The impending relocation falls in line with a broader movement of companies upgrading their workspace following the public health crisis. As they focus on getting employees to show up rather than work from home, companies are moving into newer and more recently updated buildings, taking advantage of good deals as landlords collectively scramble to shore up their rent rolls.
While the vacancy rate at downtown office buildings overall has jumped over the past two years from 19.4% to 22.6%, vacancy at top-tier, or Class A, office properties has been virtually flat over that span, according to data from real estate services firm CBRE. Class B properties, meanwhile, have seen their vacancy rate climb during that period from 20.6% to 26.5%, CBRE data shows.
The so-called “flight to quality” movement is critical for buildings like 330 N. Wabash, as a herd of big tenants embracing the remote work movement cut back on workspace.
The 1.2 million-square-foot tower, owned by a venture of Boston-based real estate firm Beacon Capital Partners, is 93% leased today, according to Bloomberg data tied to Beacon’s debt on the building. But there are challenges ahead: Engineering consultant Thornton Tomasetti is leaving its nearly 31,000-square-foot office in the building for the Fulton Market District; embattled co-working provider WeWork occupies two floors in the building, and the American Medical Association, which is the building’s largest tenant at more than 298,000 square feet, has an option to terminate its deal in 2025, according to loan data. If the AMA recommits to its namesake building, it could substantially downsize its footprint.
Spokesmen for SCB and Beacon declined to comment.
One factor that might have helped win over SCB is that Beacon is preparing to make a substantial investment in the Mies van der Rohe-designed tower and its outdoor plaza, according to people familiar with the plan. A source said Beacon has advertised to prospective tenants its intent to repurpose existing offices on two floors into new amenity space. Beacon has owned the office portion of the tower since buying it for nearly $468 million 2016.
The tower, completed in 1973 and designated as a Chicago landmark in 2008, also includes the separately owned Langham luxury hotel.
Beacon’s portion of the tower generated $19.5 million in net cash flow last year, according to Bloomberg loan data. That was far above Beacon’s $9.4 million in debt service for the year but down from net cash flow of $22 million in 2021. The mortgage was packaged with other loans and sold off to commercial mortgage-backed securities investors, making much of the building’s financial information publicly available.
Losing SCB would create a new leasing challenge for Chicago-based developer Golub, which owns the office portion of the 27-story tower at 625 N. Michigan Ave.
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