Courtesy of Barnett Capital and Domus Group
1155 West Fulton St.
WeWork CEO Sandeep Mathrani promised to cut costs at the oversized coworking giant when he took over in February, and that promise just led to a bite out of the Chicago market.
The New York-based company said it was pulling out of two new leases totaling 110K SF at 1155 and 1114 West Fulton St. in the Fulton Market neighborhood, according to Crain’s Chicago Business. These are the first Chicago leases the company has dropped.
Chicago is not alone. Mathrani unveiled a series of cost-cutting measures this year, impacting many markets. He dropped other leases, including a deal for 115K SF at 149 Madison Ave. in Manhattan, sold off noncore assets and laid off employees, among other moves.
A joint venture between Domus Group and Barnett Capital acquired the Fulton Market properties in early 2019, and the future of the former industrial district looked bright. Google, McDonald’s and other influential firms had recently opened splashy new headquarters, and developers were launching new projects to keep up with the demand. By Q1 of this year, more than 2.1M SF was under construction, roughly half the submarket’s then-total inventory of 4.2M SF, according to Colliers International.
WeWork was placing several bets on the Fulton Market neighborhood. Until it pulled out of the 1155 and 1114 Fulton Market buildings, the company had 15 downtown locations totaling more than 1M SF either opened or planned, including 300K SF in Fulton Market, Crain’s reports.
1155 had been a three-story building, but the joint venture combined it with a neighboring three-story building at 1133 West Fulton St. and added a fourth floor. Domus and Barnett will now have to go out and find new tenants in a very different market.
Leasing has slowed due to the coronavirus pandemic just as several development projects in Fulton Market were completed or are approaching the finish line. The submarket’s vacancy rate jumped to more than 22.3% in Q2, up from 15.2% in Q1, Colliers reports.
Chicago-based TLC Management bought Ravenswood Terrace Apartments, a 150-unit rental property at 1801 West Argyle St. on Chicago’s north side, for $46M. Monarch Realty Partners co-founder Bill Baumann represented TLC.
“Even during the pandemic, we continue to see buyers invest in multifamily properties especially where you have a high-quality asset, strong location or, in this case, both,” Baumann said.
Courtesy of TLC Management
Built in 2014 by Chicago developer Belgravia Group, the property was recapitalized in 2016 when The Carlyle Group purchased a majority interest in the property.
The complex features a clubhouse, fitness center, rooftop deck, community garden and large open courtyard. The property is 7.5 miles north of downtown Chicago and approximately 2.5 miles north of Wrigley Field.
“Ravenswood Terrace is a unique asset for the city in that it is a modern, garden-style property more typical of suburban markets where land is more plentiful,” Baumann said. “In this case, the developers had a rare 3-acre urban site on a tree-lined street that was also adjacent to the Metra train station and a Mariano’s grocery. It’s a terrific site.”
“We’ve seen strong investor demand for such properties and believe COVID-19 has only enhanced their value as renters spend more time in their apartments and desire high-quality apartments in which to live and, increasingly, work.”
Lee & Associates of Illinois hired Douglas Altenberger in its industrial team as executive vice president. For the last few years, Altenberger was a principal with Stonegate Properties, where he developed and managed more than 1M SF of commercial and office space and more than 250K SF of retail space in the Chicagoland area. He graduated from the University of Illinois at Urbana-Champaign, where he was a member of the basketball team and later was drafted in the third round by the Chicago Bulls.
Courtesy of Interra Realty
811 East 46th St.
Wolcott Group sold a six-building multifamily portfolio in Chicago’s Kenwood neighborhood for nearly $18M. Comprising 204 units, the buildings are at 4001 South Ellis Ave., 4433 South Greenwood Ave., 4737 South Ingleside Ave., 4746 South Ingleside Ave., 4500 South Drexel Blvd. and 811 East 46th St., all within about a mile of each other.
The price per unit was about $88K. Interra Realty’s David Goss, Jon Morgan, Ted Stratman and Lucas Fryman represented the seller and undisclosed buyer. The buyer plans to upgrade units as they turn over and lease additional units that were previously offline. The properties were built between 1908 and 1928 and were 93% occupied at the time of sale, according to Interra officials.
