Aon Center Secures New Lease Amid Struggling Office Market

Aon Center in Chicago Secures Positive Lease with American Planning Association

The Aon Center in Chicago's East Loop, owned by 601W, has confirmed a new lease with the American Planning Association for 21,000 square feet, a promising development for the struggling Chicago office market. This signifies a positive outlook as the association is expanding its space rather than downsizing. The lease is set to begin in July 2025, with the association relocating from its current location at 205 North Michigan Avenue.

This lease holds great significance for the Aon Center, particularly following its recent financial challenges. The property narrowly averted default after 601W successfully negotiated a three-year extension on its $532 million loan. The entry into special servicing in February 2023 had underscored the property's financial distress. The American Planning Association is the second new tenant to secure space at the Aon Center in recent months, following the lease of 20,000 square feet by the Service Employees International Union Local 1 in April.

Simultaneously, Patrick Hotung, the owner of 205 North Michigan Avenue, currently has no immediate development plans for an adjacent site acquired in 2021. The previously considered Mandarin Oriental Hotel project for the site remains on hold, with the focus currently on existing office tenants.

Key Takeaways

• The American Planning Association secures a 21,000-square-foot lease at the Aon Center in Chicago, indicating market stability.
• Aon Center averts default by extending its $532 million loan until July 2026.
• The Service Employees International Union Local 1 signs a lease for 20,000 square feet at the Aon Center.
• The Health Care Service Corporation seeks a tenant for 230,000 square feet in a nearby building.
• Tech giants Salesforce and Meta release 240,000 square feet on Chicago's sublease market.

Analysis

The lease agreement between the Aon Center and the American Planning Association fortifies 601W's financial position, alleviating recent challenges. This development, alongside other new leases, signifies a resurgence in Chicago's office market. In the short term, it stabilizes 601W's financial standing and instills confidence in investors. In the long term, sustained tenant interest could reinvigorate the area, potentially influencing the potential development of Patrick Hotung's undeveloped site. However, the increased office space from tech giants Salesforce and Meta may introduce challenges, contingent on market absorption rates.

Did You Know?

• Special Servicing: This process occurs when a loan or mortgage is transferred to a special servicer, typically due to default or the risk of default. The special servicer assumes broader powers and expertise to manage distressed assets, including negotiating loan modifications or foreclosing on the property.
• Sublease Market: This segment of the commercial real estate market involves tenants who lease space directly from a landlord offering to sublease all or part of that space to another tenant, often at a reduced rate. This practice arises when tenants aim to decrease their occupancy costs or exit a lease prematurely.
• Mandarin Oriental Hotel: The potential development of a Mandarin Oriental Hotel would significantly impact the local real estate and hospitality market, potentially increasing property values and tourism in the area.