Onni Group is about to cement its status as a bigtime Chicago office landlord with a law firm’s relocation.
Neal Gerber & Eisenberg is in talks to move into three floors spanning about 90,000 square feet at Onni’s 31-story 225 West Randolph, according to several people familiar with the leasing negotiations. The tenant is planning on downsizing by about 24 percent from its current 119,000 square feet of space at Two North LaSalle Street, where it plans to depart from a lease set to expire in May 2025. Neither the tenant nor Vancouver, British Columbia-based Onni returned requests for comment.
If the new lease is completed — the deal hasn’t yet been finalized and could still fall apart, as Neal Gerber has toured other buildings including 155 North Wacker — it would continue a trend of tenants in the legal sector downsizing their footprints.
It also extends a string of moves into properties owned by landlords that recently scored loan packages that can fund renovations to build high-end amenities and the growing cost of improvement allowances tenants seek to cover the costs of constructing new office space within a building.
Tenants have been able to bleed more money from landlords for tenant improvement allowances as a dearth of new leasing combined with a swell of discounted sublease offerings in the office market combine to challenge owners, with downtown vacancy at a record high.
Neal Gerber’s move would also deliver a blow to the 26-story LaSalle Street property’s landlord, a joint venture of New York-based Fortress Investment Group and Hearn, the longtime Chicago commercial real estate player that owns the 100-story tower at 875 North Michigan Avenue formerly known as the John Hancock building.
Hearn and Fortress snagged a majority stake in the 700,000-square-foot LaSalle Street building in 2016, when the companies paid $42 million to take over equity in the property and help Virginia-based Harbor Group International avoid defaulting on a $127 million loan.
After the LaSalle property scored a nearly 300,000-square-foot lease with the city of Chicago government to put offices in the property, the landlord tried to sell the building with a price target of about $200 million, and hired a JLL team to market it to potential buyers.
But a deal was never made, records show, and the property was generating only $1.7 million in revenue compared to its $5.2 million in yearly debt service on a $127 million loan in 2019. Hearn and Fortress worked out a deal with the loan’s special servicer to extend its maturity to this month, after the property had fallen behind on loan payments in 2019.
It’s unclear from records kept by the loan’s servicer and Cook County whether Hearn and Fortress settled the debt by its July 11 maturity this month. Hearn didn’t respond to a request for comment.
For Onni, the deal would solidify the landlord as a major office player in the Windy City, where it has developed significant multifamily projects, including the 356-unit apartment tower at 369 West Grand Avenue in River North that opened in 2021.
While the firm has been planning a massive redevelopment of a Greyhound bus repair station on Goose Island into a series of mixed-use towers including nearly 2,700 apartments and a hotel, it’s also leaning hard into Chicago’s office market. Onni owns the offices at 200 North LaSalle and 550 West Van Buren streets, as well.
The company bought the 853,000-square-foot 225 West Randolph in 2020 from Kushner Cos. for about $188 million and committed to spend another $150 million on renovations, as Kushner took a loss from when it paid $276 million in 2007 for the building. As part of the sale to Onni, the city designated the property — originally known as the Illinois Bell Building — a landmark so the developer could obtain a Class L tax status. That gives owners significant property tax breaks for 12 years if they invest at least half of the value of a landmark in a city-approved rehab project.
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A lease with Neal Gerber would help the deal start to pay off for the Canadian landlord, which is also pursuing development of a new 29-story Fulton Market office tower at 357 North Green Street.
CBRE is representing Neal Gerber in leasing negotiations, while the Telos Group represents Onni Group at 225 West Randolph.