Blackstone unveils $500M RTO bet on Chicago’s Willis Tower

UPDATED May 24, 2022, 3:35 p.m.: Blackstone unveiled its $500 million bet on Willis Tower, once the world’s tallest skyscraper, a renovation five years in the making that turned into a wager workers will return to the office as Covid wanes.

“Long before Covid, our team saw the definition of office space was changing and evolving and the pandemic has accelerated that,” Blackstone’s Kathleen McCarthy said at an event today at the tower to mark the re-opening.

The 110-story, 1,450-foot-tall building, completed in 1973, needed a rethink to replace a “monolithic” interior that left “a lot to be desired,” David Moore of Blackstone-owned EQ Office told the Chicago Tribune. The firm is wagering on a new face of commercial real estate, adding a five-story retail and entertainment market called Catalog and a rooftop terrace complete with wooden boxes housing three beehives, or 60,000 bees.

The New York-based real estate giant bought Willis Tower for $1.3 billion in 2015, well ahead of the pandemic, and two years later began pouring in cash to install new stores and restaurants open to the public and 125,000 square feet of tenant-exclusive amenities. It’s a changed world: Companies around the world are rethinking office space as employees settle into work-at-home routines. United cut its Willis Tower footprint by 150,000 square feet during the pandemic.

Outdoor spaces, amenity lounges and fitness centers were attracting top-tier tenants even before the pandemic. These days, the perks are necessities for landlords seeking to compete in a market where Chicago’s central business district office vacancy rate reached a record 21.2 percent in the first quarter.

“In an era where workers wield the power to decide where they work and what hours and what time, Blackstone has created a blueprint for other landlords to follow on how to create offices where people will be drawn back to work,” Mayor Lori Lightfoot said at the event.

Blackstone is trying to place Willis Tower among buildings like the new Salesforce Tower in Wolf Point, the Bank of America building at 110 North Wacker and the new amenity-rich buildings of Fulton Market, the only submarket to defy the pandemic. Willis Tower is 85 percent leased even after United surrendered three of its 17 floors.

Demand within the Loop has shifted to its outer borders. Salesforce Tower landed a big lease with law firm Kirkland and Ellis. AmTrust Real Estate is attempting a similar boost to its vintage East Loop office towers at the Illinois Center, committing $100 million to renovations of its downtown portfolio.

New development by companies including Sterling Bay, Shapack Partners and Thor Equities include features such as a 17th floor basketball court just visited by Justin Bieber.

The city is also considering moves to build a live-work-play neighborhood by closing a two-block section of LaSalle Street, where decades-old skyscrapers lost tenants to the health care crisis.

CORRECTION: A previous version of this article incorrectly identified the location of the Salesforce Tower. It’s in Wolf Point.