Willard Jones Real Estate

Unless you have recently been vacationing on Mars, it is tough to have missed the thrilling news that Elon Musk’s Boring Company has been awarded the contract to construct an express train from O’Hare International Airport to downtown Chicago. A project that would bring back to life the abandoned “superstation” at State and Washington, underneath Block 37. This innovative mode of transit would feature the construction of an 18-mile underground tunnel populated by autonomous pods traveling at speeds as high as 150 miles per hour. Even better? Boring’s ultra-aggressive schedule aims to have the trains operating within the next 2 years.

A 12-minute train ride from O’Hare to the Loop for $25? Sign me up! Let’s face it, sitting in a car or cab during rush hour trying to get to the airport from downtown (and vice versa) can be a nightmare. If you can pull it off in under an hour, immediately go purchase a lottery ticket. Alternatively, while the perennially-crowded Blue Line will eventually get you there and for less money, it is not the most pleasant ride–especially when traveling with cumbersome luggage.

In addition to the convenience and economic benefits, Musk is planning to self-finance this billion-dollar (estimated) project, so what is the risk? Assuming it all pans out, this is the exact type of innovation that the city needs in order to compete on a global scale. Is this an absolute necessity? Of course not. However, I fail to see the harm and, though it is the state of the world today, it still surprises me that some people are complaining about this proposal.

The skepticism is understandable; after all, this revolutionary technology has never been utilized before. Previous deep tunnel projects have cost significantly more money to construct and have taken much longer to build. Furthermore, local and state governments have not really had a chance yet to pick apart the details and determine how this will be regulated and policed. Chances are high that there will be cost overruns and unanticipated surprises along the way that will delay the completion of the project. How do we really know there will be no disruption on the ground while digging is happening below? Will there be environmental issues? Or the inevitable legal issues that always seem to arise in Chicago? What if the Boring Company abandons the project halfway through, leaving us with a partially-built tunnel to nowhere? Will taxpayers ultimately end up being hit with some of the bill, no matter what is promised? A lot of people’s support, including my own, would disappear if this were to happen.

From a real estate standpoint, though, the impact of this completed project would be tremendous. I can envision the marketing campaigns now: *insert address here* – just 20 minutes away from O’Hare airport! This innovation would be yet another strong reason for businesses and corporate headquarters to locate or relocate downtown. Paying attention Amazon?

Bringing the long-abandoned State/Washington train station back to life would also be a huge development. The increase in pedestrian traffic would cause interest, as well as, real estate values to surge in this sleepy mall, not to mention the surrounding areas. Count on this to be another excuse to justify driving up rents and sales prices of assets.

Chicagoans should be rooting for this transformative project to succeed, not only for the reasons mentioned above but also for where else this technology could lead. If this can really be built for “only 1 billion dollars,” it could lead to the rapid development of similar express trains, not only to other parts of the city but also to suburbs and even other states as well. Given Chicago’s prime central location and numerous attributes, it could arguably stand to benefit more than any other American city.

All in all, I argue that this is an idea worth exploring. Once the potential pitfalls are worked through to the reasonable satisfaction of all parties, let the boring begin!

In almost every industry, price increases are typical from time to time. Most people, while never happy about it, generally understand that there are a lot of reasons for nominal increases–improved features or products, the rate of inflation, etc.

Earlier this month, however, I received an email from Costar Group announcing that my firm’s LoopNet membership fee was increasing by 385%. 385%! Imagine what you could do if you were selling a product, able to implement that very price hike, and get away with it. I sure wish I could do that with my fees.

CoStar’s reason for the increase? “It has been several years since there has been a price adjustment” and “to more accurately reflect the value listers receive from exposure to 83% of all people searching for commercial real estate online as well as 95% of the top 1,000 brokerage firms.” I am not totally sure what that means, but I can definitely state that despite this alleged exposure, the number of leads LoopNet has generated for my office has increased 0%.

It gets worse. With my CoStar contract set to expire, I inquired about removing one of our users, since this individual is essentially moving towards retirement and has not logged onto the site in over 6 months. Of course, the almighty cyber-tyrant nixed that and told me that if I am holding this person’s license, he or she MUST have a CoStar account. Because I am sure that this extra $300 a month from my firm is what is keeping their $15 billion dollar organization afloat.

