A River North office building where WeWork shut down a large space is going up for sale in what could be the latest example of a Chicago property selling for less than the value of its debt.
Cushman & Wakefield brokers have been hired to seek a buyer for the office portion of the 17-story tower at 20 W. Kinzie St., which years ago was home to a large Google office, Rich Gatto told CoStar News. Gatto is an executive vice president at property owner Alter Group.
About 80% of the 258,000 square feet is vacant, he said. That challenge comes after the biggest tenant, WeWork, stopped paying rent and moved out earlier in the COVID-19 pandemic as part of a massive pullback by the coworking firm.
Alter Group, which completed the building in 2000, was left with a hole to fill at a time of historically low demand in Chicago and other cities.
Alter Group is a longtime real estate investor in the Chicago area that has developed properties throughout the country. The firm’s second-generation owner and president, Michael Alter, also is principal owner of the city’s women’s basketball franchise, the Chicago Sky, which won the WNBA title in 2021.
People familiar with the property say it is likely to sell for far below the $60 million that Wilmette, Illinois-based Alter Group borrowed from Bank of America to refinance it in June 2019, less than a year before the start of a global pandemic that shook office markets.
That led the lender and the property owner to explore a potential short sale that would allow Bank of America to recoup part of the value of the loan. The building is expected to formally go on the market for sale sometime this summer.
Charlotte, North Carolina-based Bank of America declined to comment to CoStar News.
"We're cooperating with the bank on all potential scenarios in these strange times," Gatto said.
Distressed Market
With remote and hybrid work trend persisting, along with corporate layoffs and other economic worries, several buildings in Chicago have been handed back to their lenders or are on the market with the anticipation of selling at a loss.
In one ongoing deal, Chicago developer R2 is expected to pay $70 million for the 41-story office tower at 150 N. Michigan Ave. That is about $16 million below the value of the loan, and far below the nearly $121 million the tower last sold for in 2017.
The Kinzie Street offering is for offices on floors seven through 17, a ground-floor office lobby and below-ground parking. The sale will not include the separately owned Kinzie Hotel on lower floors.
Offices there long thrived, with Google growing into most of the building before moving to the then-unproven and now fast-growing Fulton Market district about eight years ago.
Alter quickly offset that loss by signing a large deal with WeWork, which was another fast-growing Chicago tenant before struggles in recent years that have led to real estate pullbacks throughout the country.
Alter negotiated a termination fee with WeWork and the company moved out of its space several months ago, Gatto said.
A new owner at 20 W. Kinzie could make a relatively low-risk bet on the return of office demand in an area where restaurants and nightlife have bounced back from a lull earlier in the pandemic.
The property also could attract bids from office users that want to own their space.
"It could be worth more to an occupant," Gatto said.
People who know the building say the floor plates also would work for developers looking to convert the office floors to residential or hotel use in an area of the city known for dining and nightlife crowds.
For the Record
Cushman & Wakefield brokers Cody Hundertmark, Tom Sitz, Dan Deuter and Paul Lundstedt are representing the seller.