Blackstone to Buy Willis Tower?

It’s still early in the year, but maybe Blackstone Group’s global head of real estate, Jonathan Gray, should be thinking about clearing space on his shelf for another award or two.
Willis-tower

It’s still early in the year, but maybe Blackstone Group’s global head of real estate, Jonathan Gray, should be thinking about clearing space on his shelf for another award or two. If unconfirmed media reports that Blackstone has a preliminary agreement to buy Chicago’s iconic Willis Tower for nearly $1.5 billion are true, and if the deal goes through, Gray would have to be a strong contender in Commercial Property Executive’s peer-voted competition later this year.

Blackstone acquiring the Willis Tower, from New York’s Joseph Chetrit and Joseph Moinian and American Landmark Properties, of Skokie, Ill., would be the kind of big-ticket transaction that helped win Gray CPE’s Executive of the Year award in 2011, 2012 and 2013 and Investor of the Year in 2011 and 2013.

The rumored deal, for nearly $400 per square foot, would also bring an outsized profit for the sellers, who in 2004 paid $840 million for the iconic building, then still named the Sears Tower.

The Chicago office of Eastdil Secured, which is marketing the Willis Tower on behalf of its owners, did not return Commercial Property Executive’s call seeking information on the situation.

A report from Crain’s Chicago Business noted that one factor in the rumored high-dollar value on the sale would likely be the tower’s substantial revenues from the 103rd-floor skydeck (more than $25 million a year) and from broadcast space and antennas (more than $10 million a year). Those income streams presumably would help balance out the current lackluster 84 percent occupancy of the building’s nearly 3.8 million square feet of office space.

Considering just buildings in the top quartile of assets, cap rates for sales of downtown Chicago buildings pre-recession showed a typical spread of 30-some basis points versus sales of similar assets in the United States overall, Jim Costello, senior vice president at Real Capital Analytics, told CPE. But after widening to 100 basis points and more in late 2012, that spread by late 2014 had fallen to just 49, according to figures from RCA.

In some respects, Costello commented, higher prices and lower cap rates in the Chicago CBD now fit “a pattern of capital ‘rediscovering’ Chicago and moving back toward longer-term relationships.”

Since 2001, according to Real Capital Analytics, there have been just 23 single-asset sales of U.S. CRE that have topped $1 billion, and all but three have been in New York City. Those three were:

  • In May 2014, the $1.1 billion acquisition by Senior Housing Properties Trust of Vertex Pharmaceuticals’ two-building headquarters in Boston, from The Fallon Co. and an institutional investor.
  • In October 2012, Amazon’s purchase of its 11-building, 1.7 million-square-foot headquarters complex, in Seattle, from developer Vulcan Real Estate for $1.16 billion.
  • And in September 2005, the $1.1 billion acquisition of Bank of America Center, San Francisco, by Hudson Waterfront Associates’ Henry Cheng and Vincent Lo.

“If the Willis Tower hits that $1.5 billion mark,” Costello concluded, “Chicago then will be joining an exclusive list.”