Willard Jones Real Estate is very small business and once the new fees kick in, CoStar/LoopNet costs will be greater than what I pay for the salaries and rent. While the CBREs and JLLs of the world can handle these increases without problem due to their size and profitability, it is much more difficult for a firm of my size to absorb this.

I have complained and complained to CoStar about their overbearing fees to no avail and the sad truth remains that in spite of it all, as brokers, it is very difficult to effectively do our jobs without CoStar and LoopNet–and they know it. Whenever a legitimate competitor emerges, they throw their billions of dollars around to either buy them out or sue them to death until they have no choice but to fold (see Xceligent).

Many, including myself, were excited when Xceligent announced their intention to enter into the Chicago market, hopeful that there would finally be a viable alternative. Honestly, I was strongly considering switching over. The data appeared to be adequate, the advertised price was substantially less, and management was much more flexible and willing to structure their programs on a company-by-company basis. Then, the big bully sued sent out an embarrassing mailing that made sophomoric accusations and ultimately drove Xceligent to fold like a house of cards.

To this day, I wonder why a legitimate competitor cannot emerge. Why can’t someone finally stand up to the CoStar Group bully and send a message that enough is enough? Sure, no one is forcing me to remain a customer; I could walk away tomorrow but all that would do is inhibit my ability to do my job.

Still, I dream of the day a more equitable marketplace will emerge; but until then, saps like me have no choice but to sit back and take it. Well, CoStar, all I can say is that if I am going to be spending this additional money every month, your 385% worth of improvements better damn well give me about 385% more business.

Willard Jones Real Estate hit a milestone moment. For my entire career, I have wanted to represent 105 West Madison and just recently, we were appointed as the exclusive leasing agent of the building.

As much as there is a yearning to dive right in and hit the ground running, I know there is quite a bit of work to do before we are in a realistic position to start leasing space.

After over 20 years in the business, I’ve established a list of things that need to be figured out to create a smooth transition for the brokers, landlords, and tenants alike.

Here is a checklist of some of the questions to ask and information to know in order to have success when commencing a new leasing assignment:

1) Structure – Determine how the ownership and management structure is set up. Who are the players involved in every step of the decision-making process when deals are presented? Who analyzes the economics of each proposal? Who reviews financial statements and determines the lease securitization?

2) Space Planning – A qualified architect needs to be brought aboard to prepare existing condition space plans (and CAD files) for the entire property and design conceptual layouts for older suites in need of a fresh look. The architect’s services will also be needed to prepare customized space plans for prospects to help make their requirement fit into a designated suite.

3) Construction – Find out who will be providing construction pricing for each new deal when work is involved. Usually, it is best to have at least 2–sometimes 3 on larger jobs– contractors competitively bid on the project. Who will be performing the work? Does the building have rules and regulations that must be followed? What are the established building standard materials for paint, flooring, lighting, and millwork?

4) Mechanicals – Make friends with the building engineer immediately, as he or she is often the most important person in any building. Get familiar with how the HVAC system works, as well as electric, gas, and elevators.

5) Wiring – Establish who the service providers are for phone and internet service. Is there a riser management company whom tenants must use prior to installing their lines? Is fiber available?

6) Security – Check how often a security guard is present in the lobby. Are tenants and visitors required to sign-in and/or swipe with a key card? How is after-hours access handled?

7) Amenities – Figure out what amenities the building offers. Is there food service on site? A building conference facility, tenant lounge, rooftop deck, or fitness center? Some, if not all of these things are standard requirements today for a prospect to seriously consider moving to a building.

8) Vacancy Analysis – Appearance counts. Each vacancy should be critically evaluated to determine what can be done to help make them lease faster. Are they fine as-is, in need of just a cleaning, or is a complete overhaul required? If there is obvious work needed for anyone to lease the space, it should be done immediately. Often, it is wise to create a few spec suites that are move-in ready for immediate occupancies.

9) Furniture – Given the rapidly growing desire for tenants to lease furnished space, a relationship should be established with a qualified furniture vendor who can stage vacancies or be able to quickly furnish spaces upon demand.

10) Previous Regime – If leasing space has been a challenge in the past, analyze what went wrong with the previous leasing agency and try to learn from their mistakes.

11) Management – Who will be the liaison to help new tenants get settled into the building and deal with maintenance requests, logistical issues, and possible complaints once a tenant moves in?

12) Financials – Learn the current and historical real estate tax and operating expense estimates. What are tenants responsible for?

