The move makes one of the country’s largest public pension funds the free and clear owner of the 51-story tower at a time when many office landlords are surrendering their properties to their lenders. Facing remote work’s assault on office demand and higher interest rates hammering their property values, a number of office owners have watched their bottom lines get dramatically thinner or been hit with foreclosure lawsuits.
By paying off its mortgage, STRS Ohio is showing its confidence in the future of the glassy, postmodern skyscraper, where it has suffered a losing streak of big tenants. The tower is just 62% leased today after law firms Jones Day and Morgan Lewis & Bockius decamped for the office tower at 110 N. Wacker Drive, according to real estate information company CoStar Group. That is well below the 77% average for downtown office buildings, and unusually low for a top-tier, or Class A, office building along the Chicago River, which has proven to be an attractive amenity for tenants.
The newest big defection: Greenberg Traurig, one of Chicago’s biggest law firms, plans to move out of the tower in 2025 for a new building in the Fulton Market District. That departure would leave 77 W. Wacker more than half empty, barring new tenants it lands before then.
STRS Ohio’s strategy behind the loan payoff and its plans for the office tower are not clear, and a spokesman for the $88.8 billion pension fund did not respond to a request for comment.
Refinancing the tower would have been expensive, given the spike in interest rates since it took out its previous mortgage. STRS Ohio’s deep pockets allow it to be flexible in ways many other landlords can’t today, which could give it an advantage as it pursues new users. Office landlords typically have to follow certain rules tied to their debt when it comes to lease terms, for example, handcuffing their ability to negotiate with prospective tenants when the market is as weak as it is now.
At a time when some companies are wary of signing a lease with a landlord that might be in danger of losing their building to its lender or unable to fulfill commitments like putting up cash for office build-outs, STRS Ohio is sending a message that it will be sticking around and in a strong financial position to make deals.
“They no longer have that loan hanging over their head while competing owners might give their buildings back (to their lenders),” said mortgage broker Dave Hendrickson, senior managing director in the Chicago office of real estate services firm Walker & Dunlop. Amid rampant office distress, “it’s as strong as it gets. That’s a bold statement.”
Designed by late Spanish architect Ricardo Bofill, the 959,258-square-foot Wacker Drive building was completed in 1992 and originally known as the R.R. Donnelly Building, with the printing and information services company serving as its anchor tenant. It was renamed the United Building in 2007, when the airline relocated its headquarters to the building.
Widely recognized for its top-floor Greek pediment, the tower has appeared in a number of movies, including a prominent role in the 1998 action thriller “The Negotiator.”
STRS Ohio acquired the building in 2008. Capital One is the largest tenant in the tower today, according to CoStar Group. The McLean, Va.-based credit card giant relocated some of its suburban employees to the office after putting its big Rolling Meadows office up for sublease during the COVID-19 pandemic.
In addition to the Wacker Drive tower, STRS Ohio owns a handful of retail properties downtown and the Streeter, a 481-unit apartment tower at 345 E. Ohio St. The pension fund owned $11.6 billion worth of real estate as of the end of June 2022, according to its most recent annual report.