Suburban Flight and Tight Buildings
Everyone's adjusting to less office space and still loves to shop, we learned at yesterday’s Bisnow Chicago State of the Market, held on the 82nd floor of Willis Tower. (Like our first panel, panelists also told us their first jobs.) CBRE|US Equities' Drew Nieman, our host (his firm leases Willis), used to work for his older brother as a tree trimmer. These days he’s leasing up 515 N State, Willis, and John O’Donnell’s new 1.2M SF tower at 150 N Riverside (bringing the John Buck band back together, he calls it). Drew’s observations: suburban migration resulted in 2.6M SF of absorption since ’08 (Motorola, Sara Lee, ADM, etc.); office densification leads to tenants considering moving prior to lease expiration and a greater strain on building systems and infrastructure; and gross activity, not net absorption, is what counts in a fleeting landlords’ market.
Bucksbaum Retail Properties’ John Bucksbaum once mowed lawns, shoveled snow, and delivered papers. Now he’s one of the visionaries behind Lincoln Park’s giant New City development, an upcoming mixed-use project in the Illinois Medical District, and a retail/residential project across the street from Wrigley Field. In terms of pre-leasing for urban retail, lenders are looking for 45% to 65%, John says, unlike the department store-anchored malls of his past. Despite their cutting-edge fashion and products, retailers, especially the 3,000 SF variety, are risk averse in terms of urban locations, he notes (except trailblazers like Urban Outfitters, Anthropologie, and Lululemon).
Dan McCaffery’s first job was as a P.E. teacher, so McCaffery Interests was really a jump from jockstraps to putting on ties, he jokes. He agrees with John about retailers’ conservatism, adding that the best leases at the Roosevelt Collection took as long as two years to complete (when they could have taken a few weeks pre-downturn). The key with retail is incidental walk-by, he says, which is tough to create in an urban environment. Today’s multifamily offers more amenities than any new house could provide, Dan says. (Some buildings’ dog washes are even nicer than the bathrooms he had growing up in Dublin.)
John O’Donnell’s first job was on the loading docks at Rheem Manufacturing’s South Side plant. O’Donnell Investment Co has two more years until 150 N Riverside is ready, he says, but it’s already 28% pre-leased. The firm’s also starting up a mixed-use project in Evanston in February. John’s keeping a close eye on the Millennials’ evolution, which is why Evanston is a good bet as they form families and move on down the Red Line. On the office side, Millennials demand proximity to public transit, and technology continues to help them adapt to high-density working situations (whether that’s HVAC, electrical, or WiFi), he says.
CohnReznick’s Jason Burian moderated our Chicago outlook panel. Before he was eligible for Wendy’s, 15-year-old Jason passed out fliers for a landscaping business with his friend. The problem? When they got calls to clean gutters, they didn’t have a ladder. (So that failed quickly.) Jason tells us he was recently named the south/central regional director of CohnReznick's commercial real estate industry practice and will continue as the Chicago director as well.
Between panels, WiredScore co-founder Arie Barendrecht said hello. WiredScore is the first certification platform for Internet connectivity in office buildings, launched in NYC in partnership with Mayor Bloomberg. Arie was inspired by his techie friends complaints about lack of connectivity, carrier options, and fiber in their buildings. In fact, brokers rank connectivity as a No. 3 priority behind price and submarket. At this point, 210 buildings (120M SF) nationally are certified, he says, and WiredScore is launching locally with 150 N Riverside, the city’s first pre-certified Wired Platinum building.