13) Parking – Does the building have parking? If so, what is the cost? If not, can a deal be worked out with a nearby garage on a discounted basis for tenants?

14) Marketing – Give the building a personality. Taking all of the above into account, what is the best way to position and promote the property to prospective tenants?

Once all of this information is obtained, reasonable goals and expectations can then be set. These points should be continuously re-evaluated until a winning formula is established.
Bringing a building up to full occupancy and keeping it there, is never an easy task. However, by utilizing this checklist, chances are that the path to success will be that much easier.

I hate shopping. For me, the ability to purchase things online goes down as one of the greatest phenomena of my lifetime. I don’t have to schlep through stores or circumvent big crowds and I can have things delivered right to my doorstep within days? Sign me up! Based on the high–and rapidly increasing–number of vacant retail spaces, it seems many Americans agree with me.

There is no denying the fact that the internet has permanently changed retail forever. As convenient as internet shopping is, however, part of me aches for the shop owners who dreamed of starting up their own store and poured tons of money and time into making their dreams come true.

Here I go dating myself again, but in my youth, there was no internet. Sure, you could order things from a catalog and have them shipped to you but by and large, if you needed to buy something, you went to a store. Malls, department stores, and retail centers everywhere were thriving. Today, legendary brands such as Sears, Kmart, Toys “R” Us, Radio Shack, JC Penny and Carson Pirie Scott (after 160 years in business) are shuttering a significant number of locations or disappearing completely.

The one that really hit home for me was Toys “R” Us. I used to take on whatever odd jobs I could find around the house or in the neighborhood and diligently save up my allowance so I could visit this kids’ utopia and buy video games (on floppy disks!) for my Commodore 64 computer (which was the greatest gaming computer of all time, but that is an argument for another day). Sure, the games were tons of fun to play, but just getting myself in a position to even go to Toys “R” Us was an accomplishment to be proud of and helped teach me the value of hard work.

Now, store owners are facing a dire call to either adapt to the times or find a new line of work. In order to draw customers, retailers need to present an “experience” and a reason to leave the house. These days, it isn’t unusual to see stores add coffee shops, wine bars and interactive events such as live demonstrations and classroom sessions. This is what it takes today to attract crowds and once they come, people will theoretically want to spend their money.

With retail vacancy rates approaching historic levels, landlords have been forced to change direction as well. Big box closings have left massive holes where anchor tenants once dominated. Today, there is less focus on filling these spaces with other big box stores and more emphasis on creating smaller sized spaces for such uses as restaurants, movie and entertainment venues, health clubs, grocery stores and medical clinics. Investors now seek out retail centers that are “internet-proof” and tenanted with users that cannot be threatened by e-commerce. In fact, in some cases, Landlords are even having to go way outside of the box and convert old big box stores into co-working facilities, office space, distribution centers, hotels or residences. All options are in play moving forward.

Downtown Chicago is a convenient microcosm of what is happening nationwide. The old Carson Pirie Scott Building on State Street is now a landmark office building, anchored by Target on the ground floor and a loft office conversion for the upper floors of Macy’s on State Street is up next.

Even the locations that have traditionally been as good as it gets in terms of visibility and obtaining high rents are no longer a slam dunk. Crate and Barrel, which once dominated a five-story building on Michigan Avenue, is out and a completely new Starbucks experience will take over. Their “roastery” concept will far exceed a typical store and genuinely be interesting to visit. While a company like Starbucks can pull this off, it is fair to wonder how many more retailers can develop a similar experience of this magnitude and be able to afford the rents these locations command.

As shopping experiences evolve, expect more and more of the classic stores to go by the wayside. Tenants will need to get more imaginative and give customers a reason to get away from their computers and phones. As we have learned, in all branches of real estate, change is the only constant. So, what will the new generation of savvy retailers create in the next retail revolution?

I can still see the poster hanging in my third-grade classroom: “Listen and silent have the same letters for a reason.” At the time, I thought it was a teacher-way of saying “lights off, voices off”. Fast forward to today, and I now know the poster meant a whole lot more.

Almost all of us talk to people every single day, but dare I say that very few are good listeners? It turns out that listening takes more than just being silent.

