A Los Angeles-based investor has bought a 125-year-old office building in Chicago’s Loop business district for a small fraction of its previous sale price more than a decade earlier, betting that the big price reset will leave room to refill a mostly vacant property.
Brog Properties told CoStar News that it has bought the 10-story building at 216 W. Jackson Blvd. out of financial distress, with plans to aggressively seek out new deals with office and data storage tenants.
The price was just under $2.6 million, according to Ten-X, the real estate auction platform from which it was sold. The price includes a Ten-X fee. Ten-X is owned by CoStar Group, the publisher of CoStar News.
It is a small fraction of the $22.3 million that Marc Realty paid for the building in 2013, in a deal that was backed by a $16.5 million in commercial mortgage-backed securities debt, according to Cook County property records and CoStar data.
“I’ve always been countercyclical,” Andrew Brog, the firm’s managing member, told CoStar News. “I like buying deeply discounted assets.
“With the right deal structure and ability to invest capital in the property, we’ll change the momentum. With our cost basis, we’ll be able to do deals that make sense to us but that no one else will be able to do.”
The 185,479-square-foot building was sold by LNR Partners, the special servicer of a commercial mortgage-backed securities loan that matured in October. About a year after filing a foreclosure suit against Marc on behalf of CMBS bondholders, LNR seized the building in a judicial sale last August, according to county records.
It is the latest example of an office building in the Loop selling at a steep discount from pre-pandemic pricing.
Values in Chicago and throughout the country have been dragged down by remote and hybrid work schedules since the onset of COVID-19, as well as more recent factors such as corporate cutbacks and rising interest rates.
Chicago Discounts
Other examples of big Chicago discounts include a $45 million sale of the 29-story tower at 230 W. Monroe St. last year, down from the previous $122 million price the last time it sold in 2014, and the $60 million sale early this year of the 41-story tower at 150 N. Michigan Ave., down from the nearly $121 million it sold for in 2017.
Late last year, the leasehold interest in a 12-story building at 300 W. Adams St. sold for just $4 million, down from the $51 million the property sold for in 2012 before it was split into separate ground-lease and leasehold interests.
In the most recent deal, a building at 400 S. Jefferson St. once fully occupied by Tyson Foods was sold for $38.5 million to a venture that plans to create the Illinois College of Osteopathic Medicine in it. The building previously had been sold for $97.5 million in 2013, when it was fully leased to Hillshire Brands, which later was acquired by Tyson.
Weak office demand has led Chicago Mayor Brandon Johnson to back a plan to provide more than $151 million in public dollars toward the redevelopment of four office towers in the Loop, which would be converted into more than 1,000 apartments, at least 30% of which would have affordable rents.
Built in 1899, the building at 216 W. Jackson was less than 15% occupied when it went on the market for sale early this year, according to materials from Farbman Group, which marketed the property for sale. Farbman Group brokers presented the sale-by-auction deal as a turnaround play by investing in leasing costs and improvements to the property, with the chance to boost net operating income from about $912,000 per year now to more than $3.4 million by the fifth year of ownership at more than 90% occupancy.
Miami Beach, Florida-based LNR Partners did not respond to a request for comment from CoStar News.
The auction of 216 W. Jackson was held in February, and the deal was finalized this week.
Looking for Deals
Brog said he previously has invested in markets including Oakland, California, New York and small Midwestern cities. He already owns a two-story retail and office building in Chicago’s Bronzeville neighborhood, and Brog said he’s seeking more acquisitions in the city.
Although his firm has experience with office-to-residential conversions, Brog said he and his California-based investment partners have no plans for 216 W. Jackson.
Brog said he expects to capitalize on the Jackson building’s proximity to train stations and lunch spots, including within the city’s tallest skyscraper just down the street, Willis Tower. He hopes to add to the building’s existing data storage tenants and focus on office tenants needing 3,500 to 9,000 square feet of space.
The building’s new owners also want to spruce up the façade and lobby land a bar-restaurant on the ground floor by offering a percentage-rent deal.
“If the right operator came along, we would do a very attractive deal,” Brog said.
For the Record
The seller was represented in the sale by Farbman Group brokers William Bubniak, Alis Manoogian, Todd Szymczak, Mario Giglio III and Andy Farbman.