It’s a billion dollar question: what is the Willis Tower really worth?
In the past few months alone, public and private appraisers have produced values ranging from $999 million to $1.4 billion.
While pinning down a commercial asset’s value has never been an exact science, it has only gotten more challenging since the pandemic hammered the office market. For a 4.5 million-square-foot skyscraper that was once the tallest building in the world, even a minor difference in methodology can significantly impact city tax rolls and sway commercial real estate markets.
Blackstone bought the building for $1.3 billion in 2015, and when the global investment firm last refinanced in 2018, the tower was valued at just under $1.8 billion.
Last month, a private evaluation made headlines when an appraiser found that the massive skyscraper’s value had tumbled 42 percent to $1.03 billion, landing the $1.3 billion mortgage debt under water.
The valuation was conducted during loan extension negotiations between Blackstone and the CMBS loan’s special servicer, KeyBank.
But this week, CMBS loan tracking platform Morningstar Credit reported that the $1.03 billion figure did not include the business value of the building’s 103rd floor tourist attraction called the Skydeck.
It stated that the servicer updated the building’s value to include the Skydeck and now reports it is worth $1.4 billion. It’s unclear why the methodology changed but the updated report indicated that the building’s value is treading water, instead of below the surface.
The Skydeck is a tourist attraction at the 110-story building that leans into its connection to “Ferris Bueller’s Day Off.” Bringing in 1.3 million visitors a year, it has become a key source of revenue for the property. Tickets range from $24 to $55 and the space can also be rented for special events.
Morningstar Credit does not communicate directly with borrowers but tracks updates from servicers. A representative of KeyBank did not respond to a request for comment.
Meanwhile, Cook County Tax Assessor Fritz Kaegi landed somewhere in the middle. In his latest assessment issued this November, Kaegi gave the property an initial valuation of $1.2 billion, which included the Skydeck.
Property tax attorneys for Blackstone made an appeal to the Cook County Board of Review and successfully argued the building’s value down to $999 million to lower its share of the local property tax burden. The value could be further reduced if the attorneys appeal again to the state’s Property Tax Appeal Board or the Cook County circuit court.
Just like many other office buildings in downtown Chicago, the Willis Tower faced the threat of losing tenants during the pandemic. The building’s largest tenant, United Airlines, gave up three of its 17 floors in the building amid rumors that the company could move its headquarters to Denver. Relocation plans, however, have not been confirmed by United.
As of January, the Willis Tower had a vacancy rate of 23 percent, which is slightly under the city’s average of 26 percent.
But it’s not all bad news for Chicago’s most recognizable skyscraper.
“Our recent extension to the loan term reflects our continued belief in the strength of Willis Tower. We believe the building’s transformative renovation has positioned it for success,” a representative of Blackstone said.
Since completing $500 million in renovations in 2022, Blackstone has gained 400,000 square feet of leases between renewals and new contracts. The property brought in over $113 million in net cash flow last year, up from about $43 million in 2020, at the height of the pandemic, according to loan servicer reports.
The recently updated private appraisal also noted that the Willis Tower could regain value in the next two years. It projects that the building could reach a value of $1.6 billion by 2027.
Renovations and new tenants are cited as signs that the property is headed in a better direction and also played a role in Blackstone scoring an extension on its loan for the property.
KeyBank, the special servicer for the building’s loan, approved an extension of the debt 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.
The loan had been transferred to special servicing in February ahead of the maturity date but moved back to master servicing once the extension was secured.