The Jordan and Pippen of Development
Michael and Scottie. Kim and Kanye. Ren and Stimpy. History belongs to power pairs, just like the future of development belongs to public/private partnerships, we learned yesterday from the experts at Bisnow's Chicago Construction & Development Summit.
More than 250 of you joined us at Trump International Hotel and Tower, where our development panel told us what to expect to see dotting tomorrow's skyline, how they keep their projects out of trouble, and what's changed in the capital markets.
Chicago Southwest Development Corp's Chris Raguso (now an official soccer mom, she laughs), has her hands full with unique public/private partnership Focal Point, a proposed 11-acre community campus at 31st and Kedzie. The future home of 118-year-old Saint Anthony Hospital, a community hospital with high levels of Medicare/Medicaid patients, Focal Point is a not-for-profit development that's being run like a business using evidence-based design strategies, she says. That means grassroots community engagement at every step and meticulous research like feasibility studies and white papers. (It's still more engaging than anything we ever did in chemistry class.) Once the $450M project (including retail, education, recreation, and more) is complete in 2018, it will serve more than 400,000 residents in Little Village and North Lawndale, with its commercial components funding community programs.
Locally, Oxford Capital Group just wrapped up the luxury Langham Hotel, will soon open the ultra-modern Godfrey Hotel Chicago (showcasing a trendy 15K SF indoor-outdoor lounge), and they're getting started on a 450-room upscale hotel at landmark 360 N Michigan, Sar Peruri tells us. Oxford mitigates development risk by bringing key members of the design and construction teams on early in the planning stages, which means fewer surprises down the road and also gives the team a sense of ownership throughout the project, Sar, whose dream job would have been an NBA player, says. Where Oxford was underwriting hotel deals with no cash flow and construction risk all equity a few years ago, these days debt is more available for the right opportunities with strong sponsorship.
Metropolitan Pier and Exposition Authority CEO Jim Reilly aspires to create a more flexible schedule, as he looks to the future, so he has more time for traveling with his wife. Now that the MPEA has solved the labor disputes, seen a resurgence in business, and brought on SMG to manage McCormick Place, it's become the poster child for public/private partnerships. (Literally, we have a poster of them above our bed.) Like the Cesar Pelli-designed 10,000-seat multi-purpose event center they're building with DePaul, which is paying half the cost and significant rent to use the facility (slated to open in '16) for basketball games, along with general sessions for trade shows. Jim expects we'll see continued migration to the capable private sector (ex. Navy Pier) as the government concentrates on "things only government can do," like issuing bonds and maintaining a police force.
For his second act, JLL's Joe Caprile is considering a relaxing career rolling cigars in Cuba (don't forget the glass of rum). Joe leads a diverse ground-up development management practice (he's working with Jim and Chris), with build-to-suits recently on the docket, including one in Rosemont for the American Academy of Orthopedic Surgeons. They've also expanded into mission critical and are doing a 190k SF data center for United Airlines in the 'burbs, Joe tells us, along with projects in the education market like Roosevelt's new vertical campus and athletic facility next door. While lenders' pockets are noticeably deeper, banks are still watching the federal government closely for policy changes that could impact the capital markets, Joe says.
Vermilion Development prez and CEO Dave Cocagne is just coming off Harper Court, a successful $100M ($20M of TIF) mixed-use public/private partnership (this could be a drinking game... not that we endorse that... publicly) at 53rd and Lake Park in Hyde Park, with the City, UChicago, and JFJ Development. Dave, who hopes to one day moonlight as a food and wine critic, says financing was a major challenge when they undertook RFP in December '08, but now lenders are knocking on the door to do business with today's abundance of capital. Though underwriting standards haven't relaxed to '08 levels. During development, Vermilion prefers GMP contracts that include cost-savings sharing, which incentivizes the contractor to save dollars on behalf of ownership.
Sheppard Mullin partner Dan Rosenberg moderated. The international firm just opened in Chicago 16 months ago, with a major focus on real estate and construction, he tells us. Sheppard Mullin's Chicago office alone has been involved in more than 50 real estate and construction matters since opening and reports significant continued work in progress. (It's always a good sign for the industry when the pencil pushers are busy). Dan questioned panelists on the best way to keep their developments from being sent to him. (Like Lord Voldemort, a litigator may be necessary force, but best avoided or not even mentioned if possible.) See more pics from the event here.