UPDATED April 19, 2022, 10:40 a.m.: After setting a fresh record last quarter, Chicago’s office vacancy rate ticked up again Monday as an insurance company shed more than 100,000 square feet from its Loop footprint.
CNO Financial Group, the parent company of insurers Bankers Life and Colonial Penn, signed a lease for 32,825 square feet at 303 East Wacker Drive, where it is moving next year from 111 East Wacker Drive, Crain’s reported. The business will exit its 139,000 square foot lease in the AmTrust Real Estate-owned Illinois Center at 111 East Wacker.
The new lease for just a fraction of the space the firm occupies illustrates how the pandemic has bludgeoned office markets in downtown Chicago and across the nation. Companies are looking to shed space since remote work proved viable and will remain a feature of many workplaces even as the pandemic fades — at least in hybrid models for at least two or three days a week.
Firms signing new leases have tended to downsize from previous footprints while maintaining an office their workers can head into on a more part-time basis.
“From associate surveys, we know our associates want a hybrid working model, which includes a mix of working from home and in the office,” CNO’s Matthew Woodruff said in a statement, according to Crain’s. “We also know that many of our associates, including our Chicago-based associates, will not be coming into the offices every day. We are offering them the flexibility to decide with their managers what schedule works best for them, the business and their team.”
The move marks another big loss for New York-based AmTrust, the owner of the Field Building at 135 South LaSalle Street, which has dropped in value by $200 million since 2015, according to a recent appraisal. CNO is the largest tenant in the 111 East Wacker property, which generated $13 million in net cash flow during the first nine months of 2021 with debt service of $11.8 million in that period, Crain’s reported, citing commercial mortgage-backed securities data on a $260 million loan on the property. The property cleared its debt service by a far larger margin before the public health crisis, the outlet reported. The building is 75 percent leased today, counting CNO.
Yet CNO’s landing spot suggests an encouraging path to recovery for Loop landlords of older buildings: renovations.
Beacon Capital Partners bought 303 East Wacker in 2018 when it remained just 69 percent leased after KPMG and Groupon moved out of more than half the building in 2012. The Boston-based investment firm poured an undisclosed sum into renovations that added a new penthouse level lounge and a gym overlooking Lake Michigan, Crain’s reported. The building is now 90 percent leased counting CNO, according to the Telos Group, the brokerage overseeing leasing at the property.
AmTrust is putting $100 million into renovations of five Loop offices it owns, including Illinois Center, and just hired Patrick Kearney to help oversee the upgrade of its portfolio. He said the building’s racquetball courts on a high floor are likely to be transformed into an area with more windows offering skyline views. Interest in leasing in the building and across AmTrust’s Loop portfolio has picked up since the company announced the renovation plans.
“Tenant rep brokers understand what we are doing and communicate that to their clients and got excited about our plans,” Kearney told The Real Deal this month.
CNO also hedged its decision to downsize by negotiating “fairly broad and liberal expansion rights in the lease if we [got] it wrong,” Cushman & Wakefield’s Dan Maslauski, who represented CNO, told Crain’s.
Jack O’Brien, Nikki Kern and Colton Riemenschneider of Telos Group represented Beacon in negotiating the lease, and Maslauski and Michael Sessa of Cushman represented CNO.
[Crain’s] – Sam Lounsberry
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This story was updated after an initial announcement incorrectly identified Bankers Life, rather than its parent company CNO Financial Group, as the tenant at 303 East Wacker Drive.