Courtesy of JLL Capital Markets
920 East Elmhurst Road, Mount Prospect
Chicago-based GW Properties sold a multi-tenant retail building net leased to three tenants in the suburban Chicago community of Mount Prospect to Los Angeles-based Harold Davidson & Associates for $3.95M. Alex Sharrin and Alex Geanakos led a JLL Capital Markets team that worked on behalf of GW Properties. Constructed in 1966, the building at 920 East Elmhurst Road was completely renovated in 2019.
Imperfect Foods signed a long-term lease to expand its operations at Bridge Point Northlake by 45K SF, according to Bridge Development Partners and PGIM Real Estate. Formerly known as Imperfect Produce, Imperfect Foods now occupies a total of 106K SF at the 480K SF cold storage facility, having expanded to meet the exponential increase in demand for delivered food and household products brought on by the nationwide coronavirus pandemic. CBRE’s Jason Lev and John Suerth brokered the deal for both parties, and serve as the leasing brokers for the remaining space in the development.
Baum Realty Group’s Ari Topper and Tyler Dechter signed KDM Engineering to a 35K SF lease to anchor 1308 North Elston Ave. KDM, a certified minority-owned and woman-owned certified enterprise, will move its headquarters from 35 East Wacker Drive in the spring of 2021. 1308 North Elston is a joint venture between Farpoint Development and Greco/DeRosa Investment Group. Formerly a light fixture factory, the 100-year-old brick-and-timber loft offers 71K SF of Class-A office space along I-90 near the Division Street exit.
Courtesy of Target Corp.
2480-2252 North Milwaukee Ave. in Chicago’s Logan Square
Chicago-based Fifield Cos. announced the opening of its anchor tenant, a 27K SF small-format Target store, at Logan Apartments, the 220-unit mixed-use development at 2480-2252 North Milwaukee Ave. in Chicago’s Logan Square neighborhood. A mix of other stores and restaurants also signed leases for the ground-floor retail space, including Jeni’s Ice Cream, Pure Barre, Verizon and Aligned Modern Health. Big Wig Tacos and K-Fire Korean BBQ have already opened. Logan Apartments opened in March.
CONSTRUCTION AND DEVELOPMENT
Principle Construction Corp. completed construction on a 205K SF building at 8500 116th St. in Pleasant Prairie, Wisconsin. The asset was originally developed as a speculative project, but a lease was signed on the building in late fall. Principle’s Mark Augustyn served as the principal on the project. Principle’s Jon Anderson and Mark Frane were project manager and superintendent, respectively. Partners in Design acted as the project architect.
Construction manager Skender completed interior construction of the 30K SF laboratory and research office space for Exicure Inc., a clinical-stage biotechnology company. It’s the first tenant in developer Sterling Bay’s redeveloped life sciences building at 2430 North Halsted St. Skender collaborated with Sterling Bay, CannonDesign and CBRE to complete Exicure’s space, which occupies the entire fourth floor.
THIS AND THAT
The ongoing pandemic has accelerated the slowdown in apartment deliveries that has been visible since the 2018 peak, according to RENTCafé. Following a national trend, construction in Chicagoland dropped 26% from last year, bringing the apartment supply to a five-year low. The metro area will see 7,704 new units by the end of 2020, compared to 10,473 new apartments hitting the market last year.
CommercialCafé put together a new study to measure parks and walkability in 53 U.S. cities. It found that Chicago and its surroundings have 662 miles of improved and natural trails, earning the city the third spot for this metric. Other findings: The average walk to work in Chicago takes 17 minutes, with 5.62% of commuters choosing to do this — the 12th-highest share in CommercialCafé’s study; and park spending per resident in Chicago is $191, the eighth-largest amount out of the cities CommercialCafé studied.
When most people envision the impending disaster of climate change, it typically involves wildfires, melting glaciers and rising seas. Chicago and other cities on the Great Lakes are threatened by none of these, but that doesn’t mean they’re invulnerable to global warming.
The mid-May storms that broke over Chicago were perhaps a sign of what’s to come. More than 6 inches of rain fell in four days beginning May 14. By May 18, the Chicago River overflowed its banks, swamping several of downtown’s iconic sites. The Willis Tower’s electrical vault flooded, plunging the 110-story building into complete darkness for the first time in its 47-year history. Chicago’s new Riverwalk also flooded, forcing the pedestrian waterfront park and tourist draw to close as well.
