Goldman takes hit on offices near Goose Island

Goldman Sachs unloaded an office property near Goose Island for less than half what it spent to buy the site.

An affiliate of the New York-based investment giant sold the three-story, 100,600-square-foot office building at 1400 North Kingsbury Street for just under $11.2 million to a joint venture between Chicago developer R2 and local investor Peppercorn Capital, according to Cook County records reported by Crain’s.

The price equates to $111 per square foot. Cushman & Wakefield brokers Cody Hundertmark and Tom Sitz represented the sellers.

The deal follows Goldman’s $19.5 million sale last year of the adjacent REI store at 1422 North Kingsbury to a California buyer.

The combined $30.7 million deals represent a steep loss for Goldman, which teamed with R2 in 2015 to acquire and redevelop the two buildings for about $50 million, including renovations and tenant improvements.

R2 held a minority stake in the partnership at the time. Despite generating steady income over the years, the sale highlights malaise in Chicago’s office sector, where elevated borrowing costs, and soft investor appetite have hammered values.

The Kingsbury deal illustrates the painful math facing some landlords looking to sell in a market still contending with high vacancies since the pandemic. Goldman declined to comment on its decision to exit the properties.

R2 CEO Matt Garrison told the outlet that his firm, now in a 50-50 joint venture with Peppercorn, views the building as a solid long-term bet.

“It’s a great building in a niche neighborhood with tight office supply that’s being decreased by residential conversions,” Garrison said. “We like the demand story, the cost structure and the product-market fit of loft offices and want to own more of them.”

The property, which includes a 44-space parking lot at 1301 North Kingsbury, was nearly full when Goldman and R2 bought it, anchored by staffing firm Seaton. That tenant left for the Old Post Office just before the pandemic, prompting a $9.4 million round of upgrades led by Cushman & Wakefield. Core Spaces signed a 10-year lease last year for 36,000 square feet, helping lift occupancy to roughly 73 percent.

Peppercorn’s Phil Denny, who has mostly focused on the West Loop and the Kinzie Industrial Corridor, said he’s betting on momentum across neighborhoods, pointing to recent leasing gains and a pickup in activity around Fulton Market.

— Eric Weilbacher