When Chicago’s Merchandise Mart opened in 1930, it was the largest building in the world. Though it no longer holds that title, the sprawling trophy property on the north bank of the Chicago River remains one of the city’s most iconic buildings.
It’s also one of two major office properties that New York City-based Vornado Realty Trust owns outside of the five boroughs. (The other one, 555 California Street in San Francisco, is now up for sale.)
Since acquiring the 3.6 million-square-foot property, now known as theMART, from the Kennedy family in 1998, Vornado has invested millions of dollars in repositioning the property, increasing the share of office and retail space while reducing showroom space. The company also committed $8 million to convert the building’s facade into a digital canvas in 2018.
The property’s most recent refinancing came in the form of a $550 million CMBS loan provided by Morgan Stanley, Barclays and Bank of China in 2016. As is usually the case with such loans, documents associated with the securitization provide an inside look at the building’s finances.
Embed code (view here):
The property was about 95-percent leased in 2016, with office rent averaging $35.86 per square foot and showroom rent averaging $45.54 per square foot, according to a DBRS report from the time of the refinancing. Office tenants accounted for about 49 percent of total base rent, while showroom tenants accounted for about 42 percent.
Occupancy at the building has since declined somewhat to about 89 percent, while rents have increased substantially: Annual office rent is now $44.45 per square foot while showroom and trade show rent averages $54.49 per square foot, Vornado’s latest financial report shows.
Gross asking rents in Chicago’s River North submarket, where theMART is located, average $45.54 per square foot, according to CBRE’s latest Chicago office leasing report.
The largest tenant at the property is Motorola Mobility, the consumer electronics and telecommunications unit that spun off from the former Motorola Inc. in 2011. Although the company was sold by Google to China’s Lenovo Group in 2014, Google is still the guarantor for Motorola Mobility’s lease at theMART, which commenced in 2012 and extends through 2028. The Motorola lease accounts for about 17 percent of square footage and base rent at the property.
In 2018, Braintree — the mobile-payment unit of Paypal — expanded its lease to 148,000 square feet, making it the fourth largest tenant. A 93,000-square-foot lease for Medicus Group International — a subsidiary of French marketing conglomerate Publicis Groupe — expired that same year. Another Publicis subsidiary, Razorfish, remains as a tenant at the building.
According to Vornado’s latest financials, the company leased 273,000 square feet at theMART in the first half of 2020, at an initial rent of $48.64 per square foot. Meanwhile, the cancellation of trade shows due to Covid-19 led to a $8.2 million reduction in funds from operation in the second quarter. TheMART hosts the annual NeoCon trade show, dedicated to commercial office design, and more than 20 other shows per year, according to DBRS.