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Q&A: Sheppard Mullin's Larry Eppley On The Chicago Hospitality Market

Larry Eppley

The Chicago commercial real estate market has seen significant investment over the past few years, and the hospitality sector is thriving.

Bisnow caught up with Sheppard Mullin Chicago office Managing Partner Larry Eppley about the trends he is seeing in the Chicago market.

Bisnow: How long have you been working in real estate and hospitality?

Eppley: I have been doing some form of transactional real estate work since 1985. At my prior firm, we had a lot of Fortune 500 clients, so most of the real estate we did was on behalf of corporate users of real estate. My practice soon progressed into larger and more sophisticated deals, including real estate lending and hospitality, specifically hotels. These days, the majority of my work is in hospitality, but Sheppard Mullin has a significant and balanced real estate and land use presence, from large scale multi-use developments, to mining, multifamily, offices, retail and, of course, hotels. On the hotel side, we found ourselves doing quite a bit of work for hotel developers, sponsors and owners. In other words, we represent the people putting together deals. We take more of a corporate, middle-market, transactional approach to hotel deals. We have a large team that focuses on the hospitality sector, so we have real estate lawyers who can handle the land acquisitions, corporate folks who can do the equity investments, debt people who do the finance work, labor lawyers who can handle the labor and employment work, and general transactional lawyers who do the day-to-day work. This became our bread and butter, and for us, the more complicated the better.

Bisnow: What kind of things are you seeing in the Chicago market?

Eppley: All you have to do is look out the window and see all the cranes in the core of the city. There seems to be almost no end of things happening. I’m looking out my window now and I’m seeing all types of buildings under construction. There has been quite a bit of recent success in the Wolf Point area, West Loop and Fulton Market, for example.

I just spoke with some office brokers the other day, and it looks like commercial office rents continue to inch up. I don’t want to say they were flatlined, but unlike some of the other tight markets such as San Francisco and New York, Chicago rents never seem to keep pace. But now, Class-A buildings are beginning to command pretty hefty rental prices.

Bisnow: What trends are you seeing in hospitality specifically?

Eppley: On the hospitality side, for the most part the fundamentals still seem to be there citywide. Demand is a little bit ahead of supply, but in Chicago there can be a fair bit of variation among neighborhood submarkets. The trend to have destination food and beverage continues. And it is hard to see a hotel built these days that doesn’t have some sort of rooftop or outdoor amenity. Guests, especially millennials, have an increasing interest in buying experiences, and the hospitality sector is perfectly suited to meet that need.

Another trend you see is that hotels can help anchor the redevelopment of an area. Take Fulton Market. The hospitality assets there help set the scene and create an atmosphere and a neighborhood. Or take Michigan Avenue south of the river. There used to be little reason to venture down that way, but now it is like walking through Paris. Hotels have helped anchor that transformation. I don’t think that is going to stop anytime soon, as long as people have money to enjoy themselves.

Bisnow: What kind of impact has foreign investment had on the market?

Eppley: In the broader market, there was a while where the Chinese couldn’t buy enough U.S. real estate, but now they are not buying. They are selling. Money from Chinese investors is headed back to China.

Bisnow: What are your predictions for the Chicago market overall for the next few years?

Eppley: People generally like to talk cycle, but we’ve been doing that for the last five years. Hotels are sometimes the first to fall, and the first to recover because rents are set daily, but this recovery cycle has lasted a long time. People are somewhat in disbelief that the cycle could continue as long as it has. And by and large, the fundamentals seem to be there. There is still opportunity for growth, but it appears to be slowing.

This feature was produced in collaboration between Bisnow Branded Content and Sheppard Mullin. Bisnow news staff was not involved in the production of this content.