Architectural Observations: A New Perspective from The Art Institute of Chicago

Memorial Day Monday gave me a perfect first opportunity to visit the recently opened Modern Wing of The Art Institute of Chicago. How lucky are Chicagoans to live in a city with a rich civic awareness supported by its citizens who share that vision and benevolently contributed to the contribution of this new wing.

As incredible as is Renzo Piano's design, the ability he has afforded all visitors to this masterpiece of contemporary museums so is the view from the galleries that face north in capturing a vision of architecture that spans from Michigan Avenue to the Lakefront. It is filled with gems such as One and Two Prudential Plaza, The Aon Center, the Smurfit-Stone Building all serving as a backdrop to Millennium Park and Jay Pritzker Pavilion.

Perhaps this is the final surprise that is not mentioned in the museum guide but certainly is the grandest “architectural gallery” of modern architecture to be found anywhere on the globe.

For this reason, people will continue to be drawn to live in Chicago and work in these architectural masterpieces. The future of commercial real estate in Chicago lies within the walls of these buildings as job creation will result in re-stimulation of Chicago’s real estate economy.

Hopefully, some members of the Olympic selection committee will see this spectacular "architectural gallery" and understand why this culturally diverse, world class city deserves their nod of approval in October.

Chicago: Are We About to Emerge From The Doldrums?

Wikipedia explains "the doldrums" as a reference to being in a state of listlessness, despondency, inactivity, stagnation, or a slump. Sound familiar? It surely is representative of our economy and the last six months in Chicago Metro real estate.

I would hazard to guess that most of our existing, or potential new clients, have felt just like the sailors of old, stranded in a calm, waiting for the winds of change to rise once again, so they can begin to see the skies clear, and offer a glimpse of hope to guide them back on course.

There are signs of “clearing skies.” The Dow has grown from 6500 to surpass 8000 in just the last thirty days, usually a harbinger of a recovering economy. During that same time period, companies that have sound fundamentals, and a recent and proven track record have also shown comparable growth in their share value.

The developer, Hines Interests LP’s apparent decision to postpone a planned 50-story tower at the northeast corner of Lake and Canal, has created an opportunity for high-rise building owners to compete for that tower’s planned tenants, a scenario that would reduce the current inventory of available space in the Central Business District.

Michael Burgess, a British author, was once quoted as saying, “I have also believed in empowering the individual and believe there is a degree of inertia in big government that hampers the ability to respond to a rapidly evolving crisis.”

Those same empowered and insightful individuals will see this “clearing of the sky”, and recognize that the economic slowdown we are experiencing will constrain near term new development. As already planned current developments are delivered with significant pre-leasing commitments, we will see less inventory and opportunities for rental rates to continue to deteriorate. History, coming out of previous recessions, supports this theory.

Accordingly, this is a very good time to make those bold real estate decisions, be a decisive tenant, secure an array of current opportunities, and have one less decision to make as the economy continues to make its recovery and your business can take advantage of the “economic bounce” and get back on course, singly focused on growing your business, with that real estate decision behind you.

Chicago: Dark Storm Clouds Always Have Silver Linings

As the Dow Index dipped below 7000, so did the majority of consumers’ confidence and expectation for an early bounce back and return to economic recovery, especially in our own real estate industry.

However, yesterday was also one of the most special days in my personal career, and also for all my colleagues, as we were recognized as the number one firm to work for in Chicago. It is each individual that makes the difference.

As the reporter, and his camera man who visited with us noted: “With all the dismal news we report upon these days, it is gratifying to have one story to report that is positive, and be surrounded in an environment where smiles were predominant.”

Small successes will start to filter through, and just as in four previous, major recessions, it will be the small business entrepreneur who will frame the recovery with their clear vision of opportunity.

I do believe we will start to see, as early as the second quarter of this year, the genesis of many new small firms. The majority will emerge from the demise of some large, well established organizations, that in many instances lost that innovative, and easily adaptive business model that earlier was the basis of their creation and growth.

In one of my early blogs, I discussed the value of smaller footprint Chicago buildings – the ones that are most suited to giving start up firms a prominent identity on a floor.  The second opportunity will come from sciences and technologies we can’t even comprehend today, but they will derive new industries, and a need for office, industrial and related commercial space.

Today, think smaller – those buildings will be the first to come to the investment market, and help to re-establish a pricing model, and this is a great time for a small floor plate building owner, to look at their product as a new competitive advantage, and capture the next wave of growing tenants.

Chicago: So How Will a Trillion Dollars Be Put to Good Use?

Don't you wonder what will be the lasting accomplishments of the federal stimulus package? As well as the intended and immediate impact on individuals? I believe it could greatly enhance the economy of states that agree to strategically allocate their respective share. Today, we discuss stimulus packages not in hundreds of millions but in hundreds of billions and even a trillion or more dollars.

