Big lease expansion on Wacker Drive could ease pressure on 601W

Landlord’s $310M debt package on 43-story tower started to concern credit raters

1 South Wacker Drive and Invenergy's Michael Polsky
1 South Wacker Drive and Invenergy's Michael Polsky (Google Maps, Invenergy)

One of Chicago’s biggest office landlords, 601W Companies, might be closing in on a lifeline as it tries to avoid getting pummeled by an approaching loan maturity on a Wacker Drive office tower.

Renewable energy and natural gas developer Invenergy is in talks to about double its footprint at its headquarters in 601W’s 43-story One South Wacker, adding around 200,000 square feet, according to several people familiar with the discussions. The company last expanded its lease in the building in 2019, when it added about 30,000 square feet to reach its current total of 106,000.

The deal looks to be crucial for New York-based 601W — which is facing financial questions on multiple distressed office towers in downtown Chicago, including Invenergy’s home base on Wacker Drive. The energy company’s expansion could help turn the 1.2-million-square-foot building around after its performance slipped in 2021, when accounting conglomerate RSM, formerly the property’s largest tenant, vacated its lease of about 170,000 square feet.

The property was 64 percent leased at the end of last year, well below the downtown average – itself at a record low of 78 percent. The building dipped even more in April, when law firm Pretzel & Stouffer moved out of 46,000 square feet it had long occupied for new digs at 200 South Wacker.

With a net cash flow last year of $10 million, down from $17 million in December 2019, the One South Wacker property’s debt had drawn the scrutiny of credit ratings agency DBRS Morningstar. The agency’s concern stemmed from the cash flow being too small to draw a new financing package as interest rates climbed.

The building was valued at $318 million when 601W purchased it in 2018, using a $310 million securitized debt package that matures in December. At least $15 million of the loan was reserved to cover costs such as backfilling leases left by large tenants such as RSM. The loan was originally scheduled to come due in December 2021, but 601W was granted extensions on the debt during the pandemic.

“Given the rising interest rate and capitalization rate environments, a 3.1 percent capitalization rate is unlikely and will require the borrower to contribute additional capital to secure takeout financing upon its December 2023 loan maturity date,” an April report by Morningstar said.

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The landlord put $22 million into upgrading the property’s lobbies, amenities, windows and bathrooms on vacant floors, completing the project in 2020. 

Neither 601W nor Invenergy responded to requests for comment.

The lease expansion Invenergy is eyeing — which is still weeks away from being finalized, according to various sources — would mark a significant departure from the space-shedding trend many downtown office tenants have been extending with their recent moves. There’s a record amount of sublease inventory in downtown Chicago of about 8 million square feet, meaning loads of tenants are seeking to downsize their office spaces and hoping to find a subtenant to take on their leases and a portion of the rent payments.

But for Invenergy, the move would consolidate their Chicago offices under one roof. The firm occupies about 40,000 square feet on a sublease at 120 South Riverside Plaza, which it would likely ditch to move employees from that location if it were to expand on Wacker Drive. Growing its presence at the South Riverside Plaza location is also being considered, though the firm’s lease with the 601W-owned building on Wacker is scheduled to expire in 2028.

Elsewhere on Wacker Drive, 601W is fighting a foreclosure attempt on its massive Civic Opera Building office loan, and the landlord also faces a maturity this summer on a $678 million debt package tied to the 83-story Aon Center in the East Loop. 601W asked for an extension, saying it’s not prepared to handle the Aon Center maturity next month, according to Morningstar.

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