A struggling West Loop office building at 300 South Riverside Plaza took another hit in recent weeks as car re-sale platform Cars.com significantly downsized its lease in property.
The tenant cut back from 160,000 square feet to 53,000, joining the wave of firms that have slashed their commercial real estate footprints since the pandemic supercharged remote work and thus the office vacancy rates of major cities across the world. The company is headquartered in Chicago and has 1,700 employees across the U.S. and Canada.
“We will continue to optimize for growth, get closer to our customers and evolve our office space with the way employees are working — reducing some of our office space is part of that process,” a statement from Cars.com said.
The move comes around the same time that one of the building owners, David Werner of New York-based David Werner Real Estate Investments, is doubling down on hopes for an office market turnaround. Werner recently teamed up with New York-based office landlord giant 601W to buy a heavily discounted Loop office building at 303 East Wacker Drive.
The joint venture secured a $62.5 million loan from Northwind Group divided into an advance of $32.5 million and $30 million set aside for future costs related to leasing up the building. The building last sold for $182 million in 2018.
While office buildings haven’t been killed off by workplaces going fully remote in the wake of the pandemic, many have been left on life support as companies downsize their spaces and push vacancy rates up — and interest rate hikes since 2022 have eaten further into property values.
The 23-story, 1.1-million-square-foot office building at 300 South Riverside Plaza owned by Werner and South Florida-based Joseph Mizrachi is no exception. While the building rebounded from the pandemic to reach 98 percent leased in 2022, its occupancy began to fall again last year.
In addition to losing a chunk of the Cars.com lease, the National Futures Association is leaving its 70,000-square-foot space in the Riverside Plaza property for a 55,000-square-foot spot in the newly built BMO Tower.
The property is also home to one of the city’s biggest sublease listings. Health care consultancy Evolent is trying to shed most of its about 122,000 square feet of space there. The building did snag a win last year, however, when Interactive Brokers leased another 55,000 square feet in the property, bringing together its operations that had been spread across two buildings, with the space it’s departing at 209 South LaSalle Street in addition to 40,000 square feet it had already leased at 300 South Riverside.
A representative of Werner declined to comment.
The joint venture of Werner and Mizrachi bought the entire property for $190 million in 2010 and split the building from the land beneath it five years later. They sold the land in 2015 for $220 million in a lease-back deal with a joint venture of well-known New York real estate player Rubin Schron of Cammeby’s and David Lowenfeld of World Wide Group.
The ground lease move came after Werner and Mizrachi tried selling both the building and the land but pulled the property from the market after bids fell short of their target of $335 million.
They also tried to sell the building alone in 2019 but were unsuccessful.
Meanwhile, the lease-back deal with Schron and Lowenfeld added significant debt to operations.
Wells Fargo issued a loan to Schron and Lowenfeld when they bought the building’s underlying land and it was later sold off on the CMBS market via two debt packages totaling $167 million. The bank watchlisted the debt packages this fall due to their upcoming March 5 maturities.
And in 2023, Wells Fargo noted that the loan tied to the land could be in trouble if Werner and Mizrachi fail to make ground lease payments to Schron and Lowenfeld. Wells Fargo made note of this concern because the bank discovered that Werner and Mizrachi were headed toward default on a separate loan tied to the building itself. That loan, which totals over $150 million, was issued by South Korea’s Shinhan Investment Corp.
It’s unclear if Wener and Mizrachi’s standing with the South Korean lender has improved since then but they are still up to date on payments to Schron and Lowenfeld, loan servicer commentary compiled by Morningstar Credit shows.
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