Murphy, InSite Near Massive Downtown Chicago Office Discount

One of Chicago’s tallest office towers is set to change hands for less than a quarter of its previous sale price.

Developers John Murphy of Murphy Development Group and Gerald Kostelny of InSite Real Estate are in talks to purchase the 65-story tower at 311 South Wacker Drive for $53 per square foot, Crain’s reported, citing people familiar with the matter.

JLL’s Bruce Miller, Jaime Fink, Pat Shields and Sam DiFrancesca are managing the listing on behalf of the lender, a consortium of banks led by Morgan Stanley, which provided a $215 million senior loan as part of a 2018 refinancing deal for the 1.3 million-square-foot property.

If the building goes under contract at the $70 million price ($54 per square foot), it would be a 75 percent discount from its previous trade and one of downtown Chicago’s most significant value collapses. The property last changed hands in 2014, when Chicago’s Zeller Realty Group and Chinese investor Cindat Capital Management acquired it for $302 million ($230 per square foot).

The sharp decline in value reflects the ongoing challenges facing Chicago’s office market. The shift to remote work during the pandemic significantly decreased the demand for traditional office space, leaving Chicago with a record-high 25.8 vacancy rate in the third quarter.

Elevated interest rates and more conservative lending practices have made it harder for property owners to secure financing, putting additional strain on landlords who are finding it increasingly difficult to attract tenants or sell their properties for a profit.

For the South Wacker tower, these challenges have been particularly acute. Eighty-six percent leased before the pandemic, the tower now faces a vacancy rate exceeding 50 percent, with major tenant Smith Gambrell & Russell preparing to exit.

Recent discount transactions include the sale of 303 East Wacker Drive to 601W and investor David Werner for 65 percent of its 2018 value; the sale of 550 West Washington Boulevard for 83 percent of its 2013 value; and Shorenstein Partners’ sale of One North State Street for 84 percent of its 2016 value.

— Andrew Terrell