The State Of The Chicago Market With Chicago Title SVP Ed Burton
As we begin Q2, many are wondering how the Chicago market will play out over the next few months. What will be the dominant asset classes? What will be the biggest, game-changing trends? Is China's economic turmoil going to affect foreign investment, or do Chicago developers have to appeal to a different continent altogether?
We sought answers from Chicago Title Insurance Co SVP and area manager Ed Burton, who oversees the company's Chicago commercial operations through the National Commercial Services unit and the UCCPlus Insurance division.
Bisnow: What asset class performed the best in Chicago last year, and why was it so successful?
Ed Burton: “Best” could probably be debated, but given that many of us are debated out already, I would say, from my perspective, in the Chicago market office properties led the way in 2015, and REITs were the most active of all of the investor groups. REITs seem to have the willingness to invest and the means to do so. The deals we saw hit almost every industry segment, but investment in office and multi-housing was at the top!
Bisnow: Do you expect that success will continue into 2016?
Ed: Yes, if the first quarter is a good indicator. Historically, we've typically seen a slowdown in activity the first couple of months of the new year, but not this year. Every major asset class—office, multifamily, retail and hospitality—appears to be outpacing Q1 '15 in terms of volume. We’ve also seen no indication of REITs, or any other investor type, pulling back.
Bisnow: Where's the financing for Chicago's new developments coming from? Have Chicago developers hopped on the crowdfunding train or are they sticking to the traditional routes?
Ed: We still see more of the traditional financing in this market, but I've observed more investors shifting their investments from mezzanine debt to preferred equity. The result is fewer mezzanine loans in the capital stack. Crowdfunding, however, continues to draw a great deal of attention, including ours!
Bisnow: Has Chicago been a hotbed for foreign investment? Who are the biggest investors and what do you think attracts them to Chicago?
Ed: I don’t think foreign investment is as visible here as it is on the the two coasts and in the Southeast, but a recent report that I read identified approximately 150 “cross border player transactions” in the Chicago area last year, totaling $3.2B. Investors from Norway and Singapore appeared to be the most active in the Chicago area. Assuming real estate prices remain attractive, I would expect that number of foreign investors purchasing commercial real estate in the Chicago area to increase in 2016.
Bisnow: What neighborhoods and submarkets in particular are going to see huge activity this year? Fulton Market's undergoing a significant transformation, but where are the biggest development hotspots in 2016?
Ed: Clearly, I think we'll see continued activity and growth in Fulton Market, West Loop and South Loop. The potential transformation of Goose Island is really going to be fun to watch, as will the development of the Finkl Steel site. And, I'm becoming more hopeful that the Old Main Post Office will really become something again in my lifetime!
Bisnow: How would you describe the activity in the market right now? Is new construction increasing or reaching a plateau? Do you believe that fears of oversupply are causing developers to back off?
Ed: We can measure new construction by the activity in our Construction Disbursing area, which had one of its best years in 2015. Simply put, we don't anticipate that office or multifamily units will continue at the pace we saw last year, but we do anticipate an increase in redevelopment activity of existing office space, warehouse and even multifamily.
Bisnow: What are some industries that are setting up shop in Chicago's office spaces? Is Chicago becoming a mid-US tech hub, or are there other industries that are more dominant?
Ed: I think we're most definitely becoming a tech hub and, in turn, drawing new residents to the city, which has sparked not only a need for additional residential housing, but also commercial development that caters to the needs of those residents.
Bisnow: What are some other trends that are on your radar?
Ed: I believe that five new hotels opened (or will open) in the Financial District alone over the past year and I read recently that there's still more capacity for hotel rooms in the city. We will need to fill those rooms even on the weekends, so I expect to see a continued growth in retail, dining and entertainment venues within the Loop.
Bisnow: With all of these trends in mind, where do you think Chicago will be at the end of the year?
Ed: Still on the west side of Lake Michigan, smiling!
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