The owner of a hotel in Chicago’s River North plans to buy office space above it in what could be the latest example of a sale at a steep discount to the property’s debt.
Bixby Bridge Capital and Franklin Partners have agreed to buy the office portion of the 17-story building at 20 W. Kinzie St., according to people familiar with the deal.
The deal has not been completed and still could fall apart with higher interest rates and other challenges that have slowed the pace of property sales locally and nationally.
Northbrook, Illinois-based Bixby Bridge Capital already owns the Kinzie Hotel on the building’s lowest six floors. With its regular office development partner, Oak Brook, Illinois-based Franklin Partners, the firm could re-lease the office space and upgrade amenities for hotel guests and office tenants.
An exact price could not be determined, but people familiar with the situation expect it to be far below the $60 million value of the loan that local firm Alter Group, the developer of the building in 2000, took out from Bank of America in June 2019.
Since that time, office properties have lost significant value because of remote and hybrid work trends that have persisted since COVID-19 lockdowns that began in early 2020. Further dropping the value at 20 W. Kinzie was the exit of the largest tenant, WeWork, in a pullback before the coworking company eventually filed for bankruptcy protection last year.
About 80% of the approximately 258,000-square-foot office property is vacant.
The buyers and seller did not immediately respond to requests for comment from CoStar News on Tuesday. Bank of America declined to comment.
Some lenders have approved short sales, such as the one pending for 20 W. Kinzie, as values have fallen and lending has tightened for owners to refinance or upgrade their properties.
In one recent example in Chicago, developer R2 bought the 41-story office tower at 150 N. Michigan Ave. for $60 million, about half the previous sale price in 2017 during a much stronger real estate market.
Wilmette, Illinois-based Alter Group is led by second-generation owner and President Michael Alter, who also is the principal owner of the Chicago Sky, a WNBA basketball franchise. Alter is a longtime investor in real estate in the Chicago area and throughout the country.
The office portion of the Kinzie Street building is on floors seven through 17, with the space also including a ground-floor lobby and below-ground parking.
Offices were once in high demand in River North, with Google occupying most of the space before moving to the Fulton Market district about nine years ago. WeWork later took over most of that space during a rapid expansion in Chicago, before moving out earlier in the pandemic and leaving most of the office space vacant.
For the Record
Cushman & Wakefield brokers Cody Hundertmark, Tom Sitz and Dan Deuter are representing the seller.