R2, Cubed Real Estate Bet on Discounted Chicago Loft Offices

Boutique office properties are drawing the attention of real estate firms looking for big discounts on well-positioned buildings.

That’s the case with a deal inked last week by Chicago-based Cubed Real Estate and developer R2, who jointly paid just shy of $5 million for a River North loft office building, which the lender had seized a year prior, Crain’s reported. That puts the price at about $95 per square foot. The six-story, 52,500-square-foot building at 225 West Ohio Street was sold well below its going price a decade earlier of $13.3 million. Green Bay-based lender Associated Bank seized the property last year to resolve an outstanding loan on the building.

Associated took over the deed in a foreclosure from Dallas-based Transwestern Investment Group last summer. Transwestern refinanced the property in 2020 with a $9.4 million mortgage from Associated. Transwestern paid down the loan balance by $2.7 million, buying an extension beyond the original maturity date in 2023, but eventually the lender seized it.

The discounted price reflects the struggle office buildings have faced across the country post-pandemic, as high interest rates and work-from-home policies became the norm.

Cubed and R2 are betting on discounted offices increasing in value amid the trend of converting larger office towers into residential, removing some competition, Cubed principal Eric Weber told the outlet.

The River North building is 78 percent leased, and the buyers plan to lease it up. The largest tenant in the building is engineering and landscape design firm Terra Engineering. R2 has been testing investor interest in net-leased properties, which are characterized by a single long-term tenant covering most operational costs.

The purchase follows a trend for R2, which purchased another six-story building in River North earlier in August.The 70,000-square-foot office property at 303 West Erie Street sold for $7.5 million, and it followed a similar steep discount pattern. The seller, New York-based Alvarez & Marsal Property Investments, paid double that for the building in 2017.

— Eric Weilbacher