Real Capital Solutions Circles Distressed Streeterville Office

An investor primed to go big on troubled office towers that recently bailed on a LaSalle Street deal is circling a Streeterville asset instead.

Colorado-based Real Capital Solutions is in advanced talks to acquire the 35-story Chicago office building at 401 North Michigan Avenue, sources told Crain’s. The pending price isn’t finalized, but the firm reportedly offered more than $130 million for the 747,500-square-foot tower at the Chicago River. That’s $174 per square foot and a steep drop from the $360 million Chicago-based Walton Street Capital paid in 2017, though not as brutal a discount as other downtown fire sales.

Real Capital shifted its plans, as it had the 40-story tower at 190 South LaSalle under contract earlier this summer before backing out. The firm is planning to deploy $3.5 billion into distressed office purchases nationwide over the next three years. Its affiliates recently scooped up heavily marked-down buildings in Dallas and Washington, D.C., betting that values will rebound as the post-pandemic office slump levels off.

High interest rates and lingering skepticism about the commercial property sector have kept transactions scarce, while many downtown towers are still encumbered by debt that exceeds valuations.

In fact, 401 North Michigan itself was previously the subject of a broken deal. The Saudi Arabian enterprise Olayan Group late last year was in talks to acquire the building at a similar discount as Real Capital, but a purchase never moved forward.

Walton Street refinanced the property in 2019 with a $160 million loan from the firm ING, and the debt’s maturity date has been repeatedly extended. A sale at north of $175 a foot would not only wipe out the seller’s equity but also leave the lender exposed. ING has signaled willingness to stay involved with the property and finance up to 60 percent of a buyer’s purchase.

Leasing metrics at 401 North Michigan are stronger than the downtown average, with the tower 88 percent occupied versus the 72 percent norm. However, near-term moveouts could drive that down to 76 percent. A long-term lease with the American Dental Association, which runs through 2040, and a weighted average lease term of more than seven years provide ballast that brokers at JLL are highlighting to prospective buyers.

— Rachel Stone