- Brokers are digging into building capital stacks and negotiating protections to confirm owners can fund tenant improvements over multiple years, panelists said at Bisnow’s Chicago Leasing Conference.
- Trophy properties posted 610K SF of positive net absorption this year, with CBD trophy vacancy down 420 basis points year over year, per Cushman & Wakefield.
- Landlords now accept set-off clauses, escrow provisions and SNDAs that protect tenants in foreclosure, as capital market conditions make refinancing difficult.
Chicago office deals now carry more scrutiny of landlords and more tenant protections, according to panelists at Bisnow’s Chicago Leasing Conference on Sept. 29.
Tenant brokers are examining capital stacks, negotiating protections into leases and confirming owners can fund tenant improvements.
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Vetting the Landlord
“Forecasting and understanding the financial makeup of your counterparty is really sort of the first point,” said Savills Chicago Region President Robert Sevim. He said the need is more acute than ever.
Rental rates and concessions come up quickly, but Sevim said the key is whether an owner can perform over several years. That includes lease rollover dates and debt maturity in the building.
The Capital Gap
Sevim said the gap between what a landlord can support in financing a build-out and what the tenant pays can become a stumbling block. He looks for owners who can be quick and certain, which means they own in cash, a rarity, or have a secure lender position.
A Hot Top End
The top of the market has benefited from well-capitalized landlords who can execute. Trophy properties recorded 610K SF of positive net absorption this year, and CBD trophy vacancy fell 420 basis points year over year, per Cushman & Wakefield.
Class A buildings made up 62% of CBD leasing activity through the third quarter, totaling 2.9M SF. “The top end of the market is absolutely on fire,” Colliers principal Dan Arends said.
Planning Earlier, Protecting More
Arends said tenants know their space needs much better than they did after the pandemic, when short-term deals dominated. They now look at top buildings two to three years before space opens, because two or three floors are hard to find.
Landlords are also accepting terms they would not have three or four years ago, including set-off clauses, escrow provisions and SNDAs, which protect tenants if a building is foreclosed.
Why It Matters
Cushman & Wakefield’s Jeff Skender said he is seeing an arbitrage opportunity for the first time in his 20-year career, where quality buildings do not yet realize their position, letting him create urgency for clients and sign leases at lower rates than those who wait.
The caution reflects credit conditions. Arends said the capital markets are making refinancing hard, and Chicago has the highest CMBS distress rate among major metros.
What’s Next
Expect tenants to keep prioritizing landlord financial strength alongside rent and concessions. Brokers say their job is to explain the risks so clients can decide, and protections like SNDAs are becoming standard asks.
