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What Would You Do With $200M?

What Would You Do With $200M?
We were honored to welcome 525 of you this morning for our Chicago Real Estate Summit at the Intercontinental on Michigan Ave. And that age-old question about $200M? (Not a single panelist wanted to build a backyard rocket ship.)
crowd at the intercontinental
Fifield CEO Steve Fifield said he might invest it in a new office tower in Chicago. Prime Group chairman and CEO Mike Reschke said he'd put some in a hotel redevelopment, some in office, and then he'd put some into treating his wife to a nice dinner (a really nice dinner). Private Bank principal Karen Case would try to lend it out, although she thinks she might not be successful. (We're not sure why you standees avoided that one empty seat up front... people don't shoot spitballs at our events... usually.)
What Would You Do With $200M?
He spoke last so we're featuring him first: Walton Street Capital co-founder and managing principal Neil Bluhm said the industry used to be much less institutional, which meant there was a chance for guys like him and his co-founders at JMB back in the early '70s. He's come a long way since the days he calculated IRR with a slide rule (we'll pretend we're old enough to know what that is). After the S&L crash of the early '90s, he started Walton Street with the idea of being a small organization managing its own capital and buildings. But what about his recent investment in casinos? Paid off. Because regional casinos are more steady than Vegas casinos. Lots of people are willing to lose $80 on an outing, he said, rather than thousands in Vegas.
Mike Reschke
Mike says his JW Marriott hotel redevelopment isn't generating quite the revenue he would have expected when he started the project in '07, but it's in high demand as the only five-star hotel in the Loop... at least the only one until he starts redeveloping the historic office property at 11 S LaSalle. Aside from those two projects, the last three years have been a waiting game, Mike says. Everyone's waiting for the predicted storm of dispositions for a quarter on the dollar that will probably never come.
Steve Fifield
Steve seemed a little more optimistic about development. His more than 800-unit Alta at K Station apartment complex is on the market and he's got two sites in the West Loop ready for development and waiting for the right tenant and lender. One thing is working in his favor on that front: obsolescence. Steve says any building constructed more than 10 years ago doesn't really have the technology infrastructure or environmental sensitivity that a new building would have, which may lead a tenant seeking more than 250k SF to look at a new space.
Karen Case
The Private Bank president Karen Case told us that banks are flush with cash and looking for borrowers. One issue: There have been virtually no construction loans over the last two to three years, so all the loans that were paid off need to be replaced. Also, banks aren't looking to lend more than $40M on any given project, so most new projects will need a group of banks to lend together, and Karen's not looking to do any favors for another bank leading a loan. She also hopes the State of Illinois will get its business in order so that Chicago can stop losing jobs and corporations to Indiana. (Rivalry alert.)
George Klenovich
Our fantastic sponsor and moderator Reznick Group office managing principal George Klenovich says that four to five months into Mayor Emanuel's new administration, he's fairly impressed with the new jobs coming into the city. While there was guarded optimism throughout the morning, George pointed out that it could be a few more years before the market reaches full recovery.
Steve Smith
Jones Lang LaSalle managing director Steve Smith says that back in the good old days (after we walked to school up hill both ways but before texting) people used to see vacancy as a commodity, hoping that you could get $2 to $3 more per SF on new leases than you could on current leases. He's definitely seeing a bifurcated market, with lots of options for those tenants that are looking for 15k SF of Class-B space and just a handful of spaces for those looking for over 200k SF of Class-A space with a good view.
Eric Hillenbrand
Volatility is one of the biggest issues in financing today, says Hillenbrand Partners CEO Eric Hillenbrand. Investors are constantly trying to decide what to buy next and instability in places like Greece and Italy might make investors hold onto their money a little longer. It's also harder now to syndicate loans, since it's hard to find five banks that want to work together, Eric says, which is why maybe just five of the 15 buildings on the market in the Chicago CBD will close in the foreseeable future.
Jerry Nudo
Marc Realty principal Jerry Nudo has found that it's a great time to get refinancing dollars from insurance companies, getting 10-year loans at 4% to 4.5 % interest on several of his historic Chicago office towers. He's also diversified his portfolio a little during the recession, buying up about $60M in busted condo projects, which he's later sold or leased. Now, Marc Realty's starting to look at office investment again, hoping that banks will start to sell some of the assets they've gotten back over the last couple of years.