I advocate using a fraction of those billions to statewide and nationally endorse Chicago's pursuit to host the Summer Olympic and Paralympic Games in 2016. Let's use a tiny fraction of those available billions to significantly impact our bid pursuit with a goal to immediately stimulate the Chicago economy through job creation, urban renewal, infrastructure repair and for our own industry to create a new demand for office space.

It is long passed that an Olympic event is only a city event - let's look at Sydney, Beijing, Athens and in 2012 - London. Each one of those had or will have their full government support. This is no longer just a seventeen day event for a global television audience. In 2016 it is an event that will begin generating global traffic through forward planning by the world's travel and sport industry and media, establishment of each participant country's outpost offices, and job creation that will commence this fall with the announcement of the host city.

Is there a current better business use for a few billion of those stimulus dollars? Is not infrastructure and job creation the single most important goal? My good friend Ron Harvey, Vice President of the Australian Olympic Committee, talked to an audience of Chicago business leaders, less than two years ago, about how Sydney benefitted from seven years of build-up, seventeen days of unbelievable free global exposure, and now continues to evidence many years of vibrancy from the transformation of the Olympic Village into a residential and business community.

Long have we believed that Chicago is not a second city to anywhere but actually a world class international gateway. Just a few billion of those very accountable dollars can help us elevate this bid into a powerful challenge. It should not be overlooked that the world applauded America's choice of Barack Obama as our President, who just like Tony Blair and London would be supportive of his adopted home town winning the 2016 award. So many times, billions of tax dollars are unaccounted for on pet projects with little or no impact. If we are awarded these billions then they do need to be accounted for, but they will also have a tangible immediate impact on the region and not just Chicago.

Lend your support to Pat Ryan, Mayor Daley and Chicago 2016.

Chicago's Past Will Seed its Future

Welcome to the first edition of my blog that will be addressing real estate issues and shared perspectives on Chicago.  I do intend, in future editions, to include discussions, not only with my colleagues, but also with respected Chicago real estate icons, on their perspective of this current economic cycle, and its effect upon our commercial real estate marketplace.

 

I was reminded yesterday, during a visit to 35 East Wacker Drive, what a world class, and architecturally diverse city Chicago truly is, and how pleased I am that it became my choice for a new home and extension of my career in the winter of 2000.  As I looked north out of windows I saw the contrast between the Wrigley Building and the representation of 21st century modern architecture, as defined by the Trump Tower, a significant new addition to our unique skyline. I then looked east to another part of our architectural history defined by the Carbon & Carbide Building.  The multiple choices of where we can live and where we work will continue to make Chicago a choice that is second to none in US cities.

 

Yes, we are in a period of great adjustment that may well have started in the housing and financial sectors, but by the time we reach the bottom of this current cycle it will have touched upon every type of industry, and perceived real estate fundamentals will once again be significantly changed.  However, after spending my entire career in this industry, spanning three world-class cities, Chicago, San Francisco and London, transitioning through at least four recessionary periods, I have always felt we significantly learn from these downturns, and install new adjustments to our fundamentals.  I am never more convinced that there are many more smart people than fools, in our industry who quickly adapt to opportunities presented to them, and we will once again see the harvesting of those opportunities in the next few years, based upon the folly and greed of a few.

 

The incidence and change in up and down cycles appears to be happening more frequently, and those that plan for the worst will be positioned to regain momentum quickly as the cycle once again turns.  It is my belief that Chicago has many of the fundamentals to weather this latest severe recession.  It is truly a 24 hour city with a great transportation network and diversity of industry sectors.  Chicago is geographically a hub for commerce and a regional draw for higher education.  Back in the early 80's I read that the cities that will survive, and thrive, into the next millennium will be centered around an urban 24 hour appeal, and house leading centers of higher education that replenish the need for skills of new industries.

 

I also believe that we have a discipline, maybe for the first time in twenty years, on the supply of new commercial buildings in the foreseeable future, all of which support less of an imbalance in supply and demand. 

 

In future blogs I intend to address some interesting subject matters:

 

- How soon will we see a convergence of revised pricing and availability of debt to stimulate our current and dormant investment sales market place?

- What type of product would you most like to own today– a high rise on

Wacker Drive or a building with smaller floor plates in the central loop?

- Will the next few years see a tenant driven marketplace or one that it focused upon renewals, for shorter terms, in their existing buildings.

- Do you believe in the importance to the recovery of Chicago by hosting the 2016 Olympics?

- How does Chicago attract more corporate relocations?

- How much of our recovery will be fueled by small business, and the spin off of talent from fallen companies that have yet to be identified?

 

This will be more interesting if I can attract your input – you live and work here, and each one of you can have an impact of this city’s future real estate viability – I look forward to sharing your viewpoints on the future of our industry.