So, what does it take to be a good listener and why is it important? Here are 4 things I’ve learned and try to keep in mind:

1. Listen to get out of the small talk rut
“How’s business? How ‘bout this weather we’re having? How ’bout them Sox/Cubs?” Those are good openings, but take it bit further and ask a follow-up question. “What are you looking forward to this month?” “What season is your favorite?” or “How long have you been a fan?” People generally like to talk about themselves. Learn something, remember it, and mention it the next time you see that person. They’ll appreciate you paying attention.

2. Listen and don’t make it about you.
I was talking with one of my friends recently about a problem. By the end of the conversation, I realized our roles had flipped and we had started discussing her similar problem and I became the one listening and giving advice.

When someone is talking, remember: It. Is. Not. About. You. Yes, it’s good to offer relatable points or a similar story if it can help. But listening means you must take a genuine interest in the other person rather than finding ways to make you seem interesting to them. Leave your ego at the door.

3. Listening means you don’t talk. Aim to speak for no more than 90 seconds at a time (unless your point is particularly riveting)
I love my grandma. We all love her. But we know when we get her on the phone, it is going to be a minimum 8-minute straight monologue. I remember a time my dad was talking to her on the phone, fell asleep, woke up some time later and she was still talking, completely oblivious. As much as we enjoy hearing about the “good, fresh, bread” she got on sale (plus she had a coupon, and it was 5% off day because her friend Linda told her about the senior discount last Saturday when she was over at her house to watch the Wild game), it’s nearly impossible to have a true conversation with her. For grandmas, it works. For most of the rest of us, it does not. Be conscious of how the people you are talking to are responding. Conversation is a dialogue, not a monologue.

4. Listen to discover what’s expected of you during the conversation
When I call my dad with a problem, I preface by saying “I just want to get this out” or “I want your help, you can give advice when I’m done”. It’s important to understand your role in listening–what does that person expect from you when they’re done talking? If you’re not in a place for the person to spell it out as clearly as I do for my dad, pay attention to their cues and figure out if they just want a pair of ears or need some advice. If they break in their conversation, say “mhm” and give it a few seconds. If they start back up, they probably just want to let it all out.

I thought grownups had it all figured out, yet it can still be painful for me to go to events where I know I will be faced with hours of small talk and conversations that don’t do anything to grow a relationship. I love connecting, I hate small talk. But I’ve learned that, in the beginning, some of that small talk is necessary. It doesn’t take much more than a good listener, however, to take that small talk and turn it into slightly larger talk.

In case there was any remaining doubt, my youth has officially ended. That was my first thought after learning this week that The Loop, one of Chicago’s most iconic radio brands ever, announced that it was selling to a Christian broadcasting company and changing formats after a remarkable 41-year run. The Loop was not just a radio station, it was an institution. It epitomized the fabric of Chicago: edgy, in-your-face, hardworking, rocking-with-attitude, and having a ton of fun along the way.

I have always been somewhat of a radio junkie and during my formative years, The Loop played a huge part in shaping my life. The same is probably true for many people who grew up in Chicago from the late 1970s through the 1990s. Almost everyone in my neighborhood used to walk around wearing those legendary black and white Loop T-shirts and raid the Flip Side record store for free Loop bumper stickers—the same stickers that were plastered all over my bedroom, much to the chagrin of my parents.

The legendary black and white Loop t-shirt

Every male’s first crush was on Lorelai, the Loop rock girl, and we all acquired a healthy hatred of disco, courtesy of Disco Demolition. Not only did The Loop launch my love of rock & roll music, but it was also my link to the older, cooler kids. Our affection for the station was a common bond that helped me gain acceptance into their crowd.

I felt like I was part of an exclusive club, listening to things I clearly had no business knowing about at a young age. Since there were no podcasts or on-demand services back then, I would rush home from school every day to listen to Steve & Garry, as I did not want to miss a single word. To this day, I am convinced that I learned more from listening to this station than from my classes.

While legendary disc jockeys such as Bobby Skafish, Sky Daniels, Patty Haze and Bob Stroud were spinning tunes, the true game changer for me was when I first heard Jonathon Brandmeier in the morning. I would think, “Wait, can you really say and do these things on the radio?” Jonny B’s show was simulcast on the new Loop, AM-1000, which was a personality-driven talk and entertainment station unlike anything ever on the airwaves. Who knew talk radio could be funny? Talents like Steve Dahl, Garry Meier, Kevin Matthews with his alter ego Jim Shorts, Buzz Killman, Bruce Wolf, and Chet Coppock comprised arguably the greatest radio station ever.

