March 20--If you're interested in the economic future of Chicago, you want to know what the smart money thinks. And some of the smartest just bought something very big, right here, near the corner of Wacker and Adams -- Willis Tower, for $1.3 billion.
The buyer is Blackstone Group, a New York-based private equity investor that manages $81 billion in real estate assets. "We're bullish on Chicago as companies expand within and move into the city," Blackstone's Jacob Werner said in the announcement a few days ago.
The price is the most-ever for a U.S. office tower outside New York, where skyscrapers may go for three times as much. Paying big money for the 110-story Willis Tower says two important things: Chicago's business center really is as vibrant as it seems, and people are no longer afraid of the tallest, most famous skyscrapers.
Willis, nee Sears Tower, has gone through some tough times because it contains an awful lot of office space that needs to be filled even when the economy stinks -- which it often has since the building's completion in 1973. But the situation became even more critical after 9/11, when the tower looked and felt vulnerable to terrorist attack (it was targeted in 2006 by a hapless group that never got far in its plans). That panic is over, replaced by a more realistic assessment of the risks Chicago, and the entire country, faces.
But for a time, "every tenant wanted to get the hell out of there," David Kahnweiler, chairman and CEO of Colliers Chicago, a commercial real estate firm, told us. Rents dropped precipitously all along Wacker Drive. No more: If Willis Tower is worth more than $1 billion, what are other buildings worth along Wacker, Kahnweiler mused: "The momentum is tremendous."
Blackstone is right about the big picture. After decades of watching corporate Chicago depart to comfy but sterile suburban office campuses -- Sears was among them -- CEOs are bringing their headquarters back to Chicago or opening satellite offices. There's energy in the city, and it's where many younger employees want to live and work. After United Airlines came into the city from the O'Hare area, it moved into Willis Tower. Crain's Chicago Business recently counted nine suburban-based corporations adding downtown satellite offices, among them McDonald's, CDW and Kraft.
There's only so much office space to go around, so tenants are snapping it up. The overall vacancy rate downtown is 13 percent, the lowest in six years and well below the 17 percent seen during the depths of the Great Recession, Crain's reports.
The financial crisis did more than cripple demand for office space, it also put the kibosh on new construction. Just two big office towers are going up at present, both in the hot West Loop: a 54-story tower at 150 N. Riverside Plaza and a 52-story building at 444 W. Lake St. More are likely. Hotel and condo projects also are underway.
Big buildings play an outsized role in Chicago's identity. The skyscraper was born here, in 1885, when the 10-story Home Insurance Building rose at Adams at LaSalle (alas, it was torn down in 1931). Chicago's architecture, to our eyes, is some of the world's finest.
The Sears Tower -- oops, we meant to write Willis Tower -- is a trophy building, but it's under-appreciated in some ways. The building, once the world's tallest, is now ranked second in the U.S. after One World Trade Center in New York and 10th on the global list.
Willis Tower (no, we're still not crazy about the name) is 84 percent leased and certainly not trendy: When Google needed bigger office space in Chicago, it didn't lease space in a traditional skyscraper, it picked a cool former warehouse at 1000 W. Fulton Market. Blackstone plans to invest more than $100 million to spruce up Willis Tower, upgrading the 103rd floor Skydeck and its retail space to make the building more of a tourist attraction.
That's great news. Willis Tower is an amazing structure, instantly recognizable, muscular and soaring, boxy but not at all stodgy. As a symbol of the city, the success of that building matters.
