(The Center Square) – A report by a California-based collection agency has found that offices in downtown Chicago have a median of 642 days on the market, which is much higher than the national average of 334.
The Kaplan Group study ranked Chicago’s financial district 8th highest among key U.S. financial districts for office loan default risk.
Gordon Lamphere is director of Sales and Leasing at Van Vlissengen and Co., a commercial real-estate company based in Lincolnshire.
Lamphere told The Center Square that it’s a tale of two cities in Chicago.
“So Class B and C buildings are in a lot of trouble in this market and there’s going to have to be substantial political and economic change done on those buildings. Then you see Class A buildings that are doing great,” Lamphere said.
Lamphere cited a lease deal at Chicago’s iconic Merchandise Mart as a positive example.
“You just had (last week) 110,000 feet taken by Medline, and that’s Class A space at 110,000 feet. You don’t see that in a market where there’s blood in the streets,” Lamphere explained.
Lamphere said the city is in a period of creative destruction.
“What we’re seeing is that the top of the market is winning. They’re doing well. The middle of the market is struggling and the bottom of the market is collapsing,” Lamphere said.
Office space in Jacksonville, Florida, had the lowest median number of days on the market with 163. Miami was next at 278.
Miami, New Orleans and Philadelphia were found to have the lowest risk of office foreclosures.
Property values are down for office buildings in Chicago, while loan default risks and taxes are high. Lamphere said he is realistically optimistic about the market, despite the city’s disturbing financial numbers.
“We are in a very difficult spot, and I would even argue that maybe we’re backed up against the wall. But at the same time, the absolute blessing that we have going on is it’s a game of chicken between many of the office landlords and many of the banks. What ends up happening in most situations is the banks and office landlords end up having to work things out,” Lamphere explained.
Lamphere cited a building in Chicago’s Loop at 70 West Madison Street, which valued at $375 Million in 2014 and sold last week for less than $100 Million. He said Greater Chicagoland has had 3 million square feet of negative office absorption over the last twelve months, with a near-record high of 102 million square feet available.
The Wall Street Journal reported earlier this year that more than $38 billion worth of office buildings across the country are at risk of default, foreclosure or another form of distress.
Bloomberg Law reported this year that Chicago topped the list of cities with the largest share of risky loans.
Chicago’s city government has a projected budget deficit of nearly $1 billion in 2025.
