A Chinese investor has paid $15 million for a high-vacancy Chicago office property with plans for a residential makeover, adding to a wave of conversion projects in the city and throughout the country amid historically low demand for corporate space.
An affiliate of Titan Power Overseas Investment acquired the 23-story tower at 205 W. Wacker Drive, where the company said it plans to switch the upper floors to apartments.
The $15 million sale was completed last month, according to online property records.
The deal was a deed in lieu of foreclosure, resolving a lawsuit over $27.5 million in unpaid debt on the property by the previous owner, New York-based Alvarez & Marsal.
JLL brokers began marketing the property on behalf of lender, Boise, Idaho-based A10 Capital, last fall.
It’s the latest in a long line of Chicago office sales in recent years at steep discounts to previous valuations, either as office lease-up plays or for switches to new uses such as multifamily.
Multifamily conversions have been a familiar theme at a time of high construction costs for ground-up projects, challenges in financing new projects and a dramatic decrease in new supply in recent years. That has led Chicago-area rent growth to remain among the highest in major U.S. markets.
The Chinese company's deal for 205 W. Wacker is an indication that faraway investors are taking note.
Some conversion projects in the works are part of a city-backed initiative to switch blocks of outdated office space on and around LaSalle Street into affordable apartments.
Other conversions planned or already in the works include the 221-room Sonesta Extended Stay Suites Downtown Magnificent Mile hotel at 201 E. Walton Place, a 24-story office building at 65 E. Wacker Place and the 24-story office tower at 500 N. Michigan Ave.
In the statement, the buyer of 205 W. Wacker said it was advised by WindWave Real Estate. That Chicago-based firm, led by Jon Cordell, teamed up with Path Construction last year on a conversion of the upper floors of an office building at 111 W. Illinois St. in River North into 153 apartments.
In an emailed statement to CoStar News, Kylie Ning confirmed plans for the conversion.
Ning’s LinkedIn profile describes her as head of market strategy and investments at Titan Power Overseas Investment, but the statement describes the entity that bought 205 W. Wacker as TP Management.
“TPM intends to redevelop the upper floors of the building into high-quality boutique apartments, emphasizing thoughtful design, comfort and an elevated urban living experience,” the statement said. “The redevelopment will be carried out in phases, covering design, construction, product repositioning and operations — converting underutilized space into rental residences that meet growing demand in Chicago's core market.”
The statement did not say how many apartments are planned at 205 W. Wacker or how soon the project will start.
Nationwide investor
The statement describes TPM as a Chicago-based real estate investment and management company that has bought several types of properties throughout the country.
“This acquisition advances TPM's commitment to Chicago's urban core and its strategy of creating value through the adaptive reuse and repositioning of existing assets,” the statement said.
A10 Capital and Alvarez & Marsal did not respond to requests for comment from CoStar News.
Wacker Drive is typically known as a corporate address, and many of the city’s trophy office towers are on or near the street that runs along the Chicago River.
But 205 W. Wacker, built in 1928 and with just 43% of its space leased, was marketed by JLL as a candidate for conversion to apartments or a hotel. Those uses are allowed under existing zoning, according to JLL materials.
Last year, Alvarez & Marsal sold a six-story loft office building at 303 W. Erie St. in River North for $7.5 million, exactly half the amount the firm paid for it in early 2017. The buyer was Chicago-based R2.
Meanwhile, a 23-story tower at 205 W. Randolph St. that a lender seized from Alvarez & Marsal last year is set to sell at a steep discount to the value of Alvarez & Marsal’s previous $18.7 million loan on the property, CoStar News reported this week. The buyer is local investor Sanjay Gandhi.
For the record
The seller was represented by JLL brokers Jaime Fink, Bruce Miller and Sam DiFrancesca.