Lake Michigan on July 31
Experts say such storms are likely to come more frequently as the Earth heats up in the years ahead. And even though local governments have for decades poured funds into new stormwater infrastructure, it’s unlikely even the many miles of new tunnels and reservoirs can handle all the severe storms ahead.
That means landlords, government officials and urban planners need to start reimagining the city’s design, not only building up the capacity of its stormwater system, so-called gray infrastructure, but adding greener infrastructure, such as rooftop gardens and permeable streets that would better absorb future rainfall.
But it isn’t clear if the wider world of commercial real estate, at least in Chicago, fully realizes how much needs to change.
When ComEd crews began restoring power to Willis on May 18, it was already the city’s wettest May ever recorded, the third in a row to set a rainfall record, according to the National Weather Service.
“The last decade was the wettest on record for the entire U.S., but particularly for the upper Midwest,” according to Andrew Gronewold, professor of civil and environmental engineering at the University of Michigan.
And as the globe continues to heat up due to the burning of fossil fuels, storms will grow more intense, Gronewold added.
“This is not just a Chicago issue or a national issue; this has been documented globally.”
Anyone who walks or runs along Chicago’s lakefront this year will notice the shrunken city beaches and Lake Michigan lapping over walkways and bike paths. Massive rainfall has helped push up the July water level to 582 feet, nearly a record high and 5 feet more than in the summer of 2012. But Gronewold said the increased heat from global warming also accelerates evaporation, so it’s possible the lake could soon sink back to where it was several years ago.
“In Miami, it’s pretty straightforward, you need to have a plan for rising seas, but for the Great Lakes, it’s not just a story of water levels rising or water levels declining but a story of fluctuations between highs and lows,” Gronewold said.
The elevated lake level led to beachfront erosion in North Side neighborhoods like Rogers Park and in South Shore on the South Side. The city’s downtown real estate is too high to be threatened by lake levels, he added.
Even so, heavy rains will be a problem for Chicago and other Great Lakes cities far into the future.
“Reports suggest that we have already experienced, and will see even greater, adverse weather events including record-breaking flooding, heat and drought,” according to a statement given to Bisnow by the Metropolitan Water Reclamation District of Greater Chicago, which manages Cook County’s stormwater and wastewater.
Courtesy of MWRD
The Metropolitan Water Reclamation District’s Deep Tunnel project
“Most of the floods that happen in Chicago are not from the lake; it’s from the backing up of storm systems,” said Karen Weigert, former chief sustainability officer of Chicago and now vice president of business strategy and regional operations of Slipstream, a Chicago nonprofit that helps create green energy programs. “If we have flooded buildings, it tells us we have more work to do.”
EQ Office, which acquired Willis Tower in 2015 for $1.3B, told Bisnow it would have no comment on the flooding of its building.
The city’s challenge is one of geography, Weigert said.
“It was essentially a wetland, and it’s flat, and we just paved it over, so water doesn’t have a place to go, it just seeks out the lowest level, and that sometimes is someone’s basement.”
“The flooding is going to get worse, although we don’t yet know how bad it’s going to be,” said BuroHappold engineering associate principal Mike Stopka, who advises the owners, tenants and managers of downtown office towers on sustainability issues. He is also board chair of the Illinois Green Alliance, a nonprofit that promotes green buildings and sustainability.
The Willis Tower flood was a warning shot, but Stopka said it won’t be enough to bring the need for flood-resilient design to the top of the industry’s to-do list.
“I don’t know anybody who is making big decisions based on that right now,” he said.
But the long-term increase of flooding risk means new projects will need better infrastructure to control water flow during and after severe storms, and that expense is catching the attention of some high up the food chain in commercial real estate.
“Further upstream, on the development side and on the investment side, some are starting to ask, ‘Am I going to pour my money into a property if it’s going to be at risk in the next 10 years?’” Stopka said.
Courtesy of 601W Cos.
The renovated Main Post Office at 433 West Van Buren.
It isn’t as if Chicago has done nothing to prepare. In the past four decades, a massive series of construction projects, most notably the MWRD’s Deep Tunnel system, also known as the Tunnel and Reservoir Plan, or TARP, added more than 100 miles of underground tunnels up to 33 feet in diameter and 300 feet below the surface, as well as a series of reservoirs meant to bolster the capacity of the original, more than 100-year-old sewer and storm systems.
