In a letter to shareholders, George J. Carter, President of FSP 303 East Wacker Drive Corp., the Franklin Street Properties affiliate that acquired 303 East Wacker Dr. in Chicago from Hines in 2007, said his firm has finalized fourth quarter leases with Senior Lifestyle Management for 30,919 square feet and an expansion with National Tax Search for 10,629 square feet, elevating the building’s occupancy rate to 55 percent.
Despite the upward trend, the company’s Board of Directors has agreed to continue its suspension of dividend distributions due to the fact that the building is not expected to generate positive cash flow for the near term.
“Management believes that the trend of high vacancies and disappointing net absorption has continued within the submarket,” wrote Carter of the East Loop. “Class ‘A’ and ‘B’ office buildings in the East Loop were approximately 17.8% vacant at the end of 2013, compared to the entire CBD which was approximately 14.4% vacant at the end of the year.”
The 28-story, multi-tenant office tower in downtown Chicago’s East Loop submarket offers 860,000 square feet of office and retail space and a 294-stall underground parking garage. New leases, expansions and renewals in the building last year totaled about 108,000 square feet.
Carter says the company has seen steady activity in the building from tenants under 20,000 square feet, but says that buildings in the East Loop continue to struggle with attracting larger prospective users.
Space users “in fields such as the technology sector have absorbed significant amounts of quasi-office and warehouse spaces along the Chicago River in the River North submarket and in locations considered to be on the fringes of downtown Chicago,” he wrote. “Many of the retrofitted buildings that have been attracting these tenants were built in the early 20th century with very large floor plates that allow for extremely dense populations on a single floor.”
303 East Wacker’s two largest tenants, KPMG and Groupon, departed during 2012 and 2013. Those departures have been partially mitigated with leases for approximately 218,000 square feet with five companies: XPO Logistics, Senior Lifestyle Management, Maximus, Kelly Scott & Madison and AECOM Technology.
“We believe that the Company has the capital to fund the estimated tenant improvement costs and leasing commissions necessary to re-lease a significant portion of the vacant space,” wrote Carter. “It is important to remember that Franklin Street Properties Corp., the Company’s sole common shareholder and the Property’s asset manager, has a large equity investment in the Company totaling $82,813,000, owning the same preferred shares as all other investors. If successful in re-leasing the large vacancy under favorable terms, the opportunity for increased dividends and/or a sale of the Property at an attractive price would be targeted objectives.”
The company also secured a $35 million loan from John Hancock Life Insurance Company to further assist in the re-leasing costs back in April 2011.
“The Property continues to be maintained in excellent physical condition and has never looked better,” Carter concluded.