Big bet on Loop office rebound
Half-empty LaSalle tower fetches high price
Crain's Chicago Business
(May 22, 2006)
By Thomas A. Corfman

The investment arm of CB Richard Ellis Inc. has agreed to pay $137 million for the largely vacant office tower at 190 S. LaSalle St. - a bold wager on the recovery of the downtown office rental market.

Emerging from a crowded field of bidders, Los Angeles-based CB Richard Ellis will pay more than $170 a square foot for the nearly 800,000-square-foot skyscraper, people familiar with the transaction say. That's a steep price for a building that's less than half leased. Still reeling from last year's defection of its largest tenant, law firm Mayer Brown Rowe & Maw LLP, the tower is one of the emptiest buildings in the Loop, with a 58% vacancy rate.

With so much space to rent, CB Richard Ellis Investors LLC seems to be defying a market that has been pummeled by a one-two punch: meager business expansion and relentless new construction.

Amid stubbornly high vacancy rates, many real estate insiders already view the deal as a defining moment - either a prescient forecast of a long-awaited rebound or a misguided play in an office market that remains stuck in neutral.

"It's a turning point, one way or the other," says Stephen Quazzo, CEO of Chicago-based Transwestern Investment Co. "We aggressively bid on it, and still came up short."

Despite high vacancy rates, downtown landlords have avoided selling out at bargain prices. Still, the few sales of buildings with big vacancies have been at lower prices, such as the January purchase by Chicago firms of 55 E. Monroe St., whose largest tenant is moving to a new tower. The price was about $149 a square foot, according to real estate research firm CoStar Group Inc.

That price - 12% lower than CB Richard Ellis Investors is paying for 190 S. LaSalle - would've been lower but for the buyers' plan to convert the building's upper floors into residential condominiums. Faced with re-leasing that space to another office tenant, the deal might have gone ahead anyway, "but not at the price we paid," says Michael Klein, a principal in GlenStar Properties LLC, a partner in the transaction.

The ornate 190 S. LaSalle, designed by New York architect Philip Johnson, reflected a taste for opulence when it was built in 1987. The lobby features a 55-foot-high vaulted, gold leaf ceiling and a 28-foot-tall bronze sculpture.

But lately the building has been an unfortunate symbol of the slumping Loop rental market. As many law firms have done, Mayer Brown bolted for a new tower: Hyatt Center, 71 S. Wacker Drive, one of six skyscrapers built since 2001.

The 40-story structure at 190 S. LaSalle is owned by a joint venture that includes New York-based insurer MetLife Inc. An executive with real estate firm Eastdil Secured LLC, a unit of Wells Fargo & Co., which handled the sale, declines to comment. A spokesman for CB Richard Ellis Investors, which manages $17 billion, also declines to comment.

The building already has been mentioned as a possible home for UAL Corp., which is considering moving its headquarters downtown from Elk Grove Township.