DIR Development Venture Buys Office Skokie Complex at 88% Discount

A development team has acquired a north suburban office property for a fraction of what it was once worth, with plans to convert it into a mixed-use residential complex.

A venture led by Evergreen Park-based DIR Development last month bought the Old Orchard Towers, at 5202 and 5250 Old Orchard Road, in Skokie for just shy of $8 million, Crain’s reported. That’s under $23 per square foot.

The price marks an 88 percent discount from the $64 million that the seller, Zeller, paid for the 355,000-square-foot property in 2007. It’s also a fraction of the $59.6 million loan that Zeller took out in 2018 to refinance the complex.

The property’s staggering drop in value reflects the beleaguered state of Chicagoland’s office sector, which continues to get hammered by remote-work trends and rising interest rates. Those challenges have contributed to record-high vacancies and an increase of foreclosures, among other signs of distress.

The Skokie complex was roughly 33 percent vacant when Zeller’s loan matured last summer.

However, the steep discount gives the buyers plenty of overhead to embark on a $90 million redevelopment. A venture of DIR, GW Properties and Drake Group aims to transform the Old Orchard Towers into 245 apartments, while adding an amenity deck and a 65,000-square-foot parking garage. The developers plan to retain 32,000 square feet of office space on the ground floor.

While office-to-resi conversions can be expensive and tricky to pull off, they have become increasingly common since the pandemic. As the office market shows minimal signs of potential recovery, the Chicago area’s multifamily sector remains relatively strong amid steadily rising rents and demand, although it’s also not immune to the impact of high interest rates.

Skokie’s board of trustees formally approved the redevelopment plan on April 15, the outlet reported. Despite challenges in obtaining construction financing, the developers remain optimistic given Chicagoland’s robust multifamily market.

—Quinn Donoghue