Sara Lee in advanced talks for West Loop lease
(Crain's) — Sara Lee Corp. has emerged as a potential tenant for a nondescript West Loop building that a Chicago developer has agreed to buy, one of three downtown properties on the company's short list as it mulls a move from its Downers Grove headquarters.
The four-story, 304,000-square-foot building at 400 S. Jefferson St. has emerged as a leading contender in the competition for Sara Lee, which is also considering Willis Tower, at 233 S. Wacker Drive, and the office tower at 500 W. Monroe St., sources say.
The food company is in advanced lease negotiations with Sterling Bay LLC, the Chicago-based developer that has signed a contract to buy 400 S. Jefferson St., the sources say. Sara Lee would occupy most of the 270,000 square feet of office space in the 62-year-old building after it is modernized.
Sara Lee, which is breaking up into two companies, has been scouting downtown buildings for new corporate offices for several months. In October, Crain's reported that the company was seeking millions of dollars in city subsidies for a move downtown.
Related story: Sara Lee seeks subsidies for Chicago move, mulls new name
Shortly after Crain's inquiries to the company regarding its search, employees received a memo in which Sara Lee CEO Marcel Smits expressed his desire to move the company to the city.
Sara Lee's corporate offices were in the Loop until 2006, when the company moved to Esplanade II, a 13-story office building at 3500 Lacey Road in Downers Grove.
Sara Lee leases 441,000 square feet in the west suburban building, and in recent months it has been aggressively seeking sublease tenants to fill much of that space, sources say. Sara Lee's lease runs until 2021 but includes options for early termination.
The purchase price of the West Loop building could not be determined, but a broker for CB Richard Ellis Inc. has been marketing the Class C property for $15 million. Located at the intersection of Jefferson and Van Buren streets, the building is in a tax-increment financing district, meaning Sterling Bay could seek subsidies to finance a major renovation.
Sterling Bay Principal Andy Gloor did not return phone calls. Sara Lee declines to comment.
Most sections of the sprawling Jefferson Street structure are without windows, which would need to be added for it to serve as modern office space. But with a relatively cheap purchase price and a solid concrete structure already in place, Sterling Bay could revamp the building inexpensively enough to offer much lower rents than those at traditional office towers, commercial real estate experts say.
“Could that building work? Absolutely,” says Centro Development Group owner Peter Miller, who is not involved in the deal but does leasing and office buildouts throughout the West Loop. “Could it be done economically? Yes. They have a foundation and exterior, electrical power, all the things that affect cost.
“If you've got a tenant in place and agree to a rent structure, you just work backward. I wish it were me.”
A move of Sara Lee's headquarters is expected to involve the U.S. meat portion of the company, which is to split from the international coffee business in the first half of 2012.
James Connor, managing partner of the ownership group for 400 S. Jefferson St., declines to comment on the pending transaction but says the building is only about one-third occupied, all with short-term tenants.
Mr. Connor says the building, which sits on a two-acre lot, has typically served as back-office space. Businesses have used the no-frills building to print and distribute bills, store and process coins from pay phones, and for other behind-the-scenes functions.
It is along the east side of the Circle Interchange, where interstates 90, 94 and 290 meet, and is within walking distance of commuter trains. The property has a parking lot big enough for about 40 cars, with room to build a parking deck.
Sara Lee had about 1,000 employees in Downers Grove at the end of 2010. It is not known how many would work in a new downtown office.
The company has shed more than half of its businesses in recent years, with plans to have just the meat-based U.S. business and coffee-based international business by the middle of next year. The North American unit will sell meat brands such as Jimmy Dean and Hillshire Farm, while the international business will include beverage brands including Mason du Cafe and Pickwick.
Sara Lee is selling its North American Fresh Bakery business to Mexico's Grupo Bimbo for $959 million and its North American foodservice coffee and tea operations to Orrville, Ohio-based J. M. Smucker Co. for $350 million.
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