Nonprofit’s Exit Leaves Vacancy at Vornado’s Merchandise Mart

The incubator that fueled Chicago’s startup boom is looking for a new base of operations.

Chicago-based nonprofit 1871 will exit its longtime office at Merchandise Mart after failing to modify its leasing approach in the wake of the pandemic, Crain’s reported. The nonprofit opened with 50,000 square feet in the building in 2013 and scaled up to 120,000 square feet over the years.

1871’s model relied on steady rental income from tenants using its coworking and office spaces. The rise of remote and hybrid work decreased demand for physical office space, resulting in lower rental revenue.

As a result, 1871 found it financially unsustainable to continue leasing such a large space, opting instead to move out of Vornado Realty Trust’s 4 million-square-foot 222 West Merchandise Mart Plaza.

The nonprofit plans to exit its 12th floor space by May 1, said 1871 CEO Betsy Ziegler.

“While our impact across Chicago and beyond has grown significantly, like many other businesses, we were not able to adapt our real estate model quickly enough to the evolving economic landscape,” Ziegler said in a letter to members and partners earlier this month.

The incubator was instrumental in establishing Chicago as a tech hub, attracting companies like Google, Motorola Mobility, Braintree and Yelp to the Merchandise Mart.

The pandemic eventually shrank the nonprofit’s tenant roster from 52 to 15, slashing rental income by more than half. The Chicagoland Entrepreneurial Center, which runs 1871, paid $3.1 million in rent at the Merchandise Mart in 2022, about a third of its expenses.

The nonprofit’s $6 million in annual revenue should ensure stability once free of the lease, Ziegler said.

The 25-story Merchandise Mart has remained relatively resilient compared to other office buildings, securing tenants like Medline, Grubhub and HighDive following a major renovation. Chicago’s office vacancy rate has climbed to 26.3 percent, leaving landlords with numerous unleased spaces.

1871 is searching for a smaller space but will operate remotely in the meantime.

— Andrew Terrell