601W Buying Distressed Brookfield Office Building in Chicago

Three years after Brookfield Properties landed in foreclosure at 175 West Jackson Boulevard, one of Chicago’s most troubled Loop office towers may soon have a buyer — at a steep discount.

New York-based 601W Companies is in talks to acquire the 1.4 million-square-foot property, CoStar reported. The deal is not finalized and could still collapse given high borrowing costs, weak office demand and limited financing options. But if it closes, it would extend 601W’s run as one of Chicago’s most active buyers of distressed office space, adding to its holdings that include the Old Post Office and the Aon Center.

The price is unclear, but sources told CoStar it’s expected to be just a fraction of the roughly $250 million balance tied to the property’s CMBS loan. Brookfield paid nearly $306 million in 2018 — that’s about $218 per square foot — financing the acquisition with $280 million in debt later bundled and sold off to investors. By 2022, the trustee for bondholders had filed a foreclosure suit, and the loan matured last fall with $250.5 million still outstanding. Special servicer LNR Partners never moved to take control, instead working toward a discounted sale to cut losses.

The building faces daunting fundamentals. Marketing materials from JLL, which is brokering the sale, peg vacancy at 53 percent, set to climb to nearly 60 percent with upcoming departures. The weighted average lease term is just under six years. Even after $24 million in recent upgrades, from spec suites to system overhauls, demand has not rebounded.

The 22-story Daniel Burnham–designed building, constructed in phases in 1912 and 1927, is among the largest distressed office assets in the Loop. It joins a string of fire-sale deals across downtown, including this year’s $45 million sale of 311 South Wacker Drive, a figure well below its $302 million 2014 trade.

Opportunistic buyers like 601W might see a long play in the distressed Loop market, on the hunt for massive discounts. The firm has also circled 525 West Van Buren Street, across from the Old Post Office, earlier this year. At the time of negotiations, the 516,000-square-foot tower was expected to go for a dramatic drop from the $135 million Boston-based AEW Capital Management paid for the building in 2015, down from roughly $261 per square foot to a range of $58-$68 per square foot.