What is the value of the highest observatory in the U.S.?
Turns out it's more than $420 million, according to a recent appraisal.
The estimate means that just one business within Chicago's 110-story Willis Tower has a value that in and of itself exceeds that of most entire commercial towers around the country.
The data point from 233 S. Wacker Drive shows how much of a cash cow a small piece of a skyscraper can be when it attracts crowds willing to pay top dollar for a high-elevation experience.
Blackstone's recent negotiations to extend the maturity of more than $1.3 billion in debt on the skyscraper helped cast a light on the value of various portions of the former Sears Tower, including a rare peek at revenue figures for the Skydeck Chicago experience.
An appraisal report from earlier this year shows the Skydeck Chicago is valued at $420.1 million as a business, with just $47.9 million of that coming from "real property" value. The tourist spot brought in more than $52 million in revenue last year.
Those financials add an interesting twist at an already challenging time to assess the long-term valuation of an office property. Office values have been a moving target following years of remote work trends, rising borrowing costs and other challenges.
Tourism draw
Willis Tower is one of a relative few U.S. buildings that also are major tourist attractions.
The Skydeck's value as a business is set to rise to almost $463 million by early 2027, according to an appraisal of the property done early this year.
The observatory is a key aspect as real estate analysts and investors, including bondholders for commercial mortgage-backed securities debt on the 1,451-foot-tall skyscraper, try to calculate the long-term prospects of a famous tower that was once the world’s tallest.
The evaluation of the Skydeck business, and the property’s overall value, needed to be re-calculated when owner Blackstone early this year struck a deal to extend the looming maturity of $1.325 billion in commercial mortgage-backed securities debt on the property. That gives the New York-based private-equity giant until as late as early 2030 to pay off the interest-only loan.
As part of the refinancing process, special servicer KeyBank commissioned a new appraisal, which found the value of Chicago's tallest skyscraper had fallen to $1.03 billion. That is far below the $1.78 billion appraisal from 2018, when Blackstone refinanced the tower.
A recent report by Morningstar DBRS said it is placing credit ratings for all classes of the CMBS debt on the tower under review “with negative implications” because of the big drop in appraised value and other risks. That report from late May, however, also noted the tower’s value is set to rise to $1.22 billion by 2027 after factoring in costs of filling office and retail vacancies.
The value is even higher when including the value of the observatory as a going concern in the equation. The current estimated value of the tower rises to $1.4 billion, with a stabilized value of $1.63 billion by 2027, according to Morningstar DBRS.
More than building's price
Those totals are higher than the $1.3 billion that Blackstone paid for the tower in 2015 and the value of the debt. Those totals are less than Blackstone’s total investment in the early 1970s property, which includes a $500 million project to add 300,000 square feet of new retail, restaurant and entertainment space at the base of the tower.
Willis Tower’s revenue sources also include broadcast antennas, further setting it apart from traditional office properties.
“Our recent extension to the loan term reflects our continued belief in the strength of Willis Tower,” Blackstone said in an emailed statement. “We believe the building’s transformative renovation has positioned it for success, as demonstrated by over 430,000 square feet of leasing in the past 24 months and more than 1.2 million annual Skydeck visitors.”
The Skydeck is known for its Ledge attraction, where glass boxes extending out from the building offer tourists views straight down from the 1,353-foot-high observatory.
Skydeck revenue last year was just over $52.5 million, according to the appraisal report, representing more than 20% of the property’s total revenue.
Observatory revenue represents an even higher percentage of net operating income at just over $37.8 million, or more than 29% of the tower’s total NOI, according to CoStar data and the appraisal report. NOI is a key measure of profitability after deducting operating costs from gross revenue.
Sizing up observatories
Overall Skydeck revenue is low when compared with the $130 million-plus in observatory revenue taken in last year at New York’s Empire State Building. But it is a sizeable amount of ancillary revenue at a time when a number of office landlords are struggling to stay afloat financially.
Chicago, like New York, is one of the few North American cities with competing observation decks.
The owner of the 360 Chicago, Paris-based Magnicity, plans to expand the 94th-floor observatory into the two floors above it in the former John Hancock Center. Those floors previously were occupied by the Signature Room restaurant.
Empire State observatories on the 86th and 102nd floors raked in a combined $136.4 million in revenue in 2024, according to an annual report from the real estate investment trust that owns the property and other Manhattan properties, Empire State Realty Trust. That revenue, from 2.6 million visits last year, accounted for one-quarter of the entire REIT’s net operating income.
A newer Manhattan skyscraper, One Vanderbilt, had $133.2 million in revenue last year from its Summit observatory, according to an annual report from the REIT that owns it, SL Green Realty.
Chicago’s Skydeck includes the 103rd-floor observatory, event space on the 99th floor and a museum on the tower’s lower retail level.
The observatory, which added the Ledge in 2009, had more than 1.4 million visitors in 2019, the last year before the arrival of COVID-19, according to the appraisal. Despite total visits remaining below pre-pandemic levels, revenue and NOI rose significantly by 2024 because of higher ticket prices, which now range from $35 to $57.
On clear days, Skydeck guests can see four states: Illinois, Indiana, Wisconsin and Michigan.