The Price Tag on Commercial Development
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The Price Tag on Commercial Development

Commercial real estate continues to make headlines in Chicago, feeding simultaneously into daily water cooler conversations and analyst reports alike, as large-scale renovations begin at Willis Tower, new dorm-style apartments target young professionals and a number of new office spaces, like the swanky 150 N. Riverside Plaza building, open their doors.

When looking at the various contributing factors, Associated Bank’s Illinois Market Manager Greg Warsek notes that the Chicago commercial market is a healthy one right now.

“From a lending perspective, I would say the market is in sort of a nice equilibrium. It’s working well,” Warsek said. “Construction lending is available and permanent takeout is available from a lot of companies. And the CMBS (commercial mortgage-backed security) market – there’s a robust investment sale market, a lot of properties being sold upon completion.”

High-dollar Loans recently compiled a list of the 10 most expensive loans issued in the last year, including a $1 billion loan from KSB Realty to refinance the office tower above Ogilvie Transportation Center at 500 W. Madison St. And, of course, the steepest price tag of all, to date, has been the Willis Tower, whose ownership just refinanced it at $1.3 billion.

“Some of the projects … here in Chicago that were highlighted are certainly getting up into some dollar amounts that you are more used to seeing in New York,” Warsek said, citing the Willis Tower and Ogilvie properties.

“It was $1 billion when Blackstone (Group) bought (Wills Tower), but as you know, they’re redeveloping the entire ground floor retail around the perimeter of the building, which should completely change the building and frankly that entire submarket,” Warsek said. “That area, it’s going to really, I think, ignite quite a bit of activity in that area.”

Another hot property undergoing lots of change—at a cost of hundreds of millions—has been the Wrigley projects, which have included a park, hotel and retail space.

“But that’s obviously a very interesting redevelopment that they did not just to the stadium but adjacent to the stadium and the new hotel as well, which is now open,” Warsek said.

One project on the list is one with which Warsek is quite familiar—as Associated Bank is involved in the financing—is the cutting-edge office tower at 150 N. Riverside Plaza.

“I would say (it’s) architecturally one of the coolest buildings that’s been done in a long time, where it comes up at a V from the base,” Warsek said. “(Plus, there’s) a lot of green space. (It’s) really cool architecture right on the river there, and the views from inside up and down the river are fantastic.”

Also on the list is the grandiose, 3 million-square-foot Old Chicago Main Post Office, located at 433 W. Van Buren St., which received a loan for $355 million.

“That’s an amazing facility,” Warsek said. “And I would guess if Amazon is interested in Chicago for H2Q, that’s probably one that’s pretty high on the list that could accommodate their space needs.”

The New Spin on Apartments

In addition to skyscrapers going up and creating new office space, living spaces are another hot commodity right now. And in that realm, Chicago is experiencing a newer housing trend—one that’s been popularized in other areas—which is the emergence of dorm-style apartment living, targeted at the city’s young professionals.

“It’s pretty interesting,” Warsek said. “We’ve been watching this whole co-work concept with (companies like) WeWork and others. I think it’s really taken off from an office space perspective, and now … (these companies are) moving into the residential space. And the concept is very similar, in that an operator comes in, they lease the entire space under a master lease from the building owner, and then they turn around and lease out, in this case, a smaller living space, if you will, with roommates for what we call a lower chunk price.”

German-based Medici Living Group is in the process of opening its doors to one of these facilities, a complex called Quarters, in the Fulton-Randolph Market District.

“So … it’s a 75-unit apartment building, (and) they decided to execute a lease with a European company that specializes in this type of business,” Warsek said. “And the target is to ultimately lease those 75 units to various roommates, totaling 175 renters. So you can kind of do the math, and what they’re basically doing is it’s kind of a dorm-style approach to residential living, and the whole idea is affordability. That’s the big thing in the big cities right now,” he said, explaining the market’s efforts to accommodate recent college grads and young professionals.

Warsek notes this communal-style living that’s been popular abroad and in New York City may just take hold here in the Chicago area as well.

“I would not bet against it,” Warsek said. Going into further detail on the benefits of this option, he continued, “when you’re a college student with student debt and you can go out and live in Fulton Market for 1,200 bucks a month, and it includes your utilities your internet access and it’s turnkey … I mean some of the units that they offer … (include) your mattress, your bed linens, everything. It’s fully furnished. Versus, say, that same person having to get roommates and go out to Logan Square or some other area to achieve cheaper rents.”

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