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Chicago's Megadevelopments Can Lay Fallow For A While Because They're Backed With Patient Capital

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The Amazon search committee scouting locations in Chicago’s bid for the e-commerce giant’s second headquarters will find no shortage of land over the next two days.

An abundance of land is arguably the greatest asset in Chicago’s Amazon HQ2 bid. There are five sites in the city limits — Burnham Lakefront, the Illinois Medical District, The 78The River District and Lincoln Yards — with a combined 309 acres available. The two suburban sites, the Motorola Solutions campus in Schaumburg and McDonald’s soon-to-be-vacated Oak Brook campus, encompass another 405 acres.

Lincoln Yards, Chicago
Rendering of a proposed Metra station and an extension of The 606 for Sterling Bay's Lincoln Yards development.

There are $20B in megadevelopments in Chicago's construction pipeline. At least 10 of these projects are valued at $1B or more, the most notable examples being Vista Tower, the redevelopment of Union Station, the Old Main Post Office redevelopment and the ongoing Willis Tower renovations. But fluctuations in the capital markets, the probability of steady interest rate hikes and the impact of Trump administration policies such as steel and aluminum tariffs on construction could slow the pace of a real estate recovery entering its seventh year. Landing Amazon HQ2 would be the best answer for redeveloping any of the sites in Chicago's bid, especially since Amazon wants to break ground on its second headquarters next year. 

But while the developers controlling any of these sites would love to land Amazon HQ2, none of them are all-in on Amazon — they were already working on developing these mega-sites in phases, in some cases over a period of decades. Related Midwest estimates it will spend $5B over a 20-year period to develop The 78, its 62-acre site connecting the South Loop and Chinatown. At The Post Office, another Amazon HQ2 site, The Telos Group President Brian Whiting said it will not break any lease agreements with tenants it signs to the 2.8M SF redevelopment if Chicago wins the bid.

“No one is hanging the success of these sites on landing Amazon,” Interra Realty Managing Principal Jon Morgan said.

Interra Realty Co-Founders and Managing Principals Jon Morgan and David Goss
Interra Realty co-founders and Managing Principals Jon Morgan and David Goss

Morgan said the reality is the developers behind these mega-sites continue to have real conversations about their plans behind the scenes and Amazon is only one option.

The deliberate planning process of these projects takes into account the economic trends driving development in Chicago the past few years: the move of companies from the suburbs to the downtown core, a push to recruit and retain young workers living in the city and a relocation of money from the suburbs to the city. Developers amassing an abundance of land on one site have the flexibility to bring in strategic partners, as Related Midwest did by donating a portion of The 78 to the University of Illinois System for a tech hub. And they do not have to worry about rising land costs in the future.

“Chicago’s economy is robust, with a lot of growth and people moving close to downtown,” Morgan said.

Conlon Capital Principal Neil Freeman
Conlon Capital principal Neil Freeman

Unlike infamous projects like the Chicago Spire which went into bankruptcy, today’s mega-sites are leveraged in such a way that investors are willing to be patient and let demand for these sites come to them. Conlon Capital principal Neil Freeman said investors’ time horizons for these sites are measured in decades, not years. There is no rush to break ground on a project because investors are not looking for a quick exit.

“These are once-in-a-lifetime opportunities that would have been developed into smaller sites in past cycles,” Freeman said.

Freeman said investor patience in developing these sites is an extension of the lessons learned from the 2008 market collapse, the discipline lenders have exercised during the recovery and an influx of equity capital from institutional partners who recognize these sites have long-term return horizons.

Morgan said this patience and lending discipline will drive safety into future developments entering the marketplace.

During the downturn, projects like the Spire failed because they were being financed with short-term equity — investors were seeking two- to five-year holds," Morgan said.

A rendering of Burnham Lakefront
A rendering of Burnham Lakefront

If plans for these mega-sites come to fruition, the buildings added to Chicago’s inventory would rival the construction boom of the late 1960s and early 1970s which saw the construction of Willis Tower, the former John Hancock Center and Aon Center. Gensler principal and Managing Director Grant Uhlir told the Chicago Tribune last year the timing is right for these mega-sites. Funding is available, they have the support of the city and community, there is demand and there are experienced developers attached to these sites.

Morgan said Interra and other brokerages are keeping tabs on these mega-sites for potential opportunities, whether it be developers selling off small parcels for redevelopment or looking for investment opportunities on adjacent sites.

“If an investor can buy an underutilized building next to one of these sites today, imagine the value of that building five or six years from now when construction is underway,” Morgan said.