STRS Ohio Nears Record Chicago Office Leases After Loan Payoff

The owner of one of Chicago’s most recognizable office towers is closing in on a pair of deals that could revitalize the building’s struggling occupancy.

In two major lease agreements totaling more than 500,000 square feet — including one that would mark the largest downtown office deal of the past three years — the 51-story skyscraper at 77 West Wacker Drive could soon welcome engineering firm Sargent & Lundy as a tenant while also locking in a renewal from its largest tenant, Capital One, Crain’s reported.

The leases couldn’t come at a more crucial time for the building’s owner, the State Teachers Retirement System of Ohio. The pension fund, which purchased the 959,000-square-foot tower in 2008, has seen occupancy plummet to just 62 percent in recent years, as law firms Jones Day and Morgan Lewis & Bockius exited.

Vacancies have been a major concern for office landlords in the last several years, with downtown rates climbing to record highs in 13 of the past 15 quarters, according to CBRE.

Faced with these challenges, STRS Ohio chose to reposition the building. In a strategic move last year, the pension fund paid off its $150 million mortgage and began making improvements to the building, which include plans to add an amenity floor.

The McLean, Virginia-based credit card giant Capital One has committed to 150,000 square feet, which will downsize its footprint in the building by 20,000 square feet, or 13 percent. The firm moved into the West Wacker building in 2012 and had been poised to let its lease expire next year, but it extended through 2035.

Meanwhile, Sargent & Lundy is in advanced negotiations to lease 380,000 square feet in the building. If finalized, the deal would move the energy engineering firm’s headquarters from its long-time home at 55 East Monroe Street, where it occupies around 280,000 square feet. That would be a 26 percent increase.

The potential move represents a rare case of expanding office space in downtown Chicago and a significant shift for Sargent & Lundy, which has been headquartered at Monroe Street for decades.

Transwestern represented STRS Ohio in negotiations with Capital One, while Savills’ Joe Learner and Robert Sevim are representing Sargent & Lundy. Leasing efforts at the building are being managed by CBRE’s Mike Kazmierczak, Kelsey Scheive and Aaron Schuster.

These leases come as part of a larger resurgence in office leasing near the James R. Thompson Center, which is being redeveloped by Google. Real estate activity in the surrounding area is picking up as firms seek to position themselves near Google’s Midwest headquarters.

— Andrew Terrell