Blackstone Group LP agreed to buy Chicago’s Willis Tower, the second-tallest building in the U.S., with plans to upgrade the retail and observatory space in a bet on growth in the city.
The price was $1.3 billion, a record for a Chicago office building, according to Blackstone executives. The sellers of the 110-story skyscraper, formerly known as Sears Tower, are a group including New York-based investors Joseph Chetrit and Joseph Moinian, and American Landmark Properties Ltd.
“We are bullish on Chicago as companies expand within and move into the city and look for first-class office space,” Jacob Werner, a managing director in Blackstone’s real estate group, said in a statement Monday. “We see great potential in further improving both the building’s retail operations and the tourist experience for one of the most popular destinations for visitors to Chicago.”
The New York-based company plans to spend as much as $150 million to improve the tower’s retail portion and 103rd-floor observatory, which is one of Chicago’s top tourist attractions. The Skydeck attracts 1.6 million visitors per year, Blackstone said in its statement.
The sale underscores the demand for top-tier U.S. office buildings even as prices surge past prior highs. Blackstone typically buys assets it can improve by filling vacancies or renovating. Property owners are taking advantage of the jump in values to sell.
Price Gains
Prices for office buildings in central business districts have jumped 139 percent from a January 2010 low, according to an index compiled by Moody’s Investors Service and Real Capital Analytics Inc.
The 1,450-foot (442-meter) Willis Tower was last sold in 2004 for $841 million, a Chicago record until Irvine Co.’s $850 million purchase of 300 N. LaSalle St. last year.
Douglas Harmon of Eastdil Secured LLC was the broker for the sale to Blackstone.
On a per-square-foot basis, the valuation for the more than 40-year-old Willis Tower is lower than deals for newer buildings. The Blackstone price is about $342 a square foot, based on about 3.8 million square feet (353,000 square meters) of rentable space. The tower at 300 N. LaSalle sold for a record $652 a square foot, according to Jones Lang LaSalle Inc.
Blackstone last year acquired two other properties with potential for improvements, Manhattan’s Park Avenue Tower and Boston’s 399 Boylston, from San Francisco-based Shorenstein Properties LLC. Law firm Paul Hastings LLP plans to vacate the New York tower when its lease for 16 of the 35 floors expires in 2016, enabling the landlord to charge higher rents, two people with knowledge of the plans said at the time. The Boston building was purchased for $117 million in a bid to increase income by re-leasing space in a strong market.
New Fund
Blackstone is raising as much as $15 billion of equity for its latest global property fund, Blackstone Real Estate Partners VIII. The new fund would be the largest of its kind, breaking Blackstone’s own record of $13.3 billion set in 2012.
The firm is also taking advantage of the jump in values to sell. In January, the company sold a Manhattan office tower to a venture including Canada’s Ivanhoe Cambridge Inc. for $2.2 billion in the largest transaction for a single U.S. office property since New York’s General Motors Building changed hands in 2008.
Tallest Towers
Seattle’s tallest building is also poised to be sold. Beacon Capital Partners, a Boston-based private-equity property owner, is working with Eastdil Secured on the sale of the 76- story Columbia Center, a person with knowledge of the matter said last week.
The tallest buildings in Los Angeles and Minneapolis changed hands in the last two years. Singapore’s OUE Ltd., which owns and develops mainly Asian real estate, bought Los Angeles’s U.S. Bank Tower for $367.5 million in June 2013. Israel’s Harel Insurance Investments and Financial Services Ltd. was part of an investor group that in April 2013 acquired the 57-story IDS Center in Minneapolis, for $253 million.
Willis Tower lost its title as tallest U.S. skyscraper in 2013, when the Council on Tall Buildings determined that the spire of 1 World Trade Center in New York counted as part of the architecture and was included in that tower’s 1,776-foot height.