Value of Blackstone’s Willis Tower in Chicago Falls 42 Percent

The value of Chicago’s tallest and most recognizable skyscraper has fallen 42 percent since 2018, bringing the appraisal well below its remaining loan balance, a private evaluation found.

The iconic Willis Tower office building was valued at $1.03 billion, or $229 per square foot, in a recent private appraisal according to CMBS loan monitoring service.

When New York-based real estate giant Blackstone last refinanced the 4.5 million-square-foot building in 2018, it was valued at $1.78 billion ($396 per square foot).

The appraisal, which was conducted during loan extension negotiations earlier this year, also noted that the building could regain value in the next two years. The appraisal projected that it could reach a value of $1.2 billion by 2027. It cites recent renovations and new tenants as signs that the property is headed in a better direction. The Skydeck, a tourist attraction on the 103rd floor that leans into its connection to “Ferris Bueller’s Day Off,” has become a key source of revenue for the property.

The property brought in over $113 million in net cash flow last year, up from about $43 million in 2020.

With this knowledge, special servicer KeyBank approved an extension of the loan’s maturity date in March from 2025 to 2028 with two additional one year extension options. Blackstone did not have to pay anything toward the balance at the time of the extension and was able to maintain the same interest rate structure it had agreed to during its last refinancing in 2018.

The landlord will, however, have to contribute $25 million in equity for each of the one-year extensions after 2028, a loan report issued to bondholders states.

Blackstone and the lender also agreed to set a cap on an all-purpose reserve account for the building. Funds within the account can be used for tenant costs and other operating expenses but revenues earned beyond a certain threshold must go toward paying the principal on a quarterly basis, the loan report states.

The lender accepted this option because it would likely have a hard time finding a buyer for the massive skyscraper amid the damage to the office market from the pandemic, the loan report stated.

The agreement also allows the borrower to avoid the “stigma” of receivership and foreclosure, according to the loan report.

The tower has secured 400,000 square feet of new office tenants in the last year and a half, including a recent 84,000 square foot lease with Adtelem Global Education. As of February, the building was 87 percent occupied, an improvement from its occupancy of 86 percent in 2015 and its lowest occupancy since then of 83 percent in 2022.

“Our recent extension to the loan term reflects our continued belief in the strength of Willis Tower,” a representative of Blackstone said. “We believe the building’s transformative renovation has positioned it for success, as demonstrated by over 400,000 square feet of leasing in the past 18 months and more than 1.2 million annual Skydeck visitors.”

The famous 110-story tower was the world’s tallest from its completion in 1973 until 1998 — in 2015 for $1.3 billion. Blackstone took out the CMBS loan in 2018 to refinance and embarked on a more than $500 million renovation project for the property that improved its food court and the amenities accessible to the public and its tenants. The renovation wrapped up in 2022.