R2 buying Michigan Avenue office tower for $70M as CBRE takes loss
Deal would amount to about a 40% hit from 2017 purchase
Matt Garrison’s R2 Companies is looking to pull off another daunting rescue of a downtown Chicago office building.
The Chicago-based development firm is under contract to pay approximately $70 million to buy the 41-story tower at 150 North Michigan Avenue, several people familiar with the negotiations said. The deal, if it closes, would mark a huge loss for the seller, CBRE Investment Management, which paid $121 million for the 661,000-square-foot property in 2017 and then sunk another $35 million into its renovation, according to public records and previous reports.
Like several other downtown Chicago office landlords staring down upcoming loan maturities, the investment division of CBRE had little choice but to make a deal at a discount or face the prospect of foreclosure when its $87 million loan from MetLife matures in September.
Even with the sale, which CBRE initially aimed to price at a level that would allow it to pay off the debt balance, MetLife will take a loss of around $10 million on the loan while offering seller financing to the buyer, according to someone with knowledge of the deal.
Representatives for R2 and CBRE Investment Management declined to comment.
The 39-year-old asset with a diamond-shaped roof, now called the Crain Communications building after once being known as the Smurfit-Stone building, may be in worse shape in terms of its occupancy than another big downtown property R2 is working to rejuvenate. The tower was 68 percent leased as of earlier this year when Eastdil Secured started marketing it to potential buyers, well below the downtown average last quarter of 78 percent, which is a record low. That means it lost ground during CBRE’s tenure, as it was 79 percent leased when the firm bought the property in 2017, according to previous reports.
And there are more leases in the Smurfit-Stone building near expiration. Eastdil had played up the chance for a buyer to create a 10-floor contiguous block in the middle portion of the building as the expirations approached, by exercising options to relocate some of its smaller tenants.
For R2, it’s the second iconic downtown Chicago office property in distress that it’s been involved in acquiring for a turnaround effort in recent months.
The firm is also working with Apollo Global Management on revitalizing the Chicago Board of Trade building, a 44-story, 1.4 million-square-foot office building at 141 West Jackson Street. It was turned over to Apollo earlier this year, at 82 percent occupancy, by a joint venture of Chicago-based Glenstar and Los Angeles-based Oaktree Capital Management. The landlord sold it via deed-in-lieu of foreclosure as it was unwilling or unable to cough up the cash to pay off $256 million in debt against the property obtained right before the pandemic.
Other downtown office buildings that have changed hands and amounted to losses for sellers this year include 300 South Wacker Drive, a 35-story, 535,000-square-foot building that was bought by Miami-based Agave Holdings for $97 million, a big dip from the $155 million that sellers Golub and Alcion Ventures paid for it in 2017.