Chicago Office Tower to Be Sold for Record $850 Million

300 North LaSalle
Irvine Co. agreed to pay $850 million for 300 North LaSalle, a 60-floor office tower in downtown Chicago. The deal is expected to close July 1. The seller, KBS Realty Advisors Cos., was co-founded by Peter Bren, the younger brother of Irvine Co. owner and chairman Donald Bren. Source: Irvine Co. via Bloomberg

Irvine Co., the developer led by billionaire Donald Bren, agreed to purchase a 60-story Chicago skyscraper from an affiliate of KBS Realty Advisors for $850 million, a record price for an office tower in the city.

The closely held buyer entered into a purchase agreement for 300 N. LaSalle St., a 1.3 million-square-foot (121,000-square-meter) tower on the Chicago River, on May 16, according to a regulatory filing yesterday. The building, completed in 2009, is 97 percent occupied, Doug Holte, president of the office-properties division of Newport Beach, California-based Irvine Co., said in a telephone interview.

“It’s one of America’s finest office towers,” Holte said. “The location and the product and the tenant roster make it an opportunity we couldn’t pass up to expand our Chicago portfolio.”

The price represents an almost 30 percent increase from the $655 million that KBS paid for the tower four years ago, when the commercial-property market was near its bottom after the recession. Prices for centrally located offices in major markets such as Chicago, New York and San Francisco have since rebounded and were 16 percent above the 2007 peak as of March, according to Moody’s Investors Service and Real Capital Analytics Inc.

Sears Tower

The price for 300 N. LaSalle breaks the record set by the $841 million sale of Sears Tower, now known as Willis Tower, 10 years ago, according to New York-based Real Capital, whose data goes back to 2001. At the time, the 110-story building was the tallest in North America.

“The impending sale of 300 N. LaSalle is a further sign of the confidence that investors, both foreign and domestic, have in the strong future of the Chicago business district,” Bruce Miller, international director of Jones Lang LaSalle’s Capital Markets Group, said in an e-mail.

Chicago properties are selling at higher yields than trophy buildings in top markets such as New York, San Francisco and Boston, adding to the appeal to investors, Miller said.

Capitalization rates for office buildings in Chicago were 7 percent in the first quarter, compared with 4.3 percent in Manhattan, 5.2 percent in San Francisco and 6 percent in Boston, according to Real Capital data. Cap rates are a measure of investment yield that fall as prices rise.

KBS Real Estate Investment Trust II Inc. plans to make a special distribution to stockholders “of a significant portion” of the proceeds from the sale, according to the filing. The deal is expected to be completed July 1, Holte said.

Bren Brothers

Donald Bren, 82, is owner and chairman of Irvine Co., and his brother Peter M. Bren is KBS’s president. KBS Realty Advisors, also based in Newport Beach, was founded in 1992 by Peter Bren and Chuck Schreiber to invest on behalf of large institutional investors such as pension plans, endowments and foundations. In 2005, they formed KBS Capital Markets Group, which has raised more than $5 billion as of March.

The bidding process was open and competitive, and Irvine Co. would have tried to buy the building even if Peter Bren’s company wasn’t the property’s owner, Holte said.

Irvine Co. is the largest private land owner and developer in California, and has made Donald Bren worth an estimated $14.4 billion, according to data compiled by Bloomberg. In 2010, the company bought the Hyatt Center in Chicago, its first investment outside of California.

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