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CHICAGO-Work has begun on a capital improvement project at 500 N. Michigan which will renovate the building’s common areas, including corridors and restrooms. The 322,000-square-foot office building is owned and managed by Zeller Realty Group, which selected Chicago-based Reed Construction to complete the work. Hydzik Schade provided architectural services for the renovations, which are expected to be completed by the middle of the year and are being overseen by Reed senior project manager Jack Hennessey.

About 56,000 square feet remains available for lease in the building, which is located on Michigan Avenue between Grand Avenue and Illinois Street. “The market has gotten increasingly competitive for owners to attract tenants,” William Birck, president of Reed Construction, tells GlobeSt.com. “Owners are looking for ways to differentiate and separate themselves from other buildings in the marketplace. We’ve seen a lot of landlords doing work like this on corridors and lobbies over the last six months, because those little amenities help people stay put.”

Designed by Skidmore, Owings & Merrill, the property was constructed in 1967 and last renovated in 1990. Zeller Realty acquired the 24-story building from Fosterlane Holdings, the investment arm for the government of Kuwait, in November 2006 for $49 million, or about $152 per sf, sources say. Zeller Realty received $52.9 million in financing from General Electric Capital Corp. for the acquisition. The building was 80% leased at the time of the acquisition.

The building is currently 83% leased to accounting, advertising, financial services, market research, media and medical tenants. The property is located in the North Michigan Avenue submarket, where average occupancy rates are around 88%, according to Grubb & Ellis’ Q1 office market report. Asking lease rates in the submarket range from $33 to $35 per square foot, according to the research.

“There’s some smaller tenants in that area, and we’re seeing a lot of companies and professional firms downsizing and fitting into smaller spaces,” Birck says. “There’s more demand for the smaller 5,000- to 10,000-square-feet spaces than you see for the 50,000- or 100,000-square-foot leases.”

Birck says his firm has seen an increasing number of property owners making proactive improvements to their buildings in hopes of keeping current tenants and attracting new business. Reed has recently undertaken similar capital improvement projects for other owners including Hines, MB Real Estate, and Tishman Speyer.

“If owners aren’t doing this type of work now, they’re looking at doing it in the near future,” he says. “We do this kind of work regardless of the economy and these are projects we’ve always gone after, but it’s become a much larger percentage of our work in this type of environment. Spec suites are another thing, where buildings are able to market themselves as a turnkey solution where tenants can move right in and get to work.”

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