601W Companies closes on Sullivan Center office space

The 601W Companies, among Chicago’s most prominent office landlords, has picked up part of a landmarked State Street property and taken out a mortgage on a foreclosed West Loop office tower.

The firm bought the 833,000-square-foot office portion of the Sullivan Center, 1 South State Street, for $178 million.

The sale had been rumored since last year, with an expected closing price of $175 million reported by the Chicago Tribune in September.

The building was the longtime flagship location of the Carson Pirie Scott department store. Its lower floors now house a 124,000-square-foot Target location.

Records also show that 601W Companies has taken out an $87.7 million mortgage on 550 West Jackson Boulevard, about a mile away.

The building has a checkered financial history that includes a foreclosure that reportedly began last summer.

The firm has owned the 407,000-square-foot building since 2005.

The new loan was issued by a subsidiary of Apollo Commercial Real Estate.

In March 2017, Crain’s reported that a $97.5 million mortgage on the building was transferred to a special servicer. Such transfers are often a sign that a borrower is having trouble paying back a loan.

“My guess is (601W Companies will) find a way to get the loan paid,” Tom Fink, a senior vice president and managing director at the research firm Trepp, told Crain’s at the time. “The question is how do (they) do it in a way that helps build long-term value in the business?”

The building was reportedly reappraised last year at $61.1 million — well under the $125 million the firm paid for it more than a decade ago.

Sources with knowledge of the deal said roughly $58 million would be funded initially, and the remainder will be released depending on the building’s financial performance.

The property reportedly had trouble holding onto tenants in recent years, with just 61 percent occupancy in July.

Then, in August, Commercial Observer reported the building had entered foreclosure the previous month.

Sources with knowledge of the building’s leasing said occupancy is poised to drop to less than 50 percent.

Telos Group’s Jack O’Brien, whose team handles leasing at the building, did not immediately respond to a request for comment.

601W Companies, which also owns such prominent Chicago properties as the Aon Center and the Old Main Post Office, managed to hold on to the building in the face of a foreclosure sale that was reportedly expected to happen in August.

Last week it announced it had secured a nearly 65,000-square-foot headquarters lease for Kemper Corporation at the Aon Center.

Iron Hound Management brokered the loan transaction on behalf of 601W Companies.

Both 601W Companies and Apollo Commercial Real Estate Finance declined to comment for this story.