Even after a series of events caused the AM Loop to break up, the FM Loop kept going strong. As the commercial said, you can’t stop rock & roll (shout out to Joey Bag of Donuts)

While these days I prefer to Hit ‘em with the Hein on Sirius XM due to the sad state of Chicago radio (a blog for another time), I would still listen to the Loop whenever I needed a classic rock music fix and it was always reassuring to know the station was there.

In its own special way, the Loop was as much of the fabric of Chicago as the Bears, Michael Jordan, Wrigley Field, The Mag Mile, Lake Michigan, and so many of our amazing skyscrapers along the beautiful skyline. Just as 233 South Wacker Drive will always be the Sears Tower, 875 North Michigan will always be the John Hancock Center and Macy’s will forever be known as Marshall Fields, FM-98 will always be the Loop to me no matter what is broadcast over its airwaves. Long live rock, Chicago and the Loop.

Since I started doing a monthly blog for our company website and the Intelligent Office Blog in 2015, I generally have been successful in coming up with topics fairly easily. This month? Not so much.

I have piles of random thoughts rolling around my mind–some commercial real estate related, some not–but none detailed enough to pull off a 500+ word article. Therefore, out of desperation if nothing else, I hereby present to you a series of arbitrary ideas, points, and opinions. Let’s call this “Random Thoughts For February.” Away we go.

• Anyone else get thoroughly confused/annoyed when someone calls, emails, and texts you the exact same message within a 30-second span? And then why do I always seem to pick the wrong means to respond?

• When given a choice, I will always select a small, local business over a national chain to do a job. Us mom-and-pops need to stick together.

• A personal message to several individuals who own real estate in the downtown Chicago market: Why is it so hard for you to keep your word? If you sign a commission agreement committing to pay someone by a certain date if a series of events transpire, follow through on your promise. I did my job, now you do yours. When one of your tenants is late with rent, you put a 5-day notice in front of them on day 6, yet when I inquire about a tardy commission payment, I need to be more patient and show more compassion. Of course I do.

• For those owners who do keep your word, I appreciate you more than you will ever know.

• I used to like cold weather and snow. As I get older, I dread it more and more each year. I now understand the snowbird concept.

• Charleston, South Carolina is the most underrated city in America and has the best food on the planet (with the exception of pizza). My next career move will be to retire there and open a Lou Malnatti’s franchise.

• If I get something for free, I really have no right to complain about the service, do I?
• For my money, there is no nicer building in Chicago, from the outside (and in the lobby), than 77 West Wacker. It is a true masterpiece and I never get tired of staring at it.

• I no longer feel guilty when I bump into someone who has his or her head buried in their phone, not paying attention to where they are going. Just watch where you are walking! It is not too much to ask.

• Along the same lines, to the person at Ogilvie Transportation Center this morning who thought it would be fine to stop inches in front of a revolving door to send a text with at least 40 people trailing close behind, get a clue.

• Anyone know a broker looking to make a change? Willard Jones Real Estate is looking for a few good people to join our gregarious team.

• While I love everything about Amazon, can you please make a second headquarters decision already.

• No, Mr. Tenant, I did not secretly insert language into the lease that you signed 3 years before I even started representing your building without your knowledge.

• It takes very little effort to be nice to others. Just treat people the way you want to be treated and you can never go wrong.

• Am I a fool for starting to get excited about the possibility of the Loyola Ramblers making the NCAA basketball tournament, or am I just setting myself up for another disappointment? My motto of “no expectations = no disappointments” has always served me well with LU basketball (not to mention the Bears, Bulls, Hawks and Sox).

• I really need to find a way to get more sleep.

Finally, my most important thought of all. The real estate world lost another superstar recently when Cindy Freese of the Cloverleaf Group passed away in December after a heroic battle with cancer. Cindy, along with her business partners Michael and Jonathan Basofin, will forever be towards the top of my favorite client list. Cindy was one of the nicest people you will ever meet and was always more concerned about others than herself, even after her diagnosis. Before talking business, she never failed to ask for a status report on me and my family. Cindy was a deal maker at heart, always trying to find any and every creative way to shoehorn a potential deal into the 174 North Michigan building, which to be honest, was not an easy task. Even though my dealings with Cindy ended when Cloverleaf sold the building in 2015, we continued to stay in touch and I am heartbroken to learn of her passing. I will always fondly remember how wonderful Cindy was.

