Cannabis company Verano Holdings nears River North office lease
Sources familiar with the company’s search said Verano is considering two different sublease offerings in the building: One in the lower portion of the property leased to restaurant software company Toast and another higher in the building leased to marketing communications firm Dentsu Aegis Network. Both spaces have been listed as available for sublease throughout much of the COVID-19 pandemic.
If Verano completes a deal with either, it would become the first major cannabis company to lease office space in a top-tier building in Chicago. Such deals have been difficult to consummate because marijuana remains illegal at the federal level, even though it is now legal under Illinois law. That has prevented many building owners from getting approval for cannabis company leases from their lenders, particularly large, institutional banks wary of running afoul of federal rules.
But Verano is spotlighting a solution through the sublease market, since its agreement would be exclusively with another tenant in the building and not the building owner itself. Landlords typically must consent to sublease agreements in their buildings, and sources familiar with the negotiations said 515 N. State owner Beacon Capital Partners would not block a Verano sublease agreement.
A spokeswoman for Beacon declined to comment, and spokesmen for Verano, Dentsu and Toast did not provide comments.
The sublease could open the door for other cannabis companies in a market that is home to the emerging titans of the weed industry. Verano, Green Thumb Industries and Cresco Labs are three of the five biggest public companies in the United States that grow and sell marijuana. One of the largest privately held players in the space, PharmaCann, is also based here.
Verano has roughly tripled headcount at its main office to about 120 since it went public a year ago, according to a company source, prompting the need for more office space. The State Street office would be more than double the size of the company’s current spot on Dearborn.
Downtown office landlords would love to see more companies from the expanding cannabis sector lease up available office space, even if it’s on the sublease market. Office vacancy in the central business district hit an all-time high last year, partly driven by a flurry of sublease listings from companies trying to shrink their footprint after adapting to the rise of remote work during the public health crisis. There was 83% more downtown office space available for sublease last month than there was when the pandemic began, according to data from brokerage CBRE.
Cannabis companies could help occupy some of that, taking out some formidable competition landlords are grappling with today. In the meantime, building owners are closely watching the federal SAFE Banking Act, a bill that would carve out the ability for banks to do business with cannabis companies. That measure was originally proposed in 2017 and has won approval from the House of Representatives as recently as last month, but it has not been able to move out of the Senate.
Boston-based Toast listed half of its State Street office for sublease in July 2020, just six months after it leased nearly 50,000 square feet in the building following its acquisition of another Chicago-based restaurant software company, StratEx. Publicly traded Toast disclosed early in the pandemic that it would cut 50% of its staff through layoffs and furloughs, freeze hiring and pull back job offers due to fallout from the pandemic.
Dentsu became the largest tenant in the 29-story building in 2019 when it more than doubled its footprint to 126,000 square feet, a move that consolidated multiple offices in Chicago under the umbrella of London-based Dentsu. The company subsequently listed more than 40,000 square feet on the sublease market during the pandemic, though it’s unclear what prompted the offering.
The Dentsu and Toast deals were part of a crucial leasing bounce-back at the State Street building for Beacon and co-owner Ivanhoe Cambridge. Their venture saw a nearly 400,000-square-foot anchor tenant deal with embattled tech company Outcome Health crater after Outcome’s investors sued the company, alleging its leadership inflated results. But new deals inked with Dentsu, Toast and co-working provider WeWork helped shore up the building’s rent roll before the pandemic put a clamp on office demand.
The building today is 71% leased, according to real estate information company CoStar Group. That’s below the 80% average for downtown office buildings at the end of 2021, CBRE data shows.
Crain’s reporter John Pletz contributed.