However, current owner Travelers Insurance is guaranteeing the net rent from March First lease, which has more than two years to run, or until the space is subleased. Travelers will hire a broker to market the sublease space, says senior vice president James M. Ingram, and already has prospects.

Parkway officials add the building offers a stable rent roll with long-term leases with tenants such as General Services Administration (189,000 sf), United Healthcare Services (168,000 sf), Young & Rubicam (120,000 sf), the CIT Group, Seven Worldwide, World Book Encyclopedia, BDO Seidman, CB Richard Ellis, American Express and Equitable. Retail tenants include Citibank and McDonalds. The property includes a four-level, 1,013-car parking structure with access off East Wacker Drive and South Water Street.

The Chicago market is "a poster child for the new urbanism," says president and CEO Steven G. Rogers. Ingram adds Parkway had been studying the Chicago market for two years before making the acquisition. "It distinguished itself with its Midwest charm, diversity and livability," Rogers adds.

The $164 per sf price for the class B office building is 34% less than current replacement cost, according to Parkway. Travelers also spent about $70 million on recent renovations, Rogers says, "and that's not all cosmetic. It's an extensively renovated building."

Although the total price eclipses the $167 million Tishman Speyer paid for 200 W. Madison St. earlier this year, that purchase was at $182 per sf, according to US Equities Realty, LLC. Last year, Shorenstein Co. LP paid $183 per sf for two other nearby East Loop properties--130 E. Randolph St. ($192 million) and 180 N. Stetson Ave. ($172 million)

"The East Loop has trailed behind the West Loop," Ingram says of the submarket's rental statistics. "The sublease market is not that significant in the East Loop.... All in all, we think the market has tracked well and will perform well."

The projected going-in capitalization rate is approximately 9.5%, according to Ingram, a figure he considers "conservative" with the underwriting standards Parkway used.

Built in 1972, 233 N. Michigan Ave. was designed by the architectural firm of Ludwig Mies van der Rohe. It will represent 13% of Parkway's portfolio in terms of square footage basis but 21% of its rental revenue. Parkway gets 19% of its portfolio revenue from the Houston market, where it has 20% of its portfolio in terms of square footage. The purchase is a big stride in Parkway's goal toward focusing on urban areas, particularly central business districts, and in selected markets outside its base in the Southeast and Southwest.

In addition to the $173 million purchase price, Parkway will spend another $1.55 million in closing costs, first-year capital expenditures and leasing commissions.

Financing is being provided by a $106-million fixed-rate first mortgage with Deutsche Banc Alex Brown. The interest rate will be 205 basis points over 10-year US Treasuries, currently 7.45%, amortized over 25 years with a 10-year balloon. The remaining $69.05 million will come from convertible preferred equity to Rothschild Realty/Five Arrows and an existing line of credit.

Vice president of investor relations Will Flatt will move from Jackson to supervise the property as vice president and asset manager.

While the 233 N. Michigan Ave. purchase represents the REIT's strategy, another aspect includes selling suburban properties in the Birmingham, AL; Indianapolis and Greenville, SC markets.