Happy New Year! As we dig into 2018, it is time once again to pull out the crystal ball and predict what events lie ahead. Before we start, let’s look back and see how I did in 2017:

1) With the increased supply caused by new construction and resulting shadow and sublease space, the total vacancy will rise by approximately 1.5%. Close. It actually went up 2.3%.

2) Average rents will increase slightly in the first half of 2017, then begin to plateau for the second part of the year. Average tenant improvement allowances, rent abatement, and other incentives will remain about the same as last year. Generally true.

3) The Old Post Office will land a significant anchor tenant who will occupy over a quarter of the building. Other smaller tenants will commit as well over the course of 2017, as this notable redevelopment becomes a quick success. Not yet. Could Amazon be the first and only?

4) The bloom will be off the Fulton Market rose just a bit, as several of the new office buildings either planned or under construction will struggle to fill space.This will lead to a slowdown of new development projects for a while. Wrong. Not only is the space briskly being filled, even more buildings are planned.

5) The sales market will remain quiet for most of 2017. In the fourth quarter, however, things will begin to loosen up just a bit and price expectations will be dialed back a notch. This will allow for some of the investors who had been sitting on the sidelines for the past few years to start getting back in the game. The market did remain relatively quiet for much of the year, but there has been no loosening up yet.

6) Just when we thought Loop office development would be on hiatus for a few years, the market will be shocked by one more announcement: a new tower located on the General Growth site at 110 North Wacker Drive to be anchored by a well-known, Fortune 500 tenant who will take occupancy in early 2021. Yes! Thanks, Bank of America for making me look good.

7) In spite of the planned redevelopment of the Tribune Tower, CIM Group will decide to keep floors 3 – 7 for office use and sign WGN Radio to a long-term lease. As part of the new deal, they will be forced to abandon their ground floor studio, which will be leased to a national retailer for $300 per square foot. Wrong. WGN is off to 303 East Wacker and development plans for the Tribune Tower have yet to be announced.

8) Leasing activity will remain slow in Goose Island. However, the city will announce a series of notable infrastructure improvements that will make this sector much more accessible to prospective users long term. Success will come, just not as fast as most hoped. Activity did remain slow, but the infrastructure improvements are still in the discussion stages.

9) As part of the City of Chicago’s astonishing decision to legalizing sports gambling, plans will be announced to construct a land-based casino on the site of the former Michael Reese hospital, kicking off a billion-dollar development which will include hotels, retail and housing. Wrong, but still a good idea.

10) Let’s try this one once more: A grocery store will sign a lease in the East Loop this year to cater to the rapidly growing residential population in the central business district. Still, no. I am giving up on this one, which means it is certain to happen in 2018.

Overall, not too bad. Can I top my performance in 2018? Here are my best guesses:

1) The market will keep marching forward at a slow and steady pace. Average rents will remain consistent with 2017 levels. However, modest vacancy increases will help put tenants on a more level playing field as and might even lead to an advantage in certain circumstances. For the most part, though, we will be at equilibrium.

2) Sales activity will start to slightly pick up towards the end of 2018 due to lowered seller expectations and prices creeping downward. Those who have been sitting on the sidelines will start to get back in the game.

3) The Tribune Tower redevelopment plans will be announced and feature luxury apartments on the upper floors and a hotel on the lower half. The first two floors will be leased to a significant (and surprising) national retailer which will continue to accelerate the shift in retail activity towards the Chicago River and Millennium Park.

4) As part of the ongoing Willis Tower renovation, Willis will give up its naming rights. Will the Sears name be restored? Nope, instead, the building will be rechristened after its largest tenant. Welcome, United Tower.

5) No new office developments will be announced, as there is more than enough going on now to satisfy every tenant currently in the market for the next few years.

6) After being declared a finalist, Amazon will ultimately not select Chicago for its HQ2. Atlanta will be declared the big winner.

7) As a strong consolation prize, Chicago will attract a significant corporate headquarter that will relocate here from another Midwest city. This tenant will become the anchor of the Old Post Office.

8) With Amazon out of the picture, Goose Island, the River District, and believe it or not, Fulton Market will struggle to find tenants. Of course, Lincoln Yards will not, because Sterling Bay.

