Distressed Downtown Chicago Office Tower’s Discount Deepens

A pair of east coast real estate firms are eyeing a deeply discounted office tower in Chicago’s Loop.

Namdar Realty Group and Mason Asset Management are in talks to acquire the 57-story office tower at 70 West Madison Street for $60 per square foot, CoStar reported, citing people familiar with the deal.

CBRE’s David Knapp, Blake Johnson, Arthur Johnson and John Saletta are representing the sellers, a venture of Hearn, GEM Realty Capital and Farallon Capital Management.

If the deal closes at the expected $85 million price, it would represent a significant discount from its $267 per square foot valuation in 2014, when the trio purchased the building for $375 million.

The ownership refinanced the 1.4 million-square-foot property in 2018 with $305 million from lenders including Bank of America. That loan had fallen into distress as of September, following a missed payment, and Bank of America sued for foreclosure. If the sale closes, it would likely clear that up.

The landlords invested $53 million in renovations to the lobby and the conference and fitness centers. However, occupancy challenges persisted, with only 68 percent of the building leased as of January. Major tenants include law firms K&L Gates and Nixon Peabody.

The discounted price and low vacancy rate highlight the ongoing distress impacting Chicago’s commercial landlords. The third-quarter vacancy rate in Chicago came in at 25.8 percent, up from almost 14 percent at the start of the pandemic, according to CBRE.

Florida-based FRI Investors previously negotiated a purchase price of approximately $100 million ($71.5 per square foot) for the property. However, that deal fell apart amid limited office demand and scarce financing options.

Unlike recent office transactions in Chicago, the deal for 70 West Madison would not involve seller financing. Namdar and Mason, headed by CEOs Igal Namdar and Elliot Nassim, respectively are well-known for purchasing distressed assets, particularly in the retail and mall sectors.

The firms have begun expanding their office holdings, including the $74 million loan acquisition on One North LaSalle Street, as well as a $54 million acquisition of the 45-story 200 Public Square office tower in Cleveland.

— Andrew Terrell