Two developers want to covert a mostly vacant, two-building office complex near the Old Orchard shopping mall north of Chicago into 245 apartments in a $90 million project that is sure to be closely watched by other firms interested in switching corporate space to new uses.
GW Properties and The Drake Group have a deal to buy the Old Orchard Towers complex at 5202 and 5250 Old Orchard Road in Skokie, Illinois, and remake the seven-story buildings into apartments, pending approval of the suburb just north of Chicago, according to filings with the village and GW Principal Mitch Goltz. Skokie’s Plan Commission recently approved the plan from Chicago-based GW and Glenview, Illinois-based Drake.
If it gains full village approval, the project could add to a wave of residential projects nearby. That includes one by the owner of Westfield Old Orchard, one of the area’s largest malls, to replace outdated department store space with apartments and other new space, including for medical offices and smaller-format retail.
If the Old Orchard Towers redevelopment is successful, it also could provide a road map to similar projects, many of which already are being eyed in the Chicago area and throughout the country despite potentially high costs and other major challenges with conversions of offices into residential buildings.
Some developers are evaluating conversions because of falling office values and relatively strong apartment demand.
Talk of converting outdated office towers in Chicago’s Loop business district has yet to lead to any started projects, in part, because of the complexity and high cost of converting larger floor plates into homes.
“You look at those downtown buildings that are too square and have too much interior space and you think, ‘This won’t work,’” Goltz told CoStar News.
But he said the Skokie property appears to be the exception, with L-shaped floors, high ceilings and ample windows providing enough light into every unit.
“This property and any other older office buildings do provide challenges, but this property, unlike others, passes the sniff test because of its layout,” Goltz said.
Other important attributes include a 740-space parking garage between the two towers, the top floor of which will become an outdoor amenities area with a walking track, bocce ball and pickleball courts, and other activities, Goltz said.
The developers hope to have zoning approvals in hand by the spring, but it’s unclear how soon construction can begin because of lease obligations to remaining tenants in the towers, Goltz said. About 65% of the space is already vacant, he said.
That led Old Orchard Towers to join a list of office properties throughout the Chicago area and the nation that are worth less than their debt as remote and hybrid work trends persist more than 3 1/2 years after the pandemic began.
Chicago-based Zeller Realty bought the property for $63.5 million in December 2007, according to Cook County property records. The firm’s $59.6 million commercial mortgage-backed securities loan on the property matured earlier this month after a third and final maturity extension ended, according to county records.
Goltz said the redevelopment is expected to cost about $90 million, including the purchase price, which he declined to provide.
Crain’s Chicago Business, which previously reported the redevelopment plan for the property, reported that the sale price is expected to be about $11 million, far below the value of the loan.
Zeller did not immediately respond to a request to comment on the pending sale from CoStar News. The special servicer for the loan, Ares Commercial Real Estate, declined to comment.
In Chicago’s suburbs, developers of warehouses and data centers have bought obsolete office buildings to knock them down and replace them with new buildings.
But with soaring construction costs and rising interest rates, Goltz said his firm is looking harder at buildings it can buy and repurpose.
The Skokie site is near the Edens Expressway, the Old Orchard mall and other retail space.
Competing Projects
The mall’s Paris-based owner, Unibail-Rodamco-Westfield, plans to replace a former Bloomingdale’s department store with 360 apartments, medical offices, restaurants and new shops.
Also nearby, Tucker Development and Wingspan Development recently finalized $100 million in construction financing for a 294-unit apartment development at 5400 Old Orchard Road.
Goltz said his development team views those other projects as validation of the area’s growth, rather than downside, because of added competition for renters.
“It’s good in the sense that other people are seeing the value in developing that market,” Goltz said. “Those investments will lead to further growth. Old Orchard is the biggest economic driver in that area, and that owner is making a big investment. We believe there’s enough demand to fill all these projects at different price points.
“Customers like to have options, and right now the market doesn’t have enough new construction-quality options in that area.”
For the Record
The seller is represented by Cushman & Wakefield brokers Dan Deuter, Cody Hundertmark and Tom Sitz.