New amenities such as the Riverwalk were also constructed with an eye on the future.
“The Riverwalk was designed to be flooded, but the amount of rain we got in the middle of May was more than we anticipated,” Ross Barney Architects principal and Riverwalk designer Carol Ross Barney said.
The Illinois State Water Survey, a division of the Prairie Research Institute at the University of Illinois, forecasts bigger storms in the long term. In 1960, it considered 6 inches of rain in 24 hours to be a 100-year storm. By 2019, it considered 8.58 inches of rain in 24 hours to be a 100-year storm.
Most of Chicago’s infrastructure, from the downtown towers, streets and stormwater systems, was constructed before the full potential impact of global warming was known, Weigert said.
Begun in 1972, the Deep Tunnel system will be finished in 2029, when it will have the capacity to hold 17.5 billion gallons of stormwater, according to MWRD. One inch of rain means more than 16 billion gallons getting dumped across Cook County, so even several inches of rain in 24 hours can overwhelm storm systems and cause flooding. But as much of the rainwater will get absorbed into the ground and not end up in the Deep Tunnel system, it can be hard to predict when floods will occur.
“TARP was not created as a response to climate change but rather to address pollution in our waterways, including Lake Michigan, our drinking water supply, and to mitigate flooding,” MWRD said.
“The size and scope of TARP in its ability to store water, however, has made it a critical tool in the face of increased rainfall,” MWRD added. “Without this elaborate system in place, think of all the billions of gallons of water contained in these tunnels and reservoirs that would flood our basements and streets or pollute our waterways.”
These tunnels and storm systems alone can’t solve the problem. Weigert said it will be key in the years ahead to start ridding the city of so many paved areas in favor of permeable surfaces that can absorb water, along with gardens, parks and green space.
“That could take the edge off some of this,” Weigert said. “The goal is to keep the water out of the storm system and in the ground like would have happened if we hadn’t paved over the city. At the same time, you create amenities that residents need.”
Green infrastructure has been gaining some popularity among downtown owners. But few, if any, see it as a preventive measure against future flooding, Stopka said. What makes green infrastructure popular is its appeal for tenants.
“It’s usually seen as a way to attract tenants by making buildings more beautiful,” he said. “That’s the value proposition I’m seeing.”
Weigert is optimistic the city will be able to re-engineer itself in ways that will help control the impact of global warming and said Chicago has a history of reinvention.
“Climate change raises the stakes yet again for the city to find new ways to reinvent itself,” she said.
Student housing providers were apprehensive about leasing in the coronavirus era as the new school year loomed, but have so far avoided the worst, especially with many off-campus properties.
“Leasing has gone really well, we’re actually ahead on a year-over-year basis,” CA Ventures Executive Vice President Sean Zasche said during Bisnow’s Chicago Deep Dish: Student Housing – An Unprecedented Semester & Its Lasting Impact webinar last week.
The company, which has about 22,000 units across the U.S., has also had success collecting the rent for its student housing properties. It collected around 97% to 98% of the rent since the advent of the pandemic in March, Zasche added.
“For the most part, it’s been business as usual, which many people are surprised to hear,” he said.
Courtesy of NKF
Automatic Lofts at University of Illinois-Chicago
“We’ve had a similar experience, leasing appears to be strong, especially off-campus,” Greystar Senior Vice President of University Partnerships Jared Everett said. “It’s clear students still want that experience, and want to be around their peers.”
That strong leasing performance was also seen in on-campus housing, Everett added, even though many universities have decided to cancel in-classroom learning in favor of remote learning. Many schools are de-densifying on-campus student housing, sometimes by keeping dorms rooms single, rather than the typical practice of doubling students up. That may be displacing more students into off-campus housing than in normal years.
“Ultimately, all things considered, we’re very pleased with where we’re at.”
It has not, of course, been a normal year with normal procedures. Even though recent move-ins have mostly gone well, Everett said his firm has had to extend move-in periods so students and their families can arrive at intervals and avoid crowding each other. Greystar also put in place systems that allow students to make reservations for when they can move.
“We’re pleasantly surprised that they are honoring their reservations,” he said.
