A Chicago-based real estate investor has bought a River North loft office building out of financial distress, adding to its portfolio in a niche that the firm believes will outperform the broader market for corporate space.
R2 acquired the five-story, 46,150-square-foot building at 225 W. Illinois St., the firm told CoStar News.
It is the firm’s fourth deal since mid-2024 for smaller, timber office buildings in River North, following previous deals for buildings at 730 N. Franklin St., 225 W. Ohio St. and 303 W. Erie St.
R2 has been on the hunt for bargains in the area north of the Loop business district, where historically low demand has pushed down values over the past few years. Falling values have created buying opportunities for River North loft buildings, even though there is a relative shortage of space, said Zack Cupkovic, an R2 partner.
In an email to CoStar News, he described such properties as “easy to lease because tenants are downsizing” and there is relatively little space available in high-quality loft buildings. Lower operating costs also keep rents low enough to compete for new tenants.
“They’re not making any more heavy timber office buildings,” Cupkovic said. “Plus, around 1 million square feet of loft buildings has or is being converted to residential.”
Nearby examples include part of a modern tower at 111 W. Illinois being redeveloped into 153 apartments, and a loft structure at 116-122 W. Illinois switching to 36 apartments.
Cupkovic said buildings that began with industrial uses also have greater flexibility in potential uses. In another R2 building, he said, a venture capital firm’s offices share the same floor with a coffee roaster.
“You can’t do that in a tower,” he added.
The sale price for 225 W. Illinois could not yet be found in online property records, but someone familiar with the deal said it was for just over $4.6 million.
The deal was backed by an undisclosed amount of debt from Lake Forest Bank & Trust, according to R2.
The sale price is well below the value of an $8.5 million loan that the previous owner, Chicago-based RN Realty, took out on the property in January 2018, according to Cook County property records.
The lender, State Farm Insurance, took back the property late last year via a deed in lieu of foreclosure, a form of voluntary surrender, property records show.
RN Realty and State Farm did not respond to requests for comment.
The Illinois Street building, amid a row of loft properties used as design showrooms, is about 50% occupied, Cupkovic said.
R2 also has invested in the Loop, including buying the 41-story tower at 150 N. Michigan Ave. and overseeing the conversion of part of the office tower at 79 W. Monroe St. into 117 apartments. Those projects are in partnership with the Italian family that owns the controlling interest in the Campari spirits empire.
Along the far western edge of the Loop, R2 recently acquired a vintage office building at 550 W. Randolph St. In that $14 million deal, bicycle parts maker SRAM will become a tenant in about half the space while also taking an ownership interest.
For the record
The seller was represented by Newmark brokers Derek Fohl and Jack Trager.