Wacker Drive office building poised for big loss at closing

A Toronto investor is prepared to take a crushing loss on an office tower it bought nearly a decade ago.

A venture of Manulife Investment Management hired JLL to sell the 40-story building at 200 South Wacker Drive, Crain’s reported. The 762,000-square-foot property was bought in 2013 for $215 million. There is not a public asking price, but those familiar with the building’s financials speculate that it could close for as little as $170 million.

The projected sale price would be enough to cover a $163 million loan from Bank of China that Manulife took out when it refinanced the property in 2019.

If the speculations are accurate, it would mean Manulife would be poised to take more than a 20% loss on its investment. When the firm bought the building nine years ago it was 95 percent occupied. Since 2018, Manulife spent an additional $8.5 million on renovations and it has seen the occupancy rate fall to 82 percent.

Currently, there are 50 tenants in the building, none of which occupy more than 10 percent of the total square footage.

In theory, the building’s riverfront location in a southwest corner of the Loop should be a big draw for potential buyers. With the redevelopment of the Old Post Office building, major renovations to the Willis Tower and a new 50-story office tower next to Union Station, this portion of the Loop has become a popular destination for major office tenants.

A high concentration of downtown office vacancy is likely a contributing factor to the building’s expected underperforming sale price. With companies cutting back on their office footprints, the downtown office vacancy has been at or close to an all-time high throughout 2022. What’s more, higher interest rates are driving up the long-term cost of borrowing.

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