Adventus lands 55,000sf mortgage company lease to refill suburban office

Adventus Realty Trust is turning around a Chicago-area office building near O’Hare airport that lost two big tenants last year to leave it 60 percent empty.

The Vancouver, Canada-based landlord of 3 million square feet of offices across suburban Chicago struck a deal with Chicago Mortgage Solutions to lease 55,000 square feet in the Columbia Center in suburban Rosemont, people familiar with the negotiations told The Real Deal.

It was a win for Adventus to refill a space left empty by kitchenware maker Corelle Brands, which had based its offices there for years until exiting in December, just as the building’s anchor tenant, exercise equipment company Life Fitness, also left a 95,000-square-foot lease to move to an office twice that size in suburban Franklin Park. Adventus is also in talks to reload half the Life Fitness space with a new tenant by next month, said the landlord’s COO, Rick Charlton.

“It looks like we’re going back into the teens for the Columbia Center’s vacancy rate by year-end at the latest,” Charlton said in an interview. “The market is so big in Chicago, you’re always going to have some structural vacancy, which we peg around 10 percent that’s constantly going to be there. In our Class A office submarket, we’re closer to 17 or 18 percent vacant right now. Our assets are generally outperforming the market.”

While suburban Chicago’s office vacancy ticked up to record highs in five straight quarters as of earlier this year, hitting 27 percent in April, filling the Corelle space within months shows the resilience of suburban assets in easy to access locations and the draw of being next door to O’Hare International Airport, the world’s fourth-busiest. The overall market’s vacancy rate is being driven up by low-quality assets in hard-to-reach areas.

Adventus bought the three-building, 620,000-square-foot Columbia Center complex on North River Road and West Bryn Mawr Avenue in 2014 for $93.1 million, when it was nearly full, and drew concern early this year from ratings agency DBRS Morningstar over its $41.8 million commercial mortgage-backed security loan against the former Life Fitness building when its two largest tenants exited.

“As the risks have significantly increased from issuance, with market challenges that could mean those risks are sustained at an increased level for the longer term,” a January report on the loan said.

Even with those issues alleviated by the lease with the residential mortgage company and 12 others totaling 125,000 square feet across Adventus’ suburban Chicago buildings in the past seven months, plus the potential deal to replenish the Life Fitness space, the landlord isn’t necessarily out of the woods. Its portfolio includes a distressed property in suburban Oak Brook that Adventus may surrender.

Read on to learn more from Charlton about how his company is dealing with that property and why it spent almost $12 million during the pandemic to add dozens of spec suites and upgrade lobbies, fitness centers and food services. This interview has been edited and condensed for clarity and length.

Adventus was having issues with delinquency earlier this year on a $24 million loan tied to the four-building, 312,000-square-foot Oak Brook Office Center in Chicago’s western suburbs after losing its largest tenant, Sanford. What’s the workout strategy?

We’re likely to let it go back to the lender. We’re in that process right now and it’s very cooperative. We’ve found a potential purchaser for it, so there could be a short sale. It’s unfortunate and none of us are happy with that. But it was just a business decision. It’s not reflective of the health of Adventus. We just did a $350 million financing last year with Credit Suisse using CMBS debt. The company is not the issue.

The 869,000-square-foot Riverway complex in Rosemont was also reported to be struggling with occupancy of just 65 percent compared to 95 percent when a $128 million CMBS loan against it was issued in 2016. Is there any traction to refill the space?

We’ve just redone and upgraded every lobby in all three Riverway buildings and are in the process of finishing work in the auditorium. It’s a totally different asset today than it ever was. We had a broker reception a couple weeks back there, and one of the guys said Riverway used to be the place to be and then it just got old, but that we’ve brought it back. Our vision of Riverway is working. There is a flight to quality and we’re the quality.

How have spec suites figured into your capital improvement plans?

(Plans included) the development of over 24 rent-ready suites to date with 90 percent leased or under negotiation. Additional rent-ready suites are under construction. Their cost is approximately $3.3 million. A lot are smaller, anywhere from 1,500 to 5,000 square feet. The rent-ready suite program and investment in our assets was initiated mid-Covid anticipating a flight to quality and the need for move-in ready suites, all of which is now bearing fruit.

How have Adventus’ Atlanta-area assets compared to its Chicago portfolio during the pandemic?

Our Atlanta portfolio is currently at its lowest vacancy level, 6.2 percent, in the past five years. I hear a lot of negativity about suburban offices but we’re loving it right now. Our leasing strategy has achieved positive results with approximately 238,000 square feet of leasing overall completed in Chicago and Atlanta since November 2021. We consider this to be exceptional, particularly given the challenges the economy faces coming out of Covid.

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