Glenstar, 601W Secure Big Discounts in Chicago Office Buys

Chicago’s Wacker Drive is becoming a hotspot for investors with an appetite for distressed office properties offered at drastically reduced prices.

Commercial real estate firm Glenstar and Minnesota investor Patrick Halloran are in talks to acquire the 41-story office tower at 200 South Wacker Drive at a steep discount. At the same time, 601W Companies is planning to purchase the 303 East Wacker Drive tower at a similar markdown, Crain’s and CoStar reported.

The two transactions are part of a larger trend in which office buildings across Chicago and other major cities are being sold at a fraction of their previous valuations, as investors look to capitalize on the downturn caused by the pandemic’s enduring impact on office demand.

Glenstar’s and Halloran’s proposed acquisition of the South Wacker tower involves securing a $151 million loan from Bank of China, with the venture taking control of the building through a deed in lieu of foreclosure.

The property, once a prime office destination in the Loop, has seen occupancy rates decline dramatically due to the pandemic’s shift toward remote work. The previous owner, Manulife Financial, had invested $8.5 million in renovations since 2018.

However, tenant departures and rising vacancies have left the building struggling. Manulife’s efforts to sell the property in 2022 failed to attract sufficient offers, and the company ultimately faced foreclosure action in October 2023.

Glenstar’s Michael Klein and Halloran hope to capitalize on its prime riverfront location to revitalize the asset, possibly through further upgrades and targeted leasing strategies.

The purchase price likely would be well below the nearly $215 million that Manulife paid for the property in 2013, indicating a significant loss for the Toronto-based landlord.

Similarly, 601W Companies, led by managing director David Blumberg, is under contract to acquire the 944,000-square-foot East Wacker tower for just $63 million, about 35 percent of the $182 million Beacon Capital Partners paid for the building in 2018. The reported sale price is under $67 per square foot.

Beacon recently became the focus of a $372 million foreclosure lawsuit over its ownership of another building, 330 North Wabash Avenue, known as AMA Plaza. The lawsuit stems from missed payments on a floating-rate loan.

The Boston-based firm, one of Chicago’s largest office landlords, purchased the 1.2 million-square-foot property in 2016 for $467 million but has struggled with rising interest rates and reduced tenant demand. The firm failed to meet a $3.8 million property tax payment and fell behind on monthly debt service, triggering the default.

Meanwhile, occupancy at 303 East Wacker Drive has dropped to 77 percent. Despite a recent $32 million renovation, leasing activity has been sluggish. 601W, a firm known for tackling large office assets, is betting it can restore the building’s appeal by reinvigorating leasing efforts.

— Andrew Terrell