'The Value Of The Glass And The Steel Is More' : Why Investors Are Finally Betting On Chicago Office Buildings

Investors waiting to deploy dry powder in Chicago over the past couple of years may have found an unlikely ignition source: the office market.

Four separate deals over the past few weeks for downtown office properties have reportedly closed or are near closing at massive discounts for opportunistic new owners. This comes after transaction volumes slowed to a glacial pace for the majority of 2023 and 2024 amid a persistent bid-ask spread that ground office deals to a virtual standstill.  

Two of the key players involved in some of these deals spoke to Bisnow about why they thought the price point and timing were right to make these bets — and how they see the office market evolving in the years to come. 

“There's no question there's been a reset in basis,” said Andrew Brog, managing member at Brog Properties. 

The Los Angeles-based company bought the mostly vacant 16-story office building at 550 W. Washington Blvd. late last month from a venture of New York-based Metropolitan Life Insurance for about $18.5M in an all-cash transaction, 83% less than the $111M that the MetLife venture paid for it when it was almost fully leased in 2013. 

Brog told Bisnow that investors from outside the city are well-positioned to buy locally distressed assets because they’re further removed from the struggle of the current cycle.

“You can't be from Chicago and be buying these buildings,” Brog said. “Or if you are from Chicago, you have to have never owned an office building in Chicago. And why? Because you can't see the opportunity, because you're going through pain.”

Brog said that he agrees with common critiques about the city’s tough political environment, high tax rates and problems with crime. But those concerns are baked into the low cost of deals. 

“The price you're buying these assets for more than reflects it,” Brog said. “So the question is, will it get better? And I think Chicago is cyclical, and I think that it will get better.”

In the East Loop, a joint venture between 601W Cos. and David Werner Real Estate Investments purchased 303 E. Wacker late last month for about $63M, securing a $62.5M loan from Manhattan-based Northwind Group to help finance the deal.

The capital stack included about $41M of cash equity from the venture, $32.5M for the acquisition from Northwind and another $30M from the lender set aside for various building improvements, Ran Eliasaf, founder and managing partner of Northwind, told Bisnow. 

The acquisition represents a plunge of about 66% in value for the office property, which last sold for $182M to Beacon Capital Partners in 2018. Eliasaf said the “super attractive” price of the building, coupled with a strong relationship with the borrowers, helped quickly push the deal across the finish line before the end of 2024.

“I got to tell you, at a 35 bucks a foot basis, we feel comfortable with almost any building,” Eliasaf said. “Basically, the value of the glass and the steel is more.” 

Eliasaf said Northwind was able to negotiate the loan, do due diligence and finalize the closing in less than 30 days. The company is familiar with the Chicago market, but had to educate itself on the property, flying out to see the building in person because it doesn’t lend “from a desktop,” he said. 

It helped that both 601W and David Werner have borrowed from Northwind multiple times and have experience in the city, he said, adding that the building is a Class-A property in a good location in the East Loop. The building also benefits from not having a single, large tenant occupying a sizable chunk of its leasable space, so the property isn’t vulnerable to one company’s exit spiking its vacancy rate, Eliasaf said. 

Still, Eliasaf doesn’t anticipate lending on additional office properties in Chicago anytime soon.

“For us, this was a one-off,” he said. “All the stars were aligned. I don't see us lending on many more office buildings. This was just one deal with strong cash flow, strong tenancy, strong sponsor, great price. So just all the stars were aligned to make this what we think is a good credit deal for us.”

Brog, on the other hand, said he would be interested in buying another Chicago office property. He owns two more buildings in the city, one in Bronzeville and another in the West Loop. He said his next acquisition is likely to be a “strong Class-B building” in the Central Loop.

At the 550 W. Washington property, Brog said the company will be aggressive in making lease deals. A large swath of vacant space in the building enables it to accommodate users looking for big footprints. The company won’t shy away from smaller deals either, he said. 

“We're going to upgrade the amenities, upgrade the building,” Brog said. “We're willing to do build-to-suit deals, and I think we're going to be very, very competitive with our rates because of our cost basis.”

Brog said he believes in the city as a continued magnet for talented graduates of Big Ten schools in surrounding states, as well as the city’s “beautiful” existing stock of buildings.

“Chicago is always going to be the center of the Midwest, the hub of the Midwest,” Brog said. “I don't think that's ever going to change.”