The pending purchase of the 121,117-square-foot building is a bet that office demand near O’Hare International Airport before the public health crisis is poised to pick up where it left off as the pandemic subsides. The four-story property, which developer Ryan opened in 2010, was home to Cisco Systems’ Chicago-area office until the IT giant moved its local employees last July to the redeveloped Old Post Office downtown. The Rosemont building still has a small office user in place.
Now KORE is set to take the reins with a plan to lease up the space Cisco left behind, KORE Senior Vice President of Asset Management Kelli Lind said in a statement.
“While many investors are shying away from the Chicago suburbs, we are bullish on Chicago as a whole and believe that the suburbs, and specifically the O’Hare submarket, are well-positioned for a comeback in select buildings,” Lind said in the statement, which noted the firm is partnering with Denver-based Avodah Capital Group on the acquisition. The building “fits with our belief that tenants will be migrating to quality assets in the suburbs post-COVID.”
At $56 per square foot, the sale price is well below the $16.5 million in debt on the property as of October, according to Cook County property records. That was the outstanding balance of a $25.5 million loan from U.S. Bank that a joint venture of Ryan and real estate investment firm Harp Group took out in 2009 to finance the building’s construction, records show.
That means Ryan would have to come up with roughly $9 million to pay off the loan in conjunction with the sale. A Ryan spokeswoman declined to comment and a U.S. Bank spokeswoman couldn’t be reached, but a source familiar with the property said the two sides were resolving the outstanding loan balance.
The 11-year-old building across the street from the Fashion Outlets of Chicago mall along Interstate-294 is one of the newest multi-tenant office buildings in the Chicago suburbs, since most new suburban office buildings developed over the past decade have been build-to-suit projects for single tenants. Many suburban office buildings lost big tenants to downtown during that period as companies sought access to a deep pool of urban-dwelling talent amid a tight labor market.
Investors like KORE are wagering COVID-19 will trigger a suburban office renaissance, especially if more Millennials that have moved to the suburbs during the pandemic want to work closer to home.
It’s still far from clear whether that bet will pay off. But working in KORE’s favor is the O’Hare submarket that has outperformed other parts of the suburbs for years. The area near the airport averaged a 17.8 percent vacancy rate at the end of the first quarter compared with a record-high 25.5 percent for the entire suburbs, according to data from brokerage Jones Lang LaSalle.
KORE also made a big investment in suburban office market before the pandemic when it paid $128 million in 2019 for the former Sara Lee headquarters building at 3500 Lacey Road in Downers Grove. That deal for the property, which was 97 percent leased at the time, stands today as the priciest suburban Chicago office sale of the past 2½ years, according to research firm Real Capital Analytics.
Local multi-tenant office property sales have been sparse since the pandemic began as buyers and sellers have had difficulty gauging what office buildings are worth amid uncertain future demand. Sales of Chicago-area office buildings fell by 29 percent year-over-year in 2020, RCA data shows.
The capital markets team in the Chicago office of brokerage Cushman & Wakefield is representing Ryan in the sale of Rosemont Corporate Center.