The building formerly known as Merchandise Mart, once the hotspot for tech companies in Chicago, needs another renovation as it faces new competition.
Just six years after owner Vornado dropped $40 million on theMART, a sprawling River North property, it’s spending another $60 million to keep up with new developments and attract tenants amid the pandemic, according to Crain’s.
Most of the renovations will occur on the first two floors of the 3.7-million-square-foot building. Brokers representing tenants say those areas need more amenities than the marble staircase and food hall Vornado added in 2016, according to Crain’s.
This time, Vornado plans to add a 27,000-square-foot amenity and conferencing space, a so-called speakeasy lounge and a 23,500-square-foot fitness center, the building’s second gym, on the second floor, according to a presentation from building leasing agency Stream Realty Partners obtained by Crain’s. The changes will be made to the entrance at the corner of Kinzie and Wells streets and the main south lobby. Plans for exterior renovations call for landscaped greenspace along the Chicago River.
Vornado declined to confirm the cost of the renovation but plans on beginning work this year with an estimated 12-18 month timeframe until completion.
Vornado Executive Vice President Glen Weiss said the trend towards work from home means office spaces need to be more enticing than they were pre-pandemic.
“It’s ‘I have to be in a building where my employees want to come to get off the couch and come back,’ ” Weiss told Crain’s.
The project’s success could serve as a litmus test for what downtown buildings need to compete with Fulton Market and other places that have added to their leases during the pandemic, according to Crain’s.
At theMART, the occupancy rate is more than 89 percent, nine points above the average for downtown buildings. It also recently renewed its lease with 1871 and added Medline Industries to a 12-year lease for 51,000-square-feet.
But occupancy at theMART is at its lowest since at least 2007 and its operating income is down 18 percent year-over-year. It also lost tenants like CNC Intelligent Solutions, which left its 125,000-square-foot lease for a new office in the Fulton Market District. Publicis Groupe left a similarly sized space and PayPal, Yelp and VelocityEHS have all listed some of their space for subleasing.
Meanwhile, many believe Fulton Market has become the premiere destination in Chicago, with Google and McDonald’s opting for office space there over theMART.
“There was a time period where the MART stood alone in many respects, and there was a mystique about the building,” John Dempsey, who helped lead theMART’s leasing team for nearly 25 years and is now principal of Vanderbilt Office Properties, told Crain’s. “Now that mystique has been captured by many others, so how do you go back and separate yourself from the crowd?”