Distressed Chicago Office Building Slumps Into Vacancy

One of River North’s largest office properties has become a cautionary tale in the slowgoing post-pandemic recovery of Chicago’s office market.

The 1.7 million-square-foot complex at 350 North Orleans Street, once anchored by tenants like advertising giant Ogilvy, has plunged into financial limbo, suffering tenant flight and creditor infighting after former owner Blackstone walked away nearly two years ago, the Wall Street Journal reported.

Vacancy at the tower has soared since the pandemic. By 2023, about 30 percent of the building sat empty.

Blackstone defaulted on a $310 million CMBS loan issued by Goldman Sachs in 2018 to refinance earlier debt on the property from Wells Fargo. The loan matured in July 2023, and Blackstone failed to pay it off. Wells Fargo was the special servicer until June 2024, when KeyBank became the new special servicer, according to Morningstar. Foreclosure proceedings were triggered in February.

A tug of war between bondholders, Pimco and Oaktree on opposing sides, delayed decisions about the property for more than a year, further hobbling efforts to attract tenants.

Pimco gained control last June, but the damage was done. Office workers have fled, ground-floor retailers shuttered, and local businesses that once thrived on worker foot traffic reported sharp sales declines.

Mary Gabriel, owner of Shamrock Club nearby, told the outlet her bar’s sales are 10 percent below pre-pandemic levels.

The saga at 350 North Orleans highlights a broader crisis.

“Zombie” office properties — bogged down by debt, infighting and structural shifts in workplace behavior — continue to cast a pall over recovery efforts in major cities like Chicago.

Even as construction surges in pockets like the West Loop, older office buildings face severe distress. Avison Young pegs office utilization in River North at just 48 percent of pre-pandemic levels, below Chicago’s downtown average of 55 percent and the national average of 62 percent.

Still, others have recently leveraged softened demand by expanding their space. The special servicer, KeyBank, has focused on tenant retention to better position 350 North Orleans for sale. San Francisco fintech firm Stripe signed a deal last month to double its office space at 350 North Orleans to 89,000 square feet and extend its lease until 2031.

But attempts to sell the building while bondholders fought for control have failed. Some tenants are bound by leases but operate largely remote workforces, leaving rows of empty desks behind.

— Judah Duke