A Canadian investor has pounced on a suburban Chicago office building and the seller appears poised for a profit with the deal, which has been rare for area commercial real estate players as of late amid record-high vacancies and rising interest rates.
A firm led by Toronto native Daniel Gryfe bought a seven-story, 350,000-square-foot Reserve at Deer Park office property from global real estate investment firm 90 North for $35.1 million, in a deal that split the land from the structure and valued the ground nearly as much. The price Gryfe paid for the leasehold interest in the property includes additional funds that weren’t documented in public records, a person close to the deal said.
Gryfe’s purchase involved only the leasehold in the buildings and not the land, meaning his business, MBARK Global, will rent it in what is known as a ground lease from 90 North, which retained the land. As part of the deal, the land was transferred between entities under 90 North’s control and was valued at $28.9 million, records show.
During a slump in the market for suburban office space, the Deer Park asset stands out and shows investors still want to buy Chicago area properties with a record of stable revenue streams and even additional development potential. The Reserve office space is fully leased, according to the building’s website, allowing 90 North to recoup most of its 2014 acquisition cost at the property.
The London-based firm paid $40.5 million for the Deer Park office building in 2014 in a joint venture with Dubai-based Arzan Wealth Ltd. from Continental Automotive. In that deal, Auburn Hills, Michigan-based Continental leased back 200,000 square feet of the 350,000-square-foot building for 13 years with 2 percent annual rent increases.
Other office sellers in Chicago’s suburbs haven’t been as lucky recently. Several landlords in the last several months sold mostly vacant buildings at fractions of their investments into the properties, after their tenant rosters were depleted during the pandemic. Among those are the $2.5 million sale by a venture of Phoenix-based Orion Office of an empty 197,300-square-foot property that the company bought for $44 million in 2011.
The Deer Park building was constructed in 2001 and sits on a 58-acre site, which is zoned for three more office buildings with a combined 525,000 square feet, and 90 North has still been marketing itself as open to new development pitches at the property.
Another firm also entered the Chicago office market during the health crisis by striking a series of ground leases for high-profile buildings: Shaya Prager’s Opal Holdings. It has made ground lease deals with New York investor Katherine Cartagena’s company, Prana Holdings, which holds the land while Opal bought leasehold interests in properties such as the $185 million Corporate 500 complex in Deerfield nearby Gryfe’s new asset, and the $415 million Leo Burnett building on Wacker Drive in Chicago.
Founded in 2011, 90 North’s chairman is James Caan, while Dan Cooper heads the company’s North America operations in Chicago. Cooper did not return a request for comment, and Gryfe declined to comment.
The northwest suburbs had the highest vacancy rate of Chicago’s suburban submarkets at almost 36 percent in the fourth quarter of 2022, according to an end-of-year report from Bradford Allen.
Overall, suburban Chicago’s office vacancy rate was almost 29 percent at the end of 2022, according to the report. Some tenants are starting to come back and make long-term decisions on their post-pandemic commercial real estate needs, though, as leasing in the suburbs neared 2019 levels in the quarter, hitting almost 5 million square feet and outpacing urban velocity.
This story has been updated to note that Gryfe may have paid more for the leasehold interest in the property than was documented in Lake County records.
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