Can Zell Sell Trib Tower?

Can Chicago’s Tribune Tower sell, even in a market as sluggish for investment sales as the current one? Tribune Co. and real estate mogul Sam Zell didn’t address that question directly, but he did say that an attempted sale of the Chicago property, along with the company’s office building in Los Angeles, is well within the realm of possibility. “[The properties] are… under-utilized, and as employee-owners, it’s in our best interests to maximize the value of all our assets,” Zell said in a statement yesterday. Currently, according to Zell, the company is “exploring strategic alternatives” for the property, one of which presumably would involve a sale-leaseback. In the first quarter of 2008, amid the backdrop of tighter credit standards, there was only one major office property sale in Downtown Chicago, though it was a very large one: the $540 million sale of the UBS Tower (One North Wacker Dr.) to Hines in February. As of mid-June, only nine commercial real estate investment sales of any sort over $100 million have closed in the Chicago area. Moreover, there are signs that the Downtown Chicago office market is starting to soften. According to Grubb & Ellis Co.’s first quarter 2008 report on the market, overall CBD vacancies stood at 13.5 percent at the end of the quarter, up from 4Q07’s total of 13.3 percent. “The CBD’s increase in vacancy… was fueled largely by tenants reacting to uncertainty in the economic climate, as recession fears heightened,” the report noted. “Many tenants are delaying relocation or expansion plans…” On the other hand, the 40-story, 940,000-square-foot Tribune Tower isn’t just any building, say Chicago real estate observers. Zell’s use of the term “iconic” to describe it is no mere real estate hyperbole. Dating from the 1920s, the structure has a commanding presence on North Michigan Ave. and is closely identified with the Chicago skyline. Such high visibility could well prove enough to attract investors for a once-in-a-lifetime opportunity to buy it, even in the doldrums of the current market.Yet other potential buyers may shy away from the property precisely because of its iconic status. “The Trib tower may attract less than spectacular interest because it’s late in the office market cycle, and North Michigan Ave. isn’t the strongest office location,” Daniel Miranda, president of Chicago-based HSA Commercial Real Estate, told CPN this afternoon. “But there’s also potential resistance to any modifications due to its ‘landmark-like’ iconic status.”