A 12-story building in Chicago’s Loop business district has sold for $4 million in one of the most jarring examples of falling values for office properties throughout the United States.
Investor Igor Gabal bought the leasehold interest in the tower at 300 W. Adams St. in late December out of financial distress, he told CoStar News. The price is a far cry from the $51 million the property last sold for in 2012.
The amount especially stands out for an office building that is near public transit and the high-profile, 110-story Willis Tower, where Blackstone Group recently invested $500 million on an expansion of lower floors. Past owners of the Chicago landmark at 300 W. Adams have included late real estate billionaire Sam Zell and Sterling Bay before that firm became one of the city’s most prominent developers.
Gabal’s purchase comes about a year and a half since the last major Chicago office sale of $50 million or more as higher interest rates and low demand for offices due to remote and hybrid work schedules, as well as cuts in corporate spending and layoffs, that persist nearly four years since the onset of COVID-19.
In other examples of highly discounted local deals last year, Portland, Oregon-based Menashe Properties paid $45 million for the 29-story tower at 230 W. Monroe St. that last sold for $122 million, and Chicago-based Coastal Partners paid $17 million for loft offices at 213 W. Institute Place that previously sold for $43.5 million.
Chicago isn’t the only city where offices have sold for huge discounts to previous prices. In one extreme example, a 44-story tower in St. Louis sold in 2022 for $4.5 million, down from almost $205 million the last time it sold, in 2006.
More recently, an office building in downtown San Jose, California, sold for $23.7 million, significantly below its $80.1 million sale price in 2017. A three-building complex in Newton, Massachusetts, sold last year for $117.5 million, down from its previous $235 million sale price in 2020.
Quick Profit Opportunity
With those headwinds, Gabal said, he was able to get a low enough purchase price to immediately turn a profit while looking to aggressively lease the roughly half of the building that is vacant.
Because he didn’t take out a loan, Gabal said he won’t be limited by loan covenants on the types of deals he can offer tenants. That allows him to offer move-in-ready spaces on short-term leases.
“My plan is to fill the niche for existing office users who need to reduce their footprint and move closer to train stations,” Gabal said. “I’m going to be focusing on smaller tenants under 10,000 square feet and looking for leases of five years or less.
“We’re at an A-plus location with a B-plus or solid B building.”
Gabal said portions of the building could be converted to data storage or apartments if the office turnaround is unsuccessful.
The office purchase continues Gabal's longtime run of investing in real estate, a practice that started soon after immigrating to Chicago from Ukraine in the 1990s. He said his first investment was a small apartment building in the city’s Ukrainian Village neighborhood.
The latest deal, reported earlier by Crain’s Chicago Business, is on a larger scale for the investor who also runs a food and beverage importing and distribution business. Gabal has houses in Chicago and Naples, Florida.
He was brought into the Loop office deal long after the previous owner, Alliance HP, handed back the building to its lender in 2021.
Ground Lease Retained
Alliance HP bought the building from Sterling Bay for $51 million in 2012. The Bryn Mawr, Pennsylvania-based investor then divided the property into a leasehold interest in the building and a 99-year ground lease, which Alliance still controls and from which it still collects rent payments.
Alliance surrendered the leasehold interest, or control of the building itself, with more than $20.5 million remaining on the balance of a commercial mortgage-backed securities loan. LNR Partners, the special servicer, hired JLL to seek a sale to recoup some of the investment for bondholders in the CMBS offering.
LNR did not immediately respond to a request for comment from CoStar News.
Previous efforts to sell the property, including one round via auction, were unsuccessful before Gabal struck his deal. Gabal said his willingness to close within 90 days helped swing the deal.
“They were looking for certainty, speed and price in that order,” Gabal said. “I gave them a price that they were willing to accept.”
Gabal said existing leases provide enough cash flow to make ground-lease payments, while future leases will boost his profit margin.
For the Record
The seller was represented by JLL brokers Bruce Miller, Jaime Fink, Pat Shields and Sam DiFrancesca.