Sterling Bay selling West Loop building for $305 million

April 2015

Chicago developer Sterling Bay is selling a 102-year-old West Loop office building for more than triple what it paid for it a little over two years ago.

J.P. Morgan Asset Management is paying Sterling Bay more than $305 million for the 840,000-square-foot building at 111 N. Canal St., according to people familiar with the deal.

The deal represents a remarkably quick turnaround, even for Sterling Bay, which is known for repositioning older buildings to modern, loft-style offices.

The developer bought the 16-story building for $100 million in December 2012 and quickly began large-scale renovations while also signing a string of new leases. Not all of the price boost is profit for Sterling Bay, which has invested tens of millions of dollars in an ambitious overhaul of the building.

The building also has benefited from arush to vintage buildings with wide floors by technology tenants, which have boosted values of properties such as the Merchandise Mart and 600 W. Chicago Ave.

LONG-TERM LEASES

The building is more than 90 percent leased, mostly with new long-term deals. The largest deal is with in-flight wireless provider Gogo, which in 2013 agreed to move its headquarters there from Itasca and recently said it would expand to 259,000 square feet in the building.

Other tenants include Twitter, Fieldglass, Uber and Potbelly.

With all the new leases, as well as adding a new lobby, roof deck and fitness center, at one point more than half of 111 N. Canal was under construction, according to people familiar with the property.

“They certainly fast-tracked a buildout that would typically take years,” said tenant broker David Knight, a principal at Advocate Commercial Real Estate Advisors. He represented Vivid Seats, an online ticket marketplace, in a 31,000-square-foot lease but is not involved in the sale of the building.

'FEELS LIKE A TOTALLY NEW BUILDING'

“The type of transition the building has seen in such a short time is rare,” Knight said. “To do that, you need the capital to make the upgrades and you need to be able to sell potential tenants on what it will look like once the changes are in place. This was all done in about two years, and it feels like a totally new building. It's got a vibrant feel.”

In part to fund extensive construction and leasing costs, Sterling Bay last spring refinanced the building with a $185 million loan, replacing its previous debt of almost $98 million.

At the time Jones Lang LaSalle was hired to sell 111 N. Canal in October, Sterling Bay had invested $32 million in renovations and $39 million in tenant improvements, according to a JLL flier.

Sterling Bay principals Scott Goodman and Andy Gloor and a J.P. Morgan spokesman declined to comment.

In July, Sterling Bay and J.P. Morgan Asset Management announced plans to co-develop Chicago properties. The 111 N. Canal sale is a separate deal.

Sterling Bay is particularly active in the Fulton Market district to the west of 111 N. Canal, including a deal to bring Google's Chicago office to the former Fulton Market Cold Storage building at 1000 W. Fulton Market. Sterling Bay also has created unique office spaces in other buildings that previously had different uses, including landing Hillshire Brands' headquarters at an industrial building in the West Loop in 2012.

The Canal Street building was completed in 1913 as a warehouse for mail-order company Butler Brothers.

Source:  Crain's Chicago