Longtime owners of a 31-story office tower on the western edge of Chicago’s Loop business district are reviving plans to build a second tower on the site, betting that they can entice corporate tenants with brand-new space, even amid overall high vacancy.
Third Millennium Group, which leads a group of owners of the approximately 1.15 million-square-foot office building at 540 W. Madison St., has formed a joint venture with development giant Hines to kick off a long-planned second tower on the site.
Houston-based Hines has quietly begun seeking out tenants for a 28-story, 665,000-square-foot building with an address of 590 W. Madison St., according to a brochure on the property seen by CoStar News and office tenant brokers who have seen the plans.
That is a different design than a 41-story office and hotel that Third Millennium, led by Joseph Mizrachi, previously floated for the land alongside the existing tower in late 2014. The land came with the Third Millennium venture’s $350 million purchase of the 540 W. Madison building in December 2012.
That plan never secured an anchor tenant amid competition from several other developers to launch new towers along the Chicago River, in Fulton Market and elsewhere.
The revised 590 W. Madison plan comes almost five years since the onset of COVID-19, which has led to persisting remote work trends and historically high office vacancy throughout the country.
That has pushed many previous-generation towers into financial distress, leading some of them to sell at steep discounts to previous pricing. In one recent deal, the ultrawide building at 600 W. Chicago Ave. sold for just under $89 million, down from $510 million the last time it sold in 2018.
Despite broader challenges in the office market, there is a relatively thin supply of recently built Class A space.
Those dynamics have some developers trying to figure out how to overcome financing challenges, high borrowing and construction costs and other challenges to launch the next cycle of office development.
Houston-based Hines is already among them. The firm is working with local developers John Murphy and Jerry Kostelny to try to redevelop two land parcels alongside the 65-story office tower at 311 S. Wacker Drive while also examining the long-shot scenario of tearing down that skyscraper to create a huge blank slate for a multitower development.
The 590 W. Madison project is less complicated because of its smaller size and the already vacant land adjacent to the tower owned by Third Millennium.
It’s not known how much space the firms believe they would need to pre-lease to kick off the project at a time when office investments are particularly challenging to finance.
Boca Raton, Florida-based Third Millennium referred questions to Hines, which confirmed forming the joint venture to develop the tower but otherwise declined to comment to CoStar News.
Hines and Third Millennium will need to find tenants willing to move to the far edge of the Loop business district, but the site could benefit from the continued rise of Fulton Market to the west and proximity to commuter train stations.
“That location is less established than Wacker Drive or right along the river,” said Savills office tenant broker Robert Sevim, who is not involved in the project. “The building’s attractive. The question is, does that location work for those tenants that are out in the market?
“In 2014, there were too many other options that were situated in more appealing locations, and that’s why they leased first. Now there are a limited number of sites, so they stand a chance. And we know Hines always builds exceptional product.”
The new design by Goettsch Partners and the Michael Hsu Office of Architecture includes slits in the exterior to create extra terrace spaces. Plans include 605,000 square feet of office space, 50,000 square feet of amenities and 10,000 square feet of retail.
Amenities include sports courts and a climbing wall in a space with tall windows providing skyline views, according to brochure renderings.
Hines is a well-established developer of trophy office space in Chicago, most recently completing the 60-story Salesforce Tower on the Wolf Point site at the convergence of the north and south branches of the river in 2023. That project began in the early months of the pandemic.