A rare pandemic-era Chicago office market test is underway as Miami’s Market Street Real Estate lists a vintage 12-story Loop building that it bought four years ago just before a loan against it matures.
After losing payroll processor ADP as its largest tenant across 24,000 square feet earlier this year, Market Street, led by Danny Warman, hired the Chicago office of CBRE to sell 209 West Jackson Boulevard, according to a listing. While an asking price hasn’t been disclosed, the ceiling for the 144,000-square-foot building isn’t much higher than the $24 million the firm bought it for in 2018, when it was 89 percent leased, a person familiar with the offering said.
If the property sells for much less than that, it could spell trouble for Market Street, as a $25 million loan against it matures in December, according to DBRS Morningstar report on the debt, which was sold to commercial mortgage-backed security investors. The building has more than 60,000 square feet of office space listed as available for lease now or within coming months.
Few buildings similar to the Market Street property, a Class B structure originally built in the 1890s, have tested the market in Chicago, New York and San Francisco since the pandemic upended demand for office demand. As offices consolidate into buildings of trophy quality with new amenities, brokers have predicted tough leasing ahead for properties that lack facilities that tenants say they need to lure employees back to the office from remote work setups.
Market Street has tried to make the building more competitive, investing more than $1 million to install a tenant lounge, an increasingly important perk for tenants, and renovating lobbies, bathrooms and elevators, a Morningstar report said.
The property benefits from its location, a busy area near Willis Tower. Much of its rental income comes from ground-floor retail space that drew tens of thousands of people on weekdays before the health crisis. A Starbucks and Luke’s Beef restaurant lease portions of retail in the building.
Its largest tenant following ADP’s departure, Travel Leaders, has more than 12,000 square feet leased through 2030, providing some stability. Its next two biggest tenants have similar sizes in the building through 2024 and 2025.
The building’s other retail storefronts have been vacant amid the pandemic, though, and downward pressure on retail rents in the Loop has resulted from fewer office workers heading downtown during the week and generating less foot traffic.
The loss of ADP was a blow, too. When faced with an expiration in 2020, the tenant considered signing a five-year extension but settled on just 13 months, then left this year, opting to use a co-working setup, a person familiar with the property said. ADP and Market Street didn’t return requests for comment.
The property provided a net operating income of $2.2 million last year before ADP’s exit, the Morningstar report said.
Brokers told The Real Deal it’s likely Class B buildings without the fancy amenities drawing tenants into leases will hide from the investment and debt market unless forced into them by approaching loan maturities until the pandemic’s impact fades.
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