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Distressed Loop office building poised for apartment conversion

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Intersection now has plans to convert most of the property to apartments while retaining some of the building’s office tenants, said Intersection co-founder and principal Chase Chavin. Chavin declined to share details about the scope of the project and which floors will be converted, but confirmed that more than half of the building will likely be redeveloped for residential use. He said the Intersection plans to add “rooftop amenities” to the building, and the estimated cost of the project will be greater than what the Intersection paid for the building.

“We believe in Chicago and are very excited about the opportunity to play a small part in the revitalization of The Loop by acquiring this very well-located historic property.

The purchase and planned conversion will take place as Mayor Lori Lightfoot trying to attract developers Converting LaSalle Street and nearby antiquated office buildings into apartments, restoring traffic around The Loop that was devastated by the COVID-19 pandemic, allowing more people to work remotely more often Aiming to be Lightfoot dangles tax-raised loans and other public incentives for developers who commit to working on such ambitious projects and making at least 30% of new units affordable.

Intersection’s Wacker Place project is a few blocks from LaSalle, but Chavin plans to use the 94-year-old vintage of the building to help relocate it. The Intersection plans to pursue a federal historic tax credit to lower the cost of capital required for the project, and will push Chicago to designate the building as a landmark. The latter is eligible for Cook County’s Class L Property Tax Incentive, which reduces the building’s appraisal value and therefore reduces property taxes for 12 years after the project is completed.

Supporting Intersection’s goals is the surge in demand for downtown apartments.Second Quarter Occupancy Rate of Central Tokyo Condominiums reached the highest record in almost 10 years. Rents hit a record high, according to consulting and appraisal firm Integra Realty Resources. These strong fundamentals have led many downtown landlords to consider converting older office buildings into residences as office vacancy rates are at record highs.

However, existing tenants can complicate such projects. The 65 E. Wacker building is currently 46% leased to 23 tenants, according to a Jones Lang LaSalle flyer. acre. Intersections may require moving tenants to create a contiguous block of buildings available for redevelopment.

Chavin, who co-founded Intersection with the company’s managing partner Truman Treffley in 2020, hopes to start construction work on the building within the next eight months, with the goal of completing the apartments within 18 months. said he was thinking

The Wacker Place project will be Intersection’s first project in Chicago, but Tollfree has worked on other apartment conversion projects in other markets, including the redevelopment of the Rockford Trust Building in downtown Rockford. I was.

Pacific College of Health & Science is the largest tenant at 65 E Wacker, with leases of approximately 19,000 square feet that expire at the end of 2025, according to JLL. The building’s most famous tenant was Morton’s Steakhouse on its first two floors, where the restaurant has been located since 2005 when he signed a 15-year lease. That lease was restructured during the pandemic and now runs through 2027, according to JLL.

The Intersection purchase saw Acres take a $24.4 million loan in 2017 to the building’s previous owner, Wilton US Commercial, at a heavy loss. Wilton, based in Dublin, Ireland, handed over the keys to Akers last year after trying to sell the property to initially pay off the loan. Mortgages were packaged with other loans and sold to mortgage-backed commercial investors, exposing much of the building’s financial performance data.

Tenant evictions before the pandemic sank the building’s net cash flow to just $372,224 in 2019, well below Wilton’s $1.3 million in debt service payments that year, according to Bloomberg data.

Wilton was one of the landlords of the downtown offices who stared at potential mortgage defaults during the pandemic and eventually turned over their properties to lenders. 401 S. State St. and 300 W. The owner of an office building on Adams St. is one of those who left their property rather than face a foreclosure lawsuit.

A spokeswoman for Acres didn’t respond to a request for comment.

CoStar News first reported the news that the building had been sold to Intersection. JLL brokers Sam Difrancesca, Bruce Miller and Jaime Fink put the Wacker Place building up for sale.

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