An Arizona-based investment firm is in talks to acquire the former Groupon headquarters building in Chicago in a deal that could boost investor confidence in the city’s languishing office sales market.
3Edgewood, founded by former Phoenix Suns owner Robert Sarver last year, is eyeing a major investment in the distressed Montgomery Ward catalog building at 600 West Chicago Avenue, Crain’s reported.
While an offer has not been finalized, the commercial building would likely come at a steep discount compared to its previous sale price.
In 2018, developer Sterling Bay purchased the 1.6 million-square-foot office building for $510 million, nearly $319 per square foot. The purchase was financed through a $374 million senior mortgage and a $51 million mezzanine loan from Morgan Stanley.
The building’s reduced value could be attributed to the rise in remote work, elevated borrowing costs and difficulties in attracting new tenants. If a deal with 3Edgewoods goes through, it would mark another significant property sale by Sterling Bay, which recently offloaded its Carroll Avenue site, where it had planned a 14-story office building.
The eight-story 600 West Chicago is 62 percent leased, marking a significant decline from its 94 percent occupancy when Groupon was a key tenant. Echo Global Logistics is listed as the largest tenant in the building, occupying 185,000 square feet.
Despite uncertainty surrounding the viability of commercial office space, investors like Sarver are banking on the office market’s long-term rebound and are acquiring distressed properties at discounted prices with the expectation that demand will rise again in the future. 3Edgewood’s recent purchases include a 2.2 million-square-foot office property in suburban Dallas and a sizable portfolio in Houston.
The firm’s strategic approach will pay off as long as it acquires the right properties, 3Edgewood’s Jordan Mellovitz said.
“We are one of the crazy people buying office buildings,” Mellovitz told CoStar News in November. “We believe, long term, if we own the right assets — with newer vintage buildings in a vibrant, mixed-use environment where a lot of tenants want to be — in the right markets that the office world will come back.”
— Andrew Terrell
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