One of the earliest Chicago office investors this cycle is doubling down as the city’s office market creeps back to life.
Menashe Properties earlier this month scooped up 125 S. Wacker Drive, a 31-story, 640K SF Class-A office tower in the West Loop, for $51.5M. It was its second buy in as many years, as the company’s CEO, Jordan Menashe, sees an improving market — and an opportunity to capture market share with an aggressive focus on spec suites.
“Chicago is back,” Menashe told Bisnow.
125 S. Wacker Drive
Menashe’s plan to stabilize its new central business district acquisition at 125 S. Wacker looks similar to how it leased up 230 W. Monroe St. after buying it in 2023. The developer is already working on building six spec suites at Wacker, which it aims to get completed by the end of February, Menashe said.
The goal is to provide a product that is less expensive than the competition but on par or better from the standpoint of amenities, customer service and the space itself.
“We control the cost,” Menashe said. “We did not gold-plate them. They’re efficient, they’re functional, they’re nice, they’re clean, they’re well-designed. They’re what we think tenants want.”
Menashe said he sees the sentiment around Chicago office improving, and the city is either underofficed or moving in that direction.
People are gradually returning to the office in the city.
As of September, Chicago’s central business district was 63.5% as busy as it was in September 2019, according to Avison Young’s Office Busyness Index — up from 59% in August and 58% last September.
While overall vacancy hit an all-time high of 24.5% in the third quarter, Colliers Executive Vice President Steven Bauer told Bisnow in October that buildings with the money to fund tenant improvements are seeing “surprisingly good activity.” The laggards are the buildings without capital to deploy.
That isn’t the case for Menashe.
After the Chicago office market ground to a halt following Google’s purchase of the Thompson Center in July 2022, Menashe was the first investor to buy an office building in the city in more than a year. It scooped up 230 W. Monroe St. in September 2023 for $45M in an all-cash deal.
Occupancy at that property increased from 60% to nearly 85% in less than two years.
“Late September of ‘23 was the bottom for Chicago,” Menashe said. “Did I know it? No. Was I lucky? Yes. Is it a well-located building? Absolutely. But activity and the pressure has continued to build and build and build.”
The goal is to hit 85% occupancy at Wacker in 18 months, Menashe said. It took 20 months to get to that point at Monroe, but with better market conditions and a team already in place, he said he thinks the leasing velocity can be slightly faster.
The Wacker property has the same type of small-tenant mix as the Monroe property, Menashe said. He is already getting traction from tenants who want to expand at Wacker and said Thursday that in the prior 24 hours, he had talked to three brokers representing tenants that want to do so.
“It’s a pure lease-up play,” Menashe said. “I need to do my job and provide the market with spec suites that tenants can get what they feel is a fair value.”
Menashe said the competition for building acquisitions is growing stiffer, and institutional investors are “starting to sniff around” like they did before they entered markets like New York, Boston or San Francisco.
Menashe said he is excited about the direction the market is heading and he is “ready for the next deal” when the timing is right.
Not every building fits the bill — build-outs for larger spaces can lead to basis creep from overspending on tenant improvements. And he intends to be careful and methodical.
“You don’t want to move too fast, because if you drink too much tequila too quick, you’re going to get sick,” Menashe said. “If you buy too many buildings too fast, things are going to go by the wayside, and there’s going to be big mistakes.”