9) Plans will be announced to shut down and demolish the Thompson Center by the end of 2019. No firm redevelopment plans will be announced and the site will end up sitting vacant for an extended period of time. However, the State of Illinois’ search for new office space will provide a nice little boost to the market towards the end of the year.

10) Take two on this prediction. Spurred on by the legalization of sports betting, plans will be announced for the former Michael Reese Hospital site to be redeveloped into a casino and entertainment complex…… which will include a grocery store.

Best wishes for a happy and prosperous 2018!

2017 has certainly been a year for the ages. In spite of all the controversies and uncertainty, the downtown Chicago commercial real estate market kept chugging along at a solid pace. While not quite as active as the past few years, vacancy remained relatively low and rental rates and sales prices continued to push upward. Let’s look back on the top 10 events that made this past year interesting.

10. Macy’s Shedding Space – After years of speculation, Macy’s finally announced plans to downsize their iconic State Street department store. Brookfield Asset Management is redeveloping floors 8 – 14 and while their plans have not officially been announced, it is expected that they will convert these 700,000 square feet into loft office space that would be accessed by a newly created office lobby.

9. The Old Post Office Returns to Relevance – As one drives down Congress Parkway, it is a wonderous sight to watch this hulking edifice gradually come back to life after nearly two decades of dormancy. The renovation is now in full swing and the building is actively courting tenants with their plans for a high-end amenity package, creative atmosphere, and all new finishes.

8. Changing Face of Retail – E-commerce is forcing retailers to offer their customers an enhanced shopping experience as an attempt to get them offline and into stores. Those who cannot adapt will not survive and this metamorphosis is being illustrated on the Mag Mile, which has unprecedented availability as several notable retailers have already–or are looking to–vacate. Crate & Barrel is one example, as it will soon be replaced by a gigantic Starbucks Roastery which is expected to be just as much of a museum as it is a store.

7. The Ever-Growing Boundaries of Downtown Chicago – Move over Goose Island and Fulton Market, it’s time for some new hot spots. Riverside Investment & Development and Tribune Media are teaming up to create the River District, a 37-acre site at 700-777 West Chicago Avenue–right where River North, River West and Goose Island all come together. This site will feature as many as 18 mixed-use buildings totaling 9 million square feet, as well as a river walk. Not to be outdone, Sterling Bay’s Lincoln Yards development will create a 70-acre mixed-use site along the North Branch of the Chicago River where Lincoln Park and Bucktown meet. In addition to office, retail and residential buildings, a soccer stadium/concert venue is planned.

6. Still No Slowdown in Fulton Market – Just when it seemed like there was nothing left to develop, Fulton Market kept churning out new deals and development plans. Notable leases in 2017 include WPP committing to over 250,000 square feet in a planned 24-story Sterling Bay Development at the former Coyne College site and Leopardo Construction leasing a full floor at the soon-to-be-completed 210 N Carpenter building. Among the plethora of development plans announced include IBT Group’s proposed 1.2 million square feet of office, hotel and retail tower at 1200 West Fulton, as well as Shapack Development’s 17-story office development at Lake and Halsted.

5. Media on the Move – With the Tribune Tower redevelopment project approaching, two of the most legendary media empires, the Chicago Tribune and WGN Radio are being forced to relocate. Tribune Media is off to the Prudential Building, while WGN is heading to 303 East Wacker. Not to be outdone, the recently-acquired Chicago Sun Times vacated their riverfront location at 350 North Orleans and headed west to Fulton Market, setting down roots at 30 North Racine.

4. Welcome to the Skyline – After a lengthy break from new development, 444 West Lake and 150 North Riverside opened and welcomed an all-star cast of tenants, creating a chain reaction of new vacancy in some highly desirable properties. Adding 151 North Franklin and 625 West Adams to the mix in 2018 may very well push the pendulum slightly to favor the tenant when it all shakes out.

3. The Biggest Gets Better – A $500 million dollar-rehabilitation of the Willis Tower is now underway and will feature a new, three-story glass retail structure on the lower floors, three additional underground floors, restaurants, a fitness center, tenant lounges, 30,000 square feet of outdoor space, and upgrades to the common areas and Skydeck.

2. Even More Development – Just when it appeared as if this current development cycle had concluded, Riverside Investment & Development and the Howard Hughes Company jointly announced plans to erect a 1.35 million square foot office tower at 110 North Wacker Drive–the current site of the low rise General Growth Properties building. Bank of America has been confirmed as the anchor tenant and will be occupying approximately 500,000 square feet when the building opens in 2020.

