CHICAGO-Local brokers are saying that the Blackstone Group’s decision to sell its portfolio of about 15 properties, with 10.4 million sf, for about $2.7 billion to two separate companies was the right thing to do. Tishman Speyer Properties LP is buying the properties in Chicago while GE Real Estate is purchasing the suburban properties. “It is roughly $250 per sf blended across the portfolio. That is a fair return. It is not an eye-popping number,” says Equis senior vice president and managing director Chris Wood, who was not involved in the sale. Spokesmen from the Blackstone Group, Tishman Speyer and GE have declined to comment, and though the deal has been widely reported, the companies have not announced the deal officially.

The bulk of the properties were purchased earlier this year as part of a portfolio from Equity Office Properties Trust. Two additional properties from Blackstone’s buy-out of CarrAmerica are also said to be in the mix. Suburban properties in the portfolio reportedly include Oakbrook Terrace Tower; Corporate 500 Centre and 500 Lake Cook Rd. in Deerfield; the three-building Commerce Plaza and 2001-2021 Spring Rd. in Oak Brook; Lincoln Center at 18W140 Butterfield Rd. in Oakbrook Terrace; 1011 Butterfield Rd. in Vernon Hills; the five-building Westbrook Corporate Center in Westchester; and Parkway North Center in Deerfield. Some of the Chicago buildings in the portfolio include the Mercantile Exchange at 10 and 30 S. Wacker Dr., 161 N. Clark St., and 1 N. Franklin St. The Civic Opera building, 20 N. Wacker Dr., is also being sold as part of the portfolio, as previously reported by GlobeSt.com. Holliday Fenoglio Fowler is the broker for the sale. A spokesperson from Holliday Fenoglio Fowler declined to comment.

Blackstone selected bidders that are well-respected and “substantial significant players,” says Wood, a former vice president with EOP. “Tishman Speyer has a great reputation as both an owner and an operator of properties,” Wood says. “And, certainly, GE understands their investment criteria.” Although portfolios in Los Angeles and New York have been sold off in pieces soon after closing on the sale of the portfolio, Wood believes that Tishman Speyer and GE will hold onto the properties. “I personally think that the days of buying property, and then turning around and being able to flip those properties at a profit that make any kind of sense, have kind of passes us by in Chicago,” he says. “The market in the past 60 days has started to feel a cooling effect.”

One of the benefits that have not been frequently talked about is that the properties have been owned and managed by Equity Office, says Wood, who worked for the company until 1999. “Why you buy something that has been managed and leased by Equity Office/Blackstone, you are buying assets that you know have been managed very well and have likely been leased very smartly,” he says. Additionally, the new owners would know that preventative maintenance has been done, he says.With the acquisition, “Tishman Speyer becomes one of the largest landlords in Downtown Chicago and that provides them a unique ability to look at tenant situations a little differently,” he says. If Tishman Speyer cannot meet a tenant’s needs in one building, they have multiple options. “One of the interesting things about the portfolio, is you get a number of different kinds of assets,” he says. The suburban assets are primarily in the East West Corridor submarket which provides GE with “a nice critical mass in one particular submarket,” Wood says.

Tenants will not necessarily benefit from the sale. “In my opinion, as a tenant representative, these sales are never necessarily good,” Wood says. The properties will be reassessed which will likely mean increased real estate taxes and increased actual gross occupancy expenses, Wood says. The new owners will likely also try to increase rental rates, but Wood is skeptical that they will be able to have significant rate increases because of vacancy rates and the amount of new development that will be coming online. “I think there will be limited impact on the marketplace in general because I think the ability to push economic boundaries in this market really does not exist,” Wood says.

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