The real estate investment firm of former NBA team owner Robert Sarver has completed a nearly $89 million purchase of a sprawling structure along the Chicago River that's the largest office property on record to trade hands in the city since 2018.
Sarver’s Arizona-based 3Edgewood earlier this month bought the approximately 1.6 million-square-foot building at 600 W. Chicago. The sale price was just under $88.7 million, according to online property records, which is a small fraction of its last sale price about seven years ago.
The former Phoenix Suns team owner launched his real estate firm in 2023 and previously bought office properties in the Los Angeles, Dallas and Houston markets.
No larger office building than the ultrawide former Montgomery Ward warehouse has sold in Chicago since 2018, according to CoStar data. That year, ventures including Sterling Bay bought 600 W. Chicago and the two-tower, approximately 2.3 million-square-foot Prudential Plaza complex just a few months apart.
The 600 W. Chicago sale comes at a huge loss to Sterling Bay and its investment partner, J.P. Morgan Asset Management, as well as to lender Morgan Stanley, which still was owed about $374 million.
It continues a trend of office owners and their lenders suffering large losses on office buildings bought during better times ahead of the pandemic.
Recent examples of lost values included three deals at the end of 2024 — the largest of which was for the 57-story, more than 1.4 million-square-foot tower at 70 W. Madison St. — at a combined loss of about a half-billion dollars from those properties’ previous sale values.
Earlier this month, the longtime owner of the historic Inland Steel Building handed that 19-story tower back to its lender.
Dropping values
Values have plunged because of persisting remote work trends, higher borrowing costs and other challenges that have emerged since the onset of COVID-19 nearly five years ago.
Despite struggles of many office landlords throughout the country, 3Edgewood sees 600 W. Chicago as a one-of-a-kind property that will be coveted by companies looking to bring employees back to the office, said Jordan Mellovitz, the firm's head of real estate, a native of suburban Deerfield, Illinois.
"We think it's a differentiating offering, and Sterling Bay did a great job renovating it," Mellovitz said. "The amenity package is one of the best we've seen across the country. The parking situation is really unique, with the ability to pull up to your floor and walk to your suite. For a building with large floor plates, it's got great windows, much larger than you'd typically see for a building of this vintage."
J.P. Morgan Asset Management and Morgan Stanley declined to comment to CoStar News. Sterling Bay did not immediately respond to a request for comment Thursday.
3Edgewood said Sterling Bay will remain as the leasing agency and property manager.
Morgan Stanley provided a "moderate level" of new debt as part of the deal, Mellovitz said. He declined to say how much the loan is for, and information on the debt could not yet be found in online property records.
Sterling Bay made upgrades to the building including improved fiber connectivity, adding amenities such as a conference facility and fitness center overlooking the river, new food-and-beverage options in the lobby and a rooftop terrace.
The new owner said it plans to add covered outdoor terraces for individual tenant suites, move-in-ready spec suites and other upgrades including bringing back a ground-floor bar and gathering place for employees similar to the once-popular Motel Bar in the building.
"We're going to spend money to enhance what we think is already a vibrant environment," Mellovitz said. "Employers are doing all they can to get workers to come back to the office. We're trying to create spaces where people want to be."
CoStar News first reported that 600 W. Chicago was hitting the market in early 2024, and later that year Crain’s Chicago Business first reported Sarver’s firm was in talks to buy it at a steep discount. The sale price was unknown at the time.
Catalog warehouse
Department-store giant Montgomery Ward opened the building in 1908 as the Catalog House, from which mailed-in orders were shipped to customers’ homes.
After being converted into offices, it previously was the headquarters of Groupon as that Chicago company rapidly grew into more than 290,000 square feet in the building.
But after a series of setbacks to the business, Groupon issued a “going concern” warning and disclosed plans to pay a $9.6 million termination fee to leave its huge space in 600 W. Chicago. Later that year, Groupon signed a short-term sublease deal for a much smaller office space in the Loop business district.
The building is now just 62.5% leased, according to CoStar data. Tenants include Echo Global Logistics, Tempus, Jump Trading and the Big Ten Network.
The 600 W. Chicago deal continues a sell-off of J.P. Morgan Asset Management’s properties in the city as the firm backs away from its investment with Sterling Bay in the stalled, 55-acre Lincoln Yards project on the North Side.
J.P. Morgan Asset Management is looking to sell land it bought with Sterling Bay near Lincoln Yards and in Fulton Market, while also selling off investments with other partners including the 227-unit Parker Fulton Market apartment tower.
For the record
The sellers were represented by Eastdil Secured brokers Bryan Rosenberg and David Caprile.