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Goldman to buy Hancock Center

Chicago’s Golub could join firm in $385-million deal
(Crain's) — Shorenstein Properties LLC has agreed to sell the John Hancock Center to Goldman Sachs & Co.’s Whitehall Fund for $385 million, a price that substantially surpasses expectations, according to sources familiar with the transaction.
After three rounds of heated bidding, Whitehall was selected on Friday. The firm, with about $30 billion in real estate, almost immediately made a more than $20-million, non-refundable deposit. An announcement could come next week, with the sale closing next month.

Representatives of New York-based Goldman, San Francisco-based Shorenstein and New York-based Eastdil Secured LLC, which is brokering the sale, decline to comment.

When it appeared in August that Shorenstein might sell, observers believed the Hancock would fetch $350 million at most. But in the final round, several offers were in the $380-million range, sources say.

The 100-story structure is the latest office tower this year to attract a top-dollar price, following such high-profile sales as 131 S. Dearborn St. ($560 million); Prudential Plaza ($470 million), and 1 S. Dearborn St. ($350 million).

But to reach such prices, some buyers are jacking up the risks, either by piling on debt or by relying on rosy predictions that could be their undoing in the event of a downturn, some observers say.
“All this capital is chasing all sorts of real estate in the hopes that cash flows will continue to increase over the next year,” says M. W. “Sam” Davis, senior managing director of real estate for Allstate Corp. in Northbrook. “There are clearly concerns that the economy is slowing.”

The Hancock’s price is extraordinary for a building where the office vacancy rate is 25%. At $385 million, Whitehall can expect an initial return of about 5%, based on a current annual net operating income of $21.1 million, sources say. The firm is negotiating with Chicago developer Golub & Co. to be its local partner, sources say.

Whitehall’s plans to boost the Hancock’s income couldn’t be learned. But other bidders considered several strategies, including dividing the building into separate ownership units — one for the retail space, another for the garage, for example — and selling them piecemeal, sources say. Another option would be turning the vacant offices into a hotel.

And there is a chance that an office tenant could emerge, such as Northwestern Memorial Hospital, which is looking for about 100,000 square feet.