The company also provides personal protective gear such as masks if students don’t have it, and some campuses require student movers to have a negative COVID test, as well as restrictions on how many family members can help.
“It’s different from years past, it’s much more managed,” he said.
“It’s probably been the most organized move-in process ever in the student housing industry,” Zasche said.
He added that, like Zoom calls and working from home, these structured move-ins could become a permanent feature of people’s lives.
Clockwise from top left: Greystar Senior Vice President of University Partnerships Jared Everett; Xfinity Communities Senior Director David Lizak; The Scion Group Director Chelsea Metivier; CA Ventures Executive Vice President Sean Zasche.
“I think the families enjoyed it more as well. It’s something that I think is going to stick in this sector long-term. It’s a better first-day experience for everybody.”
“In our transitions, we’ve done the same things,” The Scion Group Director Chelsea Metivier said.
When putting in place highly structured move-ins, student housing providers need to ensure parents and students understand the schedules.
“We’ve always been very communicative with our residents, but that’s been an even more important aspect of this in making sure both parents and residents are well aware of our policies and processes,” Metivier said. “As we survey residents about that experience, it’s been overwhelmingly positive, so I think that bodes well for the future.”
Providers have also implemented more stringent cleaning procedures, including perhaps twice a day for cleaning periods of about 30 to 40 minutes, among other steps, Zasche said. He foresees keeping up with such activities even after life returns more or less to normal.
“It adds a little bit of cost, but it’s not a material change to the operating costs of a property,” he said.
Other activities considered normal are going forward as well, except with a few minor adjustments, Metivier said. Her firm continues to hold social events for students but makes sure social distancing can be practiced, and it usually limits participation to fewer than 10 residents.
“It’s still important for our residents to get to know each other, and create a community, that’s key, and we want to maintain that as much as possible recognizing that the campus experience is going to look different.”
Courtesy of Leopardo
A rendering of the new rooftop of 226 West Jackson Blvd., Chicago
Chicago’s city center has been drifting steadily southwest, with new projects and renovations of classic buildings like the Old Post Office inspiring new development in a part of the Loop that has long been overlooked.
Local investors Phoenix Development Partners were looking to capitalize on that momentum when they purchased 226 West Jackson Blvd., a turn-of-the-century high-rise across the street from the Willis Tower, with the intention of turning the 115-year-old office into a dual-branded Hilton hotel. For the construction, Phoenix turned to Leopardo, a Chicago-based construction company with a long history of adaptive reuse projects.
“We’re breathing new life into a great old building that had run its course as an office space,” said Steven Smith, a senior vice president at Leopardo who oversees the firm’s hospitality and retail practices. “Horizons change in the city and new areas become popular. We get to keep the building’s best attributes and build it back up for a new era.”
When 226 West Jackson was built in 1904, it served as the headquarters of the Chicago and North Western Railroad. More recently, it was home to the administrative offices of the City Colleges of Chicago. Renovating the building for hotel guests was going to be no small feat, and before Phoenix decided to buy, Leopardo was asked to assess whether the task was even feasible.
Steel crews working at 226 West Jackson
“You have to make sure you know as much about the building as possible,” Leopardo Project Executive Erik Magsamen said. “We spent about 18 months in active pre-construction, wrapping our heads around the environmental and historical preservation requirements and examining every piece of the building we could.”
Adaptive reuse is not always as glamorous as new construction, Smith said, but it will always be important to the city of Chicago.
“Chicago is built already,” he said. “The great locations already have buildings on them. So if we want to keep the city evolving and make sure all the buildings and spaces are used to their highest purpose, we have to recycle them. We’re revitalizing something that’s become obsolete.”
The good news was that the Leopardo team found that even a century after its construction, 226 West Jackson was still in great shape. The exterior facade of the building was solid and the structural integrity allowed for the planned modifications, and the existing floor plates aligned well for hotel use.
One of the features that had attracted Phoenix to the building in the first place was an internal light well, which ran from the ground floor up to the roof. This feature allowed access to natural light that was necessary for stacking hotel rooms from both sides of the internal corridor.
