California investor buying West Loop office tower

A San Francisco real estate investment group is poised to buy a West Loop office skyscraper in a deal that breaks a cold streak for big downtown office building sales this year.

Spear Street Capital is under contract to purchase the 46-story tower at 500 W. Monroe St., according to a source familiar with the deal.

The exact sale price is unclear, but industry newsletter Real Estate Alert reported that bids on the building were in the range of $415 million to $425 million, or about $440 per square foot on the high end.

A deal at that price would be well below the $470 million that the sellers, a venture of Johns Creek, Ga.-based Piedmont Office Realty Trust, had targeted for the building. But it would still likely complete a lucrative cashout for Piedmont, which bought the building at a discount after the recession and has reeled in some big suburban companies to its tenant roster since.

The sale would also mark one of the few big office towers to change hands this year as many investors have avoided Chicago, deterred by uncertainty surrounding the new Cook County Assessor’s approach to property valuation and what it means for commercial property taxes. Office building sales volume in the Chicago area through the first half of 2019 totaled just more than $1 billion, down 71 percent year-over-year and the lowest mark for that period since 2011, according to research firm Real Capital Analytics.

Spokesmen for Piedmont and Spear Street couldn’t be reached.

Piedmont was a mezzanine lender on the 967,000-square-foot building in 2011 when its previous owner, a venture of New York-based Broadway Partners, failed to make debt payments on a $140 million senior loan on the building. Piedmont took control of the property in a non-judicial foreclosure sale and reported at the time that the building’s fair market value was $227.5 million, according to a regulatory filing.

The real estate firm has since put $84 million into the building through renovations to its lobby, streetscape and common areas, as well as leasing commissions and tenant improvement allowances, according to Jones Lang LaSalle, which was marketing the building for Piedmont.

Riding a wave of corporate relocations from the suburbs downtown, Piedmont inked a big deal in 2016 with Motorola Solutions to move its headquarters there from Schaumburg, and the company has since expanded to about 206,000 square feet. In 2017, GE Healthcare followed, moving there from its former office in Barrington.

Now the building is 99 percent leased, having filled a large vacancy that included a mostly empty 369,000-square-foot block at the top of the tower when Piedmont took control of the building.

Spear Street Capital has had a small but longstanding interest in the suburban Chicago office market, where it is part of a joint venture that owns the 485,000-square-foot Atrium Corporate Center in Rolling Meadows.

Real Estate Alert first reported that Spear Street was under contract to buy 500 W. Monroe.

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