KBS Realty Advisors remains upbeat about the market for high-end offices around the country, as evidenced by a deal now in the works to buy a second Chicago skyscraper.
The Newport Beach-based firm—one of the country’s most active commercial real estate investors in the past five years—is said to be under contract to buy Citigroup Center, a 1.5-million-square-foot office in Chicago’s West Loop.
300 N. LaSalle
The 43-story Citigroup Center, at 500 W. Madison St., is owned by a venture that includes Stamford, Conn.-based GE Asset Management.
The property is expected to trade hands for about $435 million, or about $290 per square foot, according to Crain’s Chicago Business, which first reported the impending sale.
That price would make it the most expensive office sale in Chicago since 2010, when KBS Realty paid $655 million for a 1.3-million-square-foot tower at 300 N. LaSalle St. The 60-story building was valued at about $503 per square foot, and the deal reportedly remains the most expensive skyscraper sale in Chicago on a per-square-foot basis.
The 300 N. LaSalle deal is also believed to be the largest purchase of a stand-alone office ever made by an Orange County-based company.
The Chicago buys exemplify the firm’s focus on the high end, with quality properties in better-performing markets in its sights, according to KBS Chief Executive Chuck Schreiber.
“We will pay a premium today for buildings because of the strong cash flow [we expect] for the next five years,” Schreiber told the Business Journal prior to the Chicago purchase being reported.
KBS Realty and its affiliates own nearly $8 billion in real estate across the country, totaling about 44 million square feet. The company has investments in more than 40 markets in the U.S.
KBS is a venture of Peter Bren, brother of Irvine Company Chairman Donald Bren, and Schreiber, a former Koll Development Co. executive. The company started in 1992 and has made nearly $20 billion in deals since its founding.
The “K” in KBS is for Donald Koll, the late commercial real estate executive who was involved with the company early on.
The company oversees five nontraded real estate investment trusts that buy offices, apartments, and other types of properties on behalf of individual investors. It also runs a number of private real estate funds on behalf of pension funds and other institutional investors.
It has not been revealed which affiliate of the company is buying Citigroup Center, nor have financing plans for the purchase been disclosed.
KBS typically finances between 40% and 55% of a purchase with debt, and it works with about a dozen lenders, Schreiber said last month.
The market for debt financing “still is extremely favorable,” despite a recent uptick in rates, Schreiber said.
Portfolio
A deal for Citigroup Center would add to KBS Realty’s portfolio of skyscrapers across the country.
Other high-rises the company owns include Union Bank Plaza in Los Angeles, a 40-story office at 445 S. Figueroa St.; Granite Tower in Denver; and a 38-story office in Louisville, Ky.
Orange County doesn’t have any offices of those sizes, but KBS has made a push to buy some of the area’s taller buildings. It was in the running to buy the 16-story 2030 Main St. office in Irvine, which ended up being bought earlier this month by New York-based Praedium Group LLC in a nearly $114 million deal.
“Buying in Orange County is an easy decision,” Schreiber said. “There are less than a dozen markets that have as favorable [an outlook for rent growth].”
Chicago appears to be among the other regions that KBS is keen on. The company owns six other properties in the city, including a pair of apartment complexes that total nearly 3 million square feet of space.
West Loop
Office buildings in Chicago’s West Loop have vacancy rates of about 14% and average monthly rents of nearly $3 per square foot.
Citigroup Center is reported to be 93% leased, with Citigroup Inc. leasing about 156,000 square feet. Online travel agency Orbitz Worldwide Inc. has its headquarters at the tower and occupies another 141,000 square feet.
A completed deal for Citigroup Center would add to OC’s presence among skyscrapers in the Windy City.
Irvine Company
Newport Beach-based Irvine Co. owns the 48-story Hyatt Center office, and it also is part owner of another 51-story tower in the city. Those are the only properties the privately held company is known to own outside California.
Olen Properties Corp. of Newport Beach also owns a 40-story skyscraper at Chicago’s One S. Dearborn St., which is the privately held company’s trophy property.