A floor of 226 West Jackson awaiting construction of a new floor plan
Because Hilton did not have many flags in the southwest Loop, Phoenix planned a dual-branded hotel. Floors three through seven will hold a Hilton Garden Inn, while the top eight floors are set aside for one of the brand’s new concepts, Hilton Canopy. Since each of the two Hilton brands specify its own range of room sizes and styles, Smith said, Leopardo created unique 3D model layouts for each floor in the building, relying on the firm’s virtual design and modeling team to make sure that mechanical, electrical and plumbing systems coordinated from floor to floor.
Magsamen said that building new floor plans is one area where the team at Leopardo shines, since the firm also has its own drywall and painting practices. At another hospitality project, they completed the design and construction of a 300-room hotel renovation in only 18 weeks.
Once Leopardo had the layout, it was time to move inside the building.
“You can make anything work on a computer screen, but it’s an entirely different challenge to be able to execute on those plans once you’re on-site,” Smith said.
Some of the building’s floors originally housed vaults with three- and four-foot thick walls. The walls had already been co-opted into the design of the City College offices, but the project team re-exposed them in order to bring light into some of the harder-to-reach spaces in the new hotel.
A Leopardo employee measures to install wood blocking at 226 West Jackson
Most importantly, Magsamen said, the team had to figure out whether the building’s original clay-tile arch floors were going to be strong enough to support all the lighting, electrical, fire protection and mechanical systems that would be supported from the floor above. They tested various anchoring systems, working with the structural engineer to find a cost-effective solution that would keep everything secure.
Leopardo was also able to prefabricate metal studs and drywall for the entire building, reducing the overall labor and timeline of the renovation.
“There are always going to be unexpected hurdles when you’re dealing with adaptive reuse,” Magsamen said. “Our job is to reduce as many as we can and find the best physical and financial solutions for them.”
This feature was produced in collaboration between the Bisnow Branded Content Studio and Leopardo. Bisnow news staff was not involved in the production of this content.
Medical office tenants went into a deep freeze along with everybody else starting in March, hunkering down as the coronavirus pandemic made it impossible to see patients. Making decisions on whether to sign new leases and expand wasn’t practical.
But with many states lifting the restrictions on seeing patients, as well as some medical tenants gaining a better understanding of how the ongoing crisis will impact their business, leasing activity is finally starting to pick up again.
Courtesy of Cushman & Wakefield
1945 West Wilson Ave.
“We are starting to see green shoots in the medical field,” Inventrust Properties Corp. Senior Vice President Matt Hendy said Tuesday during Bisnow’s Chicago Deep Dish: The Retailization of Healthcare webinar.
But the type of potential tenants that show up looking for space may change from pre-pandemic days.
“We are still in the midst of a healthcare crisis right now, and this has been a referendum on medical preparedness as much as anything, where the most vulnerable of our population is really susceptible to this pandemic,” Tether Advisors principal Willie Hoag said.
Maintaining good health will be a far bigger factor in the lives of many as a result, he said. Landlords can expect more wellness and preventive care providers to seek out space in shopping malls and fewer acute care providers, a trend that had already been picking up speed before this year.
“This is nothing if not the great accelerator,” Hoag said. “We’re starting to see concepts come out of that and were germinating right before COVID.”
Not everyone in the field is ready to start making moves, Echo Development Group principal Jon Boyajian said.
Clockwise from top left: Echo Development Group principal Jon Boyajian, Inventrust Senior Vice President Matt Hendy, Tether Advisors principal Willie Hoag and Tether Advisors principal Sean Bossy.
He has noticed that the big hospital systems in many markets are still analyzing their network of clinical locations and adopting a wait-and-see attitude rather than leaping to make long-term real estate decisions. But for smaller, more entrepreneurial physician groups, especially those owned by private equity, it’s a different story.
“They were able to weather the storm and get back to business and back to expanding because that’s their mandate from their private equity owners,” he said.
There are some trends that the coronavirus pandemic won’t change, Hoag said. Healthcare providers began to migrate away from huge hospital campuses and into retail locations because it was more convenient for patients. And convenience is still king.
“To maintain our wellness and our health, it needs to be very accessible, ready to go and not disrupt our day,” he said. “They’re not going to just be space fillers and come in on a white horse to [save] the C+ shopping centers. They’re still going to be looking for the high-profile real estate, to be in the front of people’s minds and conveniently woven into the everyday habitual patterns of the patients or consumers.”