floors of the former John Hancock tower at 875 N. Michigan.
For the Record
MetLife is represented by JLL brokers Meredith O’Connor and Tom Kirschbraun.