The John Buck Company and its Wacker Drive office tower lender Morgan Stanley have reeled in a lease from a tenant departing another financially troubled skyscraper — whose lender is also Morgan Stanley — in a law firm’s major downsize.
Smith, Gambrell & Russell is heading to the Buck-built 155 North Wacker Drive, where it will occupy 57,000 square feet on a long-term deal spanning its 30th and 31st floors starting in early 2026, following its lease expiration for about 120,000 square feet at 311 South Wacker.
The move lines up with the wave of tenant cutbacks on office space coming out of the pandemic that’s bringing financial pain to office landlords, worsened by the Federal Reserve’s interest rate hikes.
Smith Gambrell’s current landlord, a joint venture of Chicago-based Zeller Realty and Chinese investment firm Cindat Capital Management, have been slammed by the resulting downturn, with the law firm’s pending departure set to exacerbate the bleed. The venture has been struggling to sell the building. Its value has dropped off a cliff since the venture paid $302 million for the 1.3 million-square-foot building in 2014 and spent $38 million on renovations.
Offers ranged from $100 million to $120 million when 311 South Wacker was on the market last year, well below the debt tied to the property. Its 2018 refinance included a $215 million senior loan from a consortium of banks led by Morgan Stanley, as well as $80 million in mezzanine debt.
The law firm’s relocation comes amid a string of losses for 311 South Wacker, which is less than 60 percent occupied and has been marketed for sale for about two years, with one broken deal and so far no takers.
Earlier this year, Attorneys’ Liability Assurance Society, commercial lender Monroe Capital and financial services firm Mizuho Financial Group were all in talks to leave office leases at the 65-story tower for Buck’s 48-story 155 North Wacker. Like many other tenants, they’ve sought out newer buildings — Buck’s was built in 2009, compared to the 1990 completion of 311 South Wacker — with more updated amenities in a bid to entice employees to come into the office more often.
“Attracting people to come to the office and work together, that’s in part a function of the space you have and how it’s set up and how it’s designed to welcome and encourage people to work together in the office and be efficient going forward,” Jim R. Figliulo, a partner for Smith Gambrell & Russell, told The Real Deal.
While the Chicago office market is near a record-vacancy rate of 25 percent, 155 North Wacker is slightly above that mark, with a run of recent leases set to boost its occupancy to near 90 percent, according to people familiar with the market.
Buck and its lender Morgan Stanely have also given the green light on larger-than-usual concessions to prospective tenants, adding to 155 North Wacker’s allure by allowing them to convert the value of the free rent normally offered for a short period at the front end of a lease into cash for tenant improvements. Some deals have allowed the tenant to get upwards of $300 per square foot from the landlords to build out their spaces.
The law firm’s Chicago office opened in 2022 when it combined with Figliulo & Silverman and grew significantly through a combination with Freeborn & Peters LLP last year. The former Freeborn & Peters had kept its offices at 311 South Wacker since 1992.
Meredith O’Connor and Matt Carolan of JLL represented the law firm in the transaction. Newmark’s Bill Rolander represented the ownership of 155 North Wacker; the landlord recently replaced Newmark with a leasing and property management team from Stream Realty’s Chicago office.
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