Update: This morning news emerged that the Blackstone Group is in negotiations to potentially buy the tower, according to Bloomberg.
The news that Chicago’s Willis Tower is now up for grabs must be music to the ears of some deep-pocketed investors. In today’s market, few owners of trophy office buildings are willing to give them up. But given the building’s size and potential price tag, who is most likely to end up with the prize?
In 2013, the 2.8-million-sq.-ft. building, one of the tallest in the Western Hemisphere, was appraised at $1.23 billion, according to Trepp LLC. Various sources estimate the asking price for the tower at approximately $1.5 billion. That would exclude most of the locally-based investors, whose buying capacity has been capped at roughly $1 billion, according to Michael C. Lirtzman, executive vice president for the Midwest region with commercial real estate services firm Transwestern.
Last year, the most active buyers in the Chicago office market were privately-run developers and owners/operators, notes Constantine Korologos, managing director with Situs RERC. On a nationwide basis, however, U.S.-based investment management firms seemed to rule the day. Those firms manage money from both U.S.-based institutional investors and foreigners, Korologos points out, and the Willis Tower would certainly appeal to someone looking for an “ego buy.”
“What I would say about this particular investment—it’s not just a trophy building, it’s world-famous. It’s one of the tallest buildings in the world, so you start introducing more potential investors, someone who’s got a lot of money who wants to own one of the tallest buildings in the United States. It may draw buyers other than the normal active investors who may step up for a million-sq.-ft. building.”
Giving the building’s symbolic value and its price tag, Lirtzman believes the most likely buyer would be a foreigner, perhaps partnered with a local manager/operator. Recently, Chinese and Korean investors have been pouring money into Chicago assets, along with German firms and Middle Easterners. Willis Tower’s current ownership is a consortium of Joesph Chetri, Joseph Moinian and American Landmark Properties. The partners bought the building in 2004 for $841 million, which set the record price for Chicago that year.
“It will be a narrow playing field,” says Lirtzman about potential buyers. “There is a very high likelihood that a foreign group will provide most of the capital.”
Occupancy at the Willis Tower is currently at about 86 percent, with a 200,000-sq.-ft. new lease with Seyfarth Shaw LLP scheduled to commence in 2017, according to a recent report from J.P. Morgan. The anchor tenant at the property is United Airlines.
The existing CMBS loan on the building went through a special servicer in May 2014 as the owners were seeking a modification for tenant improvements, but the special servicer declined to modify the loan and returned it to the master servicer this January. The loan is currently eligible for defeasance.