Chicago Office Tower Deal Sets Pricing Record
The Wall Street Journal reports: Last week, 300 North LaSalle St. in Chicago sold for a record price of $655 mil. Some commercial property players are stunned. But in the current real estate environment, there is a widening gap in commercial property valuation where office buildings with a lot of vacancy get little interest, while bidding wars erupt for those that are fully leased with strong tenants. Landlords with high vacancy buildings are seeing the value of their buildings fall with the growing difficulty in filling available space.
KBS, a real estate company based in Newport Beach, CA purchased the 1.3 million sq.ft. office building overlooking the Chicago River via a private real-estate investment trust for about $500 per sq.ft. That's the most expensive price ever paid for a office building in Chicago on a sq.ft. basis, according to Real Capital Analytics. Compared to this, the tallest building in the United States, the Willis Tower (formerly the Sears Tower), was an unbelievable bargain at $244 a sq.ft. when it sold in 2004 for about $840 million.
"I can't remember in modern history the pricing spread being so high between core Class A and more lower-quality assets," said Dan Fasulo, managing director at Real Capital Analytics. "Some of the pricing being achieved by the top buildings in the global cities in the U.S. are really shocking a lot of industry observers."
The tower at 300 N. LaSalle generates an annual net income of about $43 mil., which means a yield of about 6.5% on the $655 mil. that KBS has committed. That yield, or "cap rate" as it is known in commercial real estate speak, is within the range seen in Chicago during the height of the market in 2006 and 2007, according to Real Capital.
See the recent RCA article Property Portfolios of REITs and Lenders Balloon.
View the full article on The Wall Street Journal: Chicago Office Tower Deal Sets Pricing Record (Login Required)
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Posted by: Matthew Stone