CCIM Feature

Catching a Deal

Broker's creativity helps reel in a prize investment.

The small fish in a big pond isn’t always a bad catch, especially when that fish offers a one-of-a-kind investment opportunity in a top-tier U.S. office market. While some commercial real estate pros might have thrown back Chicago’s 211 West Wacker Drive building due to its high vacancy, “To us, it presented an opportunity to add value,” says Jeb Scherb, CCIM, partner of Ameritus Corporate Real Estate Services. The small Chicago-based company purchased the property for $14.9 million last September and has converted it into office condominiums — some of the first in the city’s central business district.

Upon selling a local industrial building last year, Ameritus contacted several institutional owners in search of a 1031 replacement property. When one of them proposed the Wacker Drive building, Scherb relished the irony: In 1984, Bert Scherb, Jeb’s father and partner at Ameritus, purchased the property with a group of investors, rehabbed it, leased it up, and sold it in 1989. Since then, the class B building had floated through various institutional owners’ portfolios, but Scherb recognized the property’s potential. “For institutional owners, the asset was too small to be their core focus, and therefore, the building historically has suffered high vacancy,” he says. “For us, however, this project is our core focus.” Ameritus manages all aspects of the property, including brokerage, sales, property management, construction, raising equity, and securing debt.

The decision to “go condo” allowed Scherb to add value to the investment. “The [Chicago] investor market has been voraciously pursuing leased office buildings and we couldn’t compete with institutional money,” Scherb says. “So we asked ourselves, ‘How can we differentiate this property from the other 20 million square feet of available space within a 10-block radius and make the numbers work?’ ”

Tapping into his brokerage network, Scherb reconnected with prospects that had inquired about buying space in the company’s other Chicago office properties. About 29 of the 80 contacts still expressed purchasing interest — a promising sign that helped seal the condominium conversion decision.

Unlike some primary and secondary markets, Chicago’s CBD is not flush with office condominiums. Therefore, while the conversion would differentiate the building from similar for-lease space, it also made the property a hard sell to lenders. Though a couple of nearby projects provided comparables, Scherb concentrated on researching similar-sized markets with successful office condominium developments to help convince lenders. “We consulted with developers in Phoenix and Atlanta to learn how they were structuring their projects.” Ultimately, he determined that the best prospects for the property were small, stable service businesses and nonprofits.

With close proximity to transit lines and expressways and a desirable location overlooking the Chicago River, the 18-story, 158,000-square-foot building is attracting nonprofits, professional-services companies, and entrepreneurial businesses that want to own their space. As of May, 27,602 sf were sold, with another 19,578 sf under contract and 25,000 sf in negotiations. “The goal was to sell 50,000 sf per year over three years and we’re well on our way,” Scherb says.

photo: Laura Carlson

Jennifer Norbut

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