- Brokers for Chicago office tenants are probing landlords’ capital stacks and negotiating protections to confirm owners can fund improvements over multiyear terms, panelists told a Bisnow conference.
- Per Cushman & Wakefield, trophy buildings absorbed 610K SF net this year and CBD trophy vacancy fell 420 basis points, with Class A capturing 62% of CBD leasing.
- Landlords now agree more readily to tenant protections such as set-off language and escrow terms, while tight capital markets and scarce top floors push tenants to plan two to three years ahead.
Brokers representing Chicago office tenants are scrutinizing landlords’ finances and negotiating added lease protections, panelists said at Bisnow’s Chicago Leasing Conference, held Sept. 29.
Demand is crowding into the best buildings, and the brokers say that makes it more important to confirm an owner can actually deliver.
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Vetting the Landlord
Robert Sevim, Savills’ Chicago region president, told the audience that understanding a counterparty’s finances is more urgent than it has been before. Rent and concessions get discussed fast, but an owner’s ability to perform across several years matters more, he said.
The review also covers upcoming lease expirations and loan maturities. Sevim said owners who can move quickly and with certainty are either unlevered, which is rare, or have a secure lender.
The Capital Gap
Sevim said a deal can stall when the build-out a landlord can fund falls short of what the tenant is expected to cover. He spends much of his time studying a building’s capital stack and an owner’s speed in responding.
Colliers’ Dan Arends said capital markets are making it hard to raise money or refinance, which raises the stakes for tenants.
A Hot Top End
Cushman & Wakefield data show trophy buildings absorbing 610K SF on a net basis this year, with CBD trophy vacancy down 420 basis points. Class A space accounted for 62% of CBD leasing through Q3, or 2.9M SF.
Arends described the top of the market as thriving. Cushman’s Jeff Skender said he is seeing an arbitrage opening for the first time in a 20-year career, where quality buildings are undervalued, which lets him create urgency and place clients at lower rents than if they waited.
Planning Earlier, Protecting More
Arends said tenants have changed in the past two to three years. After the pandemic they signed short deals while testing hybrid work, but now most know what space they need.
He and Sevim said tenants are eyeing top buildings two to three years before space opens, since two or three available floors are hard to find. Landlords are also granting terms they resisted three or four years ago, such as set-off language, escrow terms and non-disturbance agreements (SNDAs) that shield tenants in a foreclosure.
Why It Matters
Landlord credit is now part of lease diligence in Chicago, and owners with weaker balance sheets may lose tenants to better-capitalized buildings. That ties to the metro’s stress, as CRE Daily reported when Chicago CMBS distress reached 25.3%.
Arends said his role is to lay out the risks so clients can decide.
What’s Next
Watch whether more tenants commit early to scarce top floors and press for foreclosure protections, and whether lenders’ appetite loosens enough to ease the capital gap.
