The Mishegoss of the Loop
One of my mentors — the late, great Howard Weinstein — was quite proficient in Yiddish. A favorite word of his was mishegoss, meaning “craziness,” or some type of senseless behavior or activity. He often used this expression (in jest, I hope) to describe some of the decisions I made while running the commercial division of Rubloff. As I reflect upon the current state of affairs in the Loop, mishegoss certainly seems like an appropriate description.
As most people familiar with downtown Chicago are aware, the Loop (and the Central Loop in particular) is in chaos right now. Office vacancy is at an all time high, it seems like every other storefront is dark, crime is noticeably up and the overall perception is rather bleak. Numerous properties are in financial trouble and rumored to be on the brink of foreclosure. Many of the classic buildings up and down LaSalle Street have lost their luster from yesteryear. One of many immense challenges facing the City of Chicago right now is how to restore the Loop to the mighty economic engine it once was.
Fortunately, the news is not all bleak. Google’s decision to purchase and renovate the Thompson Center is a gargantuan development, as it is rumored to eventually bring over 1,000 employees back to the city center. Just as significant, although maybe not quite as sexy, is the State of Illinois’ decision to acquire and occupy the former BMO headquarters at 115 South LaSalle. One cannot ask for a better set of notable bookends. It is also encouraging that the city has at least put an initiative out there to revitalize the LaSalle Street corridor by making streetscape improvements, presenting concrete ideas on how to generate more activity and offering economic incentives for owners and developers to convert certain troubled buildings into apartments. Developing 1,000 new residential units with an affordable housing component is certainly a worthy goal.
Here is the problem with this plan. Seemingly every struggling vintage building is rumored to be getting ready to kick out their tenants and convert into apartments. Many people have recently confided in me that they have “inside information” about a building. If every one of these rumors is true, we are going to end up with half a million new apartments, give or take a few. Is anyone considering how much it will cost to convert some of these older properties into apartments? Nearly all will be a gut and rebuild. Something tells me that the TIF money and tax incentives offered by the city will not make enough of a dent in the total cost.
The other consideration is demand. Do people really want to live in the Loop? I can only imagine the sole appeal is a shortened commute to the office, which is understandable in an era of high gas prices and a crime-ridden CTA . However, if people are not using their offices like they used to and still working remotely 2 – 3 days a week, is living a few blocks from the office really that much of an incentive? Why not just come to the office everyday and stay in your neighborhood laden with restaurants, bars, grocery stores, parks, trees and other similar attractions?
If the residential idea ends up being a bust, or at least not as successful as planned, then what happens to these struggling buildings? Call me crazy, but I believe that more tenants will return to the office on a regular basis as time moves on and there will be a need for affordable office space. In spite of the narrative out there, not every tenant can afford to be in Fulton Market, on Wacker Drive or at the Old Post Office. Many people would love to live in a mansion, own a private jet or drive a 2023 Ferrari. 99% of the population cannot afford this. The same is true with office space. Who wouldn’t want to office in a newly constructed, amenity laden building in one of the most electric neighborhoods in the country? In reality, small tenants and those on a budget can only dream about this. Once everything shakes out and some tenants are displaced, those C-class buildings which do survive will be viable for many years to come.
If not office or residential, what use do some of these downtrodden properties have? We have enough hotels and student housing downtown. What about senior housing? A life sciences building? Perhaps a data center? Do a group of buildings get demolished so a park can be created? The options appear to be limited.
There is one other potential Central Loop bombshell out there. There is talk that Chase is actively scouting the market for a new headquarter building, likely in the West Loop. It is a classic case of “keeping up with the Jones’” as Bank of America and BMO have recently relocated to new properties, so why not Chase? This is understandable to a certain extent, but Chase already occupies an architecturally gorgeous tower which is an important part of the skyline. Exelon, the other large tenant at Chase Tower, just appointed a new CEO who is from Baltimore. As a result, is it really so far-fetched to think that Exelon’s headquarters might be the next to leave our fair city? If so, will the entire building eventually be vacant? This would undo all of the progress that would be gained by Google moving in. The city simply cannot allow this to happen. Treat Chase like a new firm looking to move to the city for the first time and use some of that TIF money and tax breaks to keep them in place. They are a vital cog of the Central Loop machine.
How will all of this mishegoss play out? The next three years will be critical. We are either going to end up with a revived, vibrant Central Loop that will remain an integral part of the city for decades to come, or we will morph into a version of pre-bankruptcy Detroit. It will take a collective effort from government, business leaders and building owners to figure this out. History warns us about betting against Chicago. This is a resilient city which has overcome adversity for hundreds of years. My best guess is that we will do so yet again.