Another Chicago office property will be transformed into a residential building as more real estate firms look to convert the city’s under-utilized stock of office buildings.
Horizon Realty Group plans to convert its seven-story Streeterville property into 72 apartments. It purchased the historic loft office building, 230 E. Ohio St., in September for an estimated $5.6 million, property records show.
The office was about 65% vacant at the time of purchase, Horizon Chief Operating Officer Jeff Michael said. The previous owner was looking to off-load the building and wasn’t interested in searching for new office tenants.
“There’s not the same demand for office use as there once was,” Michael said.
The office vacancy rate for older Class B properties like the one purchased by Horizon was 30% for the third quarter, compared to 29.8% for the same period last year, according to commercial real estate firm Colliers. Meanwhile, Class A properties, which are newer buildings with modern amenities and finishes, had a vacancy rate of 18% during the third quarter, down from 20.1% year over year. Class A office spaces remain the bright spot in a struggling office market.
Horizon’s Streeterville property is known as the Pelouze Building and served as the former offices of the Pelouze Scale & Manufacturing Co. It was built next door to the old scale-making company’s factory that at one time housed the offices of Playboy magazine.
Horizon said it will keep the ground-floor retailers, which include businesses such as a Thai restaurant and optometrist. Michael said the street is mostly a commercial corridor so the building benefits from being mixed-use.
The building will be a mix of studios, one- and two-bedrooms. Horizon also plans to add a sundeck and two pickleball courts on the roof.
“There’s not many buildings that have rooftop pickleball in the middle of downtown Chicago with great views,” Michael said.
The apartments will maintain the building’s loft style with “all the amenities you expect in a new building,” Michael said. Other amenities will include a gym, resident lounge and yoga room.
Horizon is still hammering out financing but expects to invest $15 million to $20 million, and Michael said it would be privately financed.
Construction is expected to start in January, with the project finishing in 2026.
It’s the real estate firm’s first office-to-residential conversion project. Horizon’s “bread and butter” is taking old hotels, gutting them and returning them to market as apartments, Michael said.
The company manages and rents more than 20 apartment complexes across Chicago, with most concentrated on the North Side. Michael said the firm wasn’t looking for a conversion project in Streeterville, but it was drawn to the building.
The building’s location, layout and existing infrastructure made it a good candidate for adaptive reuse, he said. Its proximity to University of Chicago Medicine’s River East hospital and Northwestern University Feinberg School of Medicine as well as its law school should create strong demand, Michael said.
“I think there’s a good population base that will need this type of product,” he said. “There hasn’t been a lot of new construction there in Streeterville.”