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.
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.
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
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.
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.
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
photo: Laura Carlson