A real estate investment trust has sold an office building in Chicago’s River North for $17 million, taking a big loss as it moves one step closer to completing a liquidation.
KBS Growth & Income REIT has sold the seven-story Institute Place Lofts building at 213 W. Institute Place for $17 million, the REIT told CoStar News. The buyer was Chicago-based Coastal Partners.
That price is a fraction of the $43.5 million the REIT paid for the 155,385-square-foot building in 2017, a few years before the onset of COVID-19 ushered in remote and hybrid work trends that have caused many buildings to lose significant value.
In Chicago, historically high vacancy and rising interest rates have left most office buyers on the sidelines, with no sales of more than $50 million downtown since July 2022. In September, Menashe Properties paid $45 million for a Loop office building at 230 W. Monroe St.
KBS Growth & Income is a nontraded REIT managed by Newport Beach, California-based KBS Capital Advisors.
The REIT put the Institute Place building, a parking lot and a smaller, neighboring office building at 210-216 W. Chicago Ave. on the market for sale in May. The lot was included in the sale, but the 16,239-square-foot building on Chicago Avenue was not, a spokeswoman for the REIT said in an email.
That building and The Offices at Greenhouse in Houston are the only ones remaining in the portfolio after shareholders earlier this year voted to sell off what at the time were four remaining properties.
Since then, the company has surrendered the Commonwealth Building in Portland, Oregon, in a foreclosure sale, according to securities filings.
Coastal Partners owns office, industrial and retail space in California, Illinois, Indiana, Ohio, Tennessee and South Carolina, according to the firm’s website. Coastal Partners’ Chicago properties include a loft office building at 700 N. Green St. in River West, where the company is headquartered.
Coastal Partners has sold off much of its office and industrial portfolio in recent years, but the company is now looking for deals throughout the country, CEO Brett Baumgarten said.
“When the selling’s good you sell and when the buying’s good you buy,” Baumgarten told CoStar News. “Buying office is contrarian to what the rest of the market is doing, but that’s how you find deals.”
The River North building is about 25% vacant, with much of the space already furnished and ready to move into, he said.
“Our focus here is to do what we do,” Baumgarten said. “We’re hands-on owners and we’ll be moving our office into the building. We’ll be focused on filling this building up. We love the location, the floor plates and the size of the tenants.”
Two billboards in the parking lot are worth $105,000 in annual net income, according to the materials, according to materials from Cushman & Wakefield brokers who represented the REIT in the sale.
The office space was marketed as an opportunity to replace below-market rents as leases expire, with the potential to eventually develop more than 160,000 square feet of new space — possibly apartments or a hotel — on the parking lot.
But Baumgarten said Coastal Partners plans to keep the surface parking lot to be used by tenants and to preserve light into the building.
“Those two factors are more important at this time,” he said.
KBS was considering liquidating the office REIT before the start of the pandemic, and the performance of its properties continued to decline in recent years, according to Securities and Exchange Commission filings.
KBS Growth & Income in December 2022 announced plans to have a plan of liquidation in place by early 2023, after previously telling shareholders in a letter that buildings in Chicago and Portland had lost value because of the pandemic and civil unrest, with the one in Houston hurt by a slump in the gas and oil industry.
It is one of several REITs and other investment platforms from a firm that says it has completed almost $45 billion in real estate transactions for private and institutional investors. KBS has sponsored five sovereign wealth funds, seven nontraded REITs and a publicly traded Singapore REIT.
The seller was represented by Cushman & Wakefield brokers Tom Sitz, Cody Hundertmark and Dan Deuter.