Blue Cross parent to exit Illinois Center, consolidate at HQ
(Crain’s) — The parent company of Blue Cross & Blue Shield of Illinois is moving ahead with plans to consolidate its downtown staff in its newly expanded headquarters overlooking Grant Park, paying $7.4 million this month to terminate a lease in the Illinois Center complex.
Health Care Service Corp. will exit 111 E. Wacker Drive, where it has been a tenant since 2006 and grew to about 263,000 square feet. The health insurer expanded in the Illinois Center building even as it started work on a vertical expansion of its headquarters at 300 E. Randolph St., about five blocks away.
Parkway Properties Inc., which owns 111 E. Wacker, disclosed to its investors in March that it expects Blue Cross to exercise the termination option when it comes up later this month.
“I don’t have any reason to expect that they won’t,” says Will Flatt, chief operating officer of the Jackson, Miss.-based real estate investment trust.
Parkway is already marketing the space, which doesn’t become available until March 2012.
“The termination penalty gives us some ammunition to go out and be able to be aggressive for new tenants,” Mr. Flatt says. “With a little bit of recovery, we may end up hitting the market at a pretty good time.”
The termination fee amounts to about $44 per square foot.
Blue Cross’ rent probably isn’t above the current market rate, easing the blow to Parkway.
The insurance company paid gross rent, including taxes and other expenses, of nearly $6.8 million for all of its space, according to Parkway’s annual report, an average of about $25.84 a square foot.
Parkway earlier this year took back about 33,200 square feet of Blue Cross space, leasing a floor to food testing company Silliker Inc.
While Blue Cross said three years ago that it planned to move out of Illinois Center to the headquarters addition next year, the growing insurance company also hedged its bets.
At 111 E. Wacker, Blue Cross expanded in 2007, signing a 10-year lease for 168,000 square feet, or about 64% of the company’s total space in the building. That deal contained the termination option, which must be invoked this month and allows the company to leave in March 2012, according to Parkway’s annual report, filed March 5 with the Securities and Exchange Commission.
Blue Cross’ lease for the rest of its space, about 95,000 square feet, also expires in March 2010.
The 24-story vertical addition completed last year at 300 E. Randolph includes 18 office floors. Last year, Blue Cross struck a deal with law firm Baker & McKenzie, which is taking eight floors, or a little less than 260,000 square feet.
Earlier this summer, Blue Cross considered keeping some of the space at 111 E. Wacker and launched a marketing effort to land another big tenant that might take about 250,000 square feet at 300 E. Randolph, according to people familiar with the company’s marketing effort.
By marketing the space to big tenants, Blue Cross was apparently hoping to take advantage of the shortage of brand-new, top-quality office space in the downtown market because new skyscraper development had ground to a halt.
But the company has dropped the marketing effort to big firms and is returning to the original plan of consolidating its downtown employees in one location.
A Blue Cross spokeswoman declines to comment on the marketing effort but says moving operations from 111 E. Wacker is “an effort to further streamline operations, reduce administrative costs and more closely align functions and teams.”
Blue Cross originally intended to take six floors but is now “planning our space more densely” and is taking just five floors, the spokeswoman.
Blue Cross is now marketing for lease five floors, totaling nearly 173,300 square feet, according to real estate data provider CoStar Group Inc. Grubb & Ellis Co., which is marketing the space, declines to comment.
