After trying to sell its Loop office tower three years ago, a Chicago investment firm backed by the Searle family is taking another run at it.
A venture led by Kinship Capital has hired the capital markets team in the Chicago office of Cushman & Wakefield to sell its 28-story building at 225 W. Washington St., according to a marketing flyer.
No asking price is listed for the 483,497-square-foot building at the southeast corner of Washington and Franklin streets, but a source familiar with the offering said the building could fetch bids of about $95 million.
The listing is another test of investor sentiment about the future of big Loop office buildings amid the COVID-19 pandemic, which has softened demand for downtown offices as companies have reconsidered their workspace needs. That hasn’t stopped owners from looking to cash out, though many multi-tenant buildings that have hit the market this year have yet to sell.
Kinship, which manages the multibillion-dollar investment portfolio of pharmaceutical magnate Gideon D. Searle’s descendants, put the tower on the market in 2018 seeking around $120 million. Demand for downtown offices was soaring and the building was 86% leased at the time, but the owners never reached a deal.
Now Kinship is trying again, but against an uglier market backdrop. While new leasing activity has picked up in recent months in some parts of the city, the office vacancy rate in the central business district remains at a record high, after a slew of tenants downsized their footprints or are trying shed space on the sublease market.
The building at 225 W. Washington is expected fetch lower bids than before, mostly because it has lost a series of small tenants over the past couple years and is on track to be just 62% leased at the end of 2021, according to the marketing flyer. But the owners have spent $10.4 million on capital improvements since 2012, according to Cushman, and separately put $3.4 million into building out 35,000 square feet of move-in ready offices since the pandemic began.
The brokerage frames the building as an opportunity for a buyer to focus its efforts on leasing up the available space rather than having to update tenant amenities. The tower also has a long-term lease for more than 73,000 square feet that runs through March 2031 with its largest tenant, Germany-based insurance giant Allianz, according to the flyer.
A Kinship representative couldn’t be reached.
The Kinship venture paid $69 million in 2010 for a controlling stake in the building through a deed-in-lieu of foreclosure. The previous owners—a joint venture of Anglo Irish Bank and Chicago-based developer Golub & Co.—were facing an imminent default on more than $100 million in loans on the property, which they bought for $100 million in 2005.
Kinship financed its 2010 deal with a $50 million loan, according to Cook County property records. The group has spent another $35 million on building renovations and leasing commissions since then and refinanced the property with a new $85 million loan in 2019, property records show.
Cushman brokers Tom Sitz, Cody Hundertmark and David Knapp are marketing the building for Kinship.
Chicago-area office sales in 2021 were down 22% year over year through August, according to data from research firm Real Capital Analytics. That’s a remarkable drop-off considering the pandemic virtually froze deal-making for a few months in 2020, but large deals that ultimately closed in mid-2020 at 333 S. Wabash Ave. and 225 W. Wacker Drive helped prop up the sales figure.