Three years after Brookfield Properties was hit with a foreclosure suit on a big office building in Chicago’s Loop business district, one of the city’s biggest office landlords is closing in on a deal to buy it at a massive discount to the value of the loan.
New York-based 601W is in talks to buy the more than 1.4 million-square-foot building at 175 W. Jackson Blvd., according to people familiar with the situation.
The deal is preliminary and still could fall apart amid high borrowing costs, historically low demand for corporate space, difficulties in financing office deals and other challenges.
If the deal is completed, it will add to 601W’s already large office portfolio in Chicago, which includes the ultrawide Old Post Office and the 83-story Aon Center.
It’s unclear how much 601W is offering to pay for the 22-story property at 175 W. Jackson, but it is believed to be a small fraction of the approximately $250 million value of the commercial mortgage-backed securities loan balance, according to loan data.
Brookfield bought the building for almost $306 million in 2018, financing the deal with a $280 million loan that was packaged with other debt and sold to investors in the debt.
The trustee for CMBS bondholders filed a foreclosure suit in September 2022, and the loan matured without being paid off in October 2023, with about $250.5 million remaining on the balance.
Loan special servicer LNR Partners never moved to seize the property, instead pursuing a sale that would pay off a fraction of the value of the debt and avert a formal foreclosure.
Brookfield, 601W and LNR did not respond to requests for comment from CoStar News.
The sale is playing out years into a depressed market for office investment sales, with many landlords and their lenders forced to sell at losses from pre-pandemic valuations and loan amounts. In one recent example, the 65-story tower at 311 S. Wacker Drive sold for $45 million, far below the more than $302 million that it previously sold for in 2014.
Buyers that know the Chicago office market well have sought out discounted deals, believing their operational experience and a long-term turnaround in demand will make 2025 prices look like bargains in a few years.
Among those firms is 601W, which also has been in talks to buy a 16-story office building across from the Old Post Office at 525 W. Van Buren, CoStar News reported in June.
Turning around the building at 175 W. Jackson could be a lengthy and costly process, with vacancy now 53%, a number set to rise to 59% with known move-outs to come, according to materials from JLL, which is brokering the sale. The weighted average lease term is 5.8 years, according to JLL.
The wide building was designed by architect Daniel Burnham, and it was built in separate phases in 1912 and 1927, according to the JLL brochure.
Between 2018 and 2024, the building underwent more than $24 million in upgrades to building systems, common areas and amenities, including the creation of move-in-ready spec suites, according to JLL.
For the record
The seller is represented by JLL brokers Jaime Fink, Bruce Miller, Patrick Shields, Sam DiFrancesca and John Mason.