UPDATE April 19, 2022, 10:40 a.m.: After setting a new record last quarter, Chicago’s office vacancy rate rose again on Monday as an insurance company shed more than 100,000 square feet of its Loop footprint.
CNO Financial Group, the parent company of insurers Bankers Life and Colonial Penn, has signed a 32,825 square foot lease at 303 East Wacker Drive, where it will move from 111 East Wacker Drive next year, Crain’s reported. The company will vacate its 139,000 square foot lease in central Illinois owned by AmTrust Real Estate at 111 East Wacker.
The new lease for only a fraction of the space occupied by the company illustrates how the pandemic has bludgeoned office markets in downtown Chicago and across the country. Companies are looking to save space as remote working has proven viable and will remain a feature of many workplaces even as the pandemic wanes – at least in hybrid models for at least two or three days a week .
Companies signing new leases have tended to downsize from previous footprints while maintaining an office that their employees can go to part-time.
“From associate surveys, we know that our associates want a hybrid working model, which includes a mix of working from home and in the office,” CNO’s Matthew Woodruff said in a statement, according to Crain’s. “We also know that many of our associates, including our Chicago-based associates, will not come into the office every day. We offer them the flexibility to decide with their managers what schedule best suits them, the company and their team.
The move marks another significant loss for New York-based AmTrust, which owns the Field Building at 135 South LaSalle Street, which has fallen in value by $200 million since 2015, according to a recent valuation. CNO is the largest tenant of the 111 East Wacker property, which generated $13 million in free cash flow in the first nine months of 2021 with debt service of $11.8 million in that year. period, Crain reported, citing commercial mortgage-backed securities data on a $260 million loan on the property. The property repaid its debt service by a much larger margin before the public health crisis, the outlet reported. The building is now 75% let, including CNO.
Still, the CNO’s landing point suggests an encouraging path to recovery for Loop owners of older buildings: renovations.
Beacon Capital Partners bought 303 East Wacker in 2018 when it was only 69% leased after KPMG and Groupon vacated more than half of the building in 2012. The Boston-based investment firm has poured an undisclosed sum into renovations that added a new penthouse-level living room and a gym overlooking Lake Michigan, Crain reported. The building is now 90% leased including CNO, according to Telos Group, the brokerage firm overseeing the rental of the property.
AmTrust is investing $100 million to renovate five Loop offices it owns, including Illinois Center, and has just hired Patrick Kearney to help oversee the upgrade of its portfolio. He said the building’s racquetball courts on a high floor would likely be transformed into an area with more windows offering skyline views. Leasing interest in the building and across AmTrust’s Loop portfolio has grown since the company announced the renovation plans.
“Tenant representative agents understand what we do and communicate it to their clients and have been enthusiastic about our projects,” Kearney said. The real deal this month.
CNO also hedged its decision to downsize by negotiating “fairly broad and liberal expansion rights in the lease if we [got] it’s wrong,” Dan Maslauski of Cushman & Wakefield, who represented CNO, told Crain’s.
Jack O’Brien, Nikki Kern and Colton Riemenschneider of Telos Group represented Beacon in negotiating the lease, and Maslauski and Michael Sessa of Cushman represented CNO.
[Crain’s] – Sam Lounsberry
This story was updated after an initial announcement incorrectly identified Bankers Life, rather than its parent company CNO Financial Group, as a tenant at 303 East Wacker Drive.