A real estate firm launched last year by former NBA team owner Robert Sarver to buy office buildings at depressed prices has zeroed in on its first Chicago acquisition: the former Groupon headquarters building at 600 W. Chicago Ave.
Arizona-based 3Edgewood is in negotiations to buy the eight-story, nearly 1.6 million-square-foot office building along the Chicago River, according to someone familiar with the matter.
The talks are still preliminary and still could fall apart during a challenging time for property sales throughout the country because of rising interest rates and other factors.
CoStar News reported in February that the former Montgomery Ward warehouse was going on the market for sale, with the price expected to fall well short of the approximately $374 million loan on the property that Morgan Stanley provided in February 2018.
That debt backed the $510 million purchase of the sprawling structure by Chicago developer Sterling Bay when the property was on better financial footing. It is among many buildings nationally that have been hit hard since the onset of COVID-19 in early 2020, leading to remote and hybrid work trends.
Because the deal is likely to come at a big loss to the lender, Morgan Stanley is heavily involved in the ongoing sale to 3Edgewood, which was earlier reported by Crain’s Chicago Business.
Morgan Stanley and Sterling Bay declined to comment to CoStar News, while 3Edgewood did not respond to requests for comment.
If a sale is completed as expected, it would add to the list of office properties in Chicago that have been sold at huge discounts. That includes the recent $125 million sale of the 36-story tower at 333 W. Wacker Drive, which last sold for $320.5 million in 2015, and the approximately $20 million sale of the matured note on the 47-story tower at 1 N. LaSalle St., which last sold for $113.3 million in 2018.
Sarver is a longtime real estate investor, and he is the former owner of the NBA’s Phoenix Suns. He created 3Edgewood, a contrarian investor focused on finding office deals as many investors shy away from the challenged sector, just over a year ago.
That firm last year pulled off two major deals in Texas, including a reported $580 million deal for the State Farm-anchored, 2.2 million-square-foot CityLine complex in Richardson, Texas. The complex previously sold for about $822 million about seven years earlier.
Sarver’s firm also was part of a venture that bought a nearly 3 million-square-foot, seven-building portfolio of buildings in Houston last year.
In November, Jordan Mellovitz, head of real estate investment for 3Edgewood, told CoStar News the firm was looking to buy high-quality, well-located office buildings with all cash, an approach he believes will help the firm overcome rising interest rates and a scarcity of loans available for office purchases. Mellovitz said at the time that 3Edgewood is seeking “a significant discount to replacement cost and previous value.”
The Chicago Avenue building was once nearly fully leased, including more than 290,000 square feet once occupied by online deals company Groupon.
After issuing a “going concern” warning last year, Groupon moved to a much smaller space in the Loop, and the building is less than 62% leased, according to CoStar data. Tenants today include Echo Global Logistics, Tempus Labs and the Big Ten Network.
The property at 600 W. Chicago opened in 1908 as a Montgomery Ward structure known as the Catalog House, from which mailed-in orders were shipped to the department-store chain’s customers.
For the Record
The seller is represented by Eastdil Secured brokers Bryan Rosenberg and David Caprile.