The move is one of the most dramatic examples downtown of a company slashing its office space since the start of the COVID-19 pandemic, which has triggered a remote work movement and driven downtown office vacancy to a record high. That has wreaked havoc on many building owners’ bottom lines and forced others into foreclosure.
CNO was not using all of its space before the pandemic, according to Cushman & Wakefield Executive Managing Director Dan Maslauski, who negotiated the new lease on behalf of the company. But like many other tenants, its space needs have been reduced with more people working from home, prompting the deal for just a single floor at 303 E. Wacker, Maslauski said. “And we were able to negotiate some fairly broad and liberal expansion rights in the lease if we (got) it wrong,” he added.
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In a separate statement, CNO Vice President of Facilities Matthew Woodruff said the rise of remote work “has required (the company) to re-evaluate and rethink how we best optimize our workspace and work culture for the future. From associate surveys, we know our associates want a hybrid working model, which includes a mix of working from home and in the office,” the statement said. “We also know that many of our associates, including our Chicago-based associates, will not be coming into the offices every day. We are offering them the flexibility to decide with their managers what schedule works best for them, the business and their team.”
The relocation deals a heavy blow to New York-based AmTrust Realty, which owns the two-tower, 2.1 million-square-foot Illinois Center complex. CNO is the largest tenant in the 111 E. Wacker property, which generated $13 million in net cash flow during the first nine months of 2021 compared with debt service of $11.8 million during that period, according to a Bloomberg report tied to AmTrust’s $260 million loan on the property. The mortgage was packaged with other loans and sold off to commercial mortgage-backed securities investors, making some of the building’s financial data public.
That net cash flow cleared debt service by a far thinner margin than the building’s 2019 figures, when its net cash flow doubled AmTrust’s debt service, Bloomberg data show. Including CNO, the building is 75% leased today, according to real estate information company CoStar Group.
AmTrust has notched a couple of leasing wins recently with law firm Taft Stettinius & Hollister, third-party logistics company Traffic Tech and private-equity firm Tyree & D’Angelo Partners adding a combined 70,000 square feet since last fall. But Bankers Life will give the building owner a much larger block of vacancy to backfill.
AmTrust is planning to give Illinois Center and several of its other downtown office buildings some shots of new life to help them compete for tenants, announcing late last year it would spend $100 million combined on renovations to five of its office towers in the city.
A spokeswoman for AmTrust did not respond to a request for comment.
For Boston-based Beacon Capital Partners, which owns 303 E. Wacker, the CNO lease adds to a payoff it has seen from its own building renovations. The real estate firm bought the 28-story Wacker Drive tower in 2018, when it was 69% leased as a lingering result of KPMG and Groupon moving out of more than half of the building in 2012.
Beacon spent an undisclosed amount on capital improvements, including a revamped lobby and the addition of a new penthouse level with a lounge and gym overlooking Lake Michigan. With CNO, the building is now 90% leased, according to brokerage Telos Group, which oversees leasing at the property.
Jack O’Brien, Nikki Kern and Colton Riemenschneider of Telos Group represented Beacon in negotiating the Bankers Life lease. Maslauski and Michael Sessa of Cushman represented the insurance company.
Editor’s note: A previous version of this story stated that Bankers Life & Casualty signed a lease at 303 E. Wacker. The story has been updated to reflect that Bankers Life parent company CNO Financial Group leased the space.