Kohan Seeks Hotel Developer for Chicago Office Conversion Plan

Weeks after snapping up one of Chicago’s most recognizable office towers at an 85 percent discount, Kohan’s bid to reposition it may test whether bold plays, not just bargain pricing, can help reset the Loop’s struggling office market.

Kohan Retail Investment Group CEO Mike Kohan said his firm is looking for a hotel partner to lease and redevelop the mid-rise portion of 311 South Wacker Drive into a hotel with 300 keys, reviving a pre-pandemic vision once explored by previous owner Zeller Realty Group, Crain’s reported.

Kohan, best known for buying distressed malls, acquired the 65-story tower in late June for $45 million. The building last sold for $302 million in 2014.

Kohan’s acquisition at $35 per square foot was one of the steepest losses ever for a Chicago office building and emblematic of broader Loop distress. Zeller and Chinese investor Cindat Capital lost their equity and refinanced debt after failed attempts to sell the tower for $300 million in 2022 and $70 million earlier this year.

The proposed hotel would occupy around a dozen floors above level 32, space that’s proved especially difficult to lease due to elevator access and layout challenges. Kohan is offering a ground lease structure and hoping to hand the entire hotel buildout over to a third-party operator.

The estimated $60 million conversion would effectively pull 350,000 square feet of vacant office space off the market while generating foot traffic for the tower’s retail tenants and surrounding area.

Meanwhile Kohan is marketing the office space at discounted rates. An online listing shows rents of $23 to $30 per square foot. The average downtown rental rate is approaching $44 per square foot, according to Colliers.

The building is poised to be more than half empty once law firm Smith Gambrell & Russell exits early next year. At the start of the pandemic, it was 86 percent leased.

Adaptive reuse is a hot topic in distressed office circles. But converting part of 311 South Wacker into a hotel will be far from simple. Consultant Ted Mandigo noted that hospitality investors have cheaper, easier options in Chicago and would need to command upscale room rates to make the numbers work.

— Judah Duke