Thank you for sharing!

Your article was successfully shared with the contacts you provided.

CHICAGO-Parkway Properties, Inc. plans to sell off a majority interest later this year in its recently acquired Two Illinois Center building, using the proceeds to buy other office buildings or participate in other joint venture acquisitions. Chief financial officer Marshall A. Loeb broached that possibility during a conference call explaining its downward revision of earnings estimates, caused in part by expenses involved with the building at 233 N. Michigan Ave.

“We’ve reached a verbal agreement with an investment bank to go to market to see if we can find a joint venture interest,” Loeb says. He adds that the Jackson, MS-based REIT may sell off a stake ranging from 50% to 80% in the 1.07-million-sf office building it purchased last month from Tishman-Speyer for $175 million, hoping to raise $125 million. Some of the proceeds could go toward reducing the $106-million mortgage on the property as well, Loeb says.

Parkway Properties maintains it bought the property at a 9.5% initial capitalization rate, but admits that figure will look somewhat like a “stair-step” when the first-year figures are examined. Some tenants have expense pass-through limits in their leases, which will cost Parkway about $300,000 each in the third and fourth quarters of this year, or about $0.026 per share in both quarters.

Besides those additional expenses at 233 N. Michigan, which represents about 12% of Parkway’s entire portfolio, the REIT used an $18.5-million preferred-stock sale to reduce debt at 5% interest rather than buy property at a presumed 9.5% cap rate. And now it is seeing some new leases start later than expected and revising its income and expense estimates for its Parkway Realty Service operations.

“Any of these items in isolation would not have been material,” says president and CEO Steven G. Rogers. “However, in the aggregate, we had a ‘Perfect Storm’ in the third quarter.”

Parkway would retain management, leasing and maintenance responsibilities of the building if a joint venture partner is found. The REIT has hired J.F. McKinney & Associates to lease more than 100,000 sf of space in the building.

Meanwhile, another Illinois Center building at 111 E. Wacker Dr. reportedly is off the market. Parkway had explored purchasing the similarly-sized building, but could not justify matching a reported bid close to $150 million from Phoenix-based Pivotal Group, Inc. According to a published report, Pivotal Group has lowered its bid, prompting Carlye Group and Lincoln Property Co. to take the building off the market.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?



Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.