1. HQ2 Fever – The possibility of Amazon choosing Chicago as the home for their second headquarters has rightfully dominated the news for the last quarter. The fantasy of gaining up to 50,000 new jobs, along with ancillary development, economic growth, and the national attention it would bring to Chicago could go down as the most meaningful event to ever transpire in our city. Between the speculation over where the site would be located (Old Post Office? Fulton Market? Lincoln Yards? River District?), to trying to figure out what incentives the city and state have offered, it has been fun to wonder.

There you have it. What is in store for 2018? In my next blog, I’ll let you know what I predict to appear in this annual recap one year from now. Happy Holidays everyone!

Think back to the last time you shopped around for an apartment. Likely, the process was straight-forward and to the point: figure out your budget, pick a neighborhood, set aside a couple of days to tour, select a place you like, fill out the application, then sign a lease for a year or two. Apartment units are generally well-maintained and move-in ready, so there was probably no talk of demolishing or constructing walls, re-painting with wild colors or replacing carpet. The goal was to get in there fast and make it work.

Now, let’s contrast this with searching for office space. Traditionally, it is a much more cumbersome process which can easily drag on for many months. Since office leases are usually a longer term and greater in value, more time is spent searching for just the right space, negotiating every deal term, and constructing the space to the tenant’s exact specifications; that’s the way it has been done for years. Recently, however, it appears that we are on the cusp of a fundamental shift in the way businesses office.

Millennial attitudes and expectations now place greater emphasis on flexibility, move-in readiness, and amenities. What does that mean for the next generation of office space? For example, let’s look at a tech firm. While the company is starting up, co-working space will serve their needs well. The firm can walk into a building with pre-built, move-in ready suites, standardized layouts, and the option of furniture in place. It is only logical that at some point, though, that business will want to take the next step up from co-working space and graduate to a private, autonomous atmosphere.

Rapid growth in co-working space for smaller-sized tenants combined with larger office buildings adding common amenities at a robust pace is putting pressure on office buildings to become a hybrid of office space, apartments, and hotels.

Attentive landlords have caught onto this trend and have already started creating small and mid-sized prebuilt offices positioned as both an alternative to shared office space as well as an option for young companies who have outgrown the co-working model.

To facilitate this new approach, expect to start seeing even more buildings demise larger-sized suites into smaller units ranging from around 1,000 to 10,000 square feet, and molding them into a move-in ready state. These smaller suites will be designed for shorter terms, likely 3 years or less, which will fit right into the desired strategy of the new era business model. By breaking up larger sized suites into smaller units, buildings will not be as devastated if one is vacated, as compared to a situation where a large tenant moves out and leaves a building half empty. Landlords will benefit because these types of spaces often lease quickly and at higher rents, as tenants have demonstrated a willingness to pay more in exchange for flexibility.

If the system is functioning, turnover costs are less, as tenant improvements will not be required each time a space changes hands and only some elementary redecorating will be needed every few years. If a tenant moves out, another should come along and fill it shortly thereafter, just like an apartment.

The hotel component comes in with the amenities, many of which are offered by the co-working providers. These features include things like shared conference facilities, w-fi lounges with big screen televisions and gaming, food service onsite, fitness centers, rooftop decks or equivalent outdoor space, bike storage, ability to bring dogs into the building, and concierge service. Having a plentiful supply of shared elements makes tenants even more willing to go along with the standardized layout approach for their office as they are buying into the entire package offered by the building, not just the space.

While news and statistical analysis of the office market mostly made up of large tenants who work in Class A properties, small and mid-sized users have always been the lifeblood and will be the ones to lead the thrust into the next generation. While there are now and will continue to be certain types of tenants—law firms and medical tenants, for example—who will have no interest in this type of arrangement, technology, media, creative-oriented firms and nonprofits will continue to propel this fundamental transformation.

Tenants no longer want to wait 6 to 12 months to find a space, take time to execute a lease, and build it out. In a world of Amazon prime and same-day grocery delivery, the demand for getting things now has increased in all areas and office space is no exclusion. Change is the one constant in real estate and perceptive landlords who are willing to adjust to the market demand and stay ahead of the curve are the ones who stand to benefit the most as we move into the next decade.