Browse Tag: Chicago

Adaptive Reuse: From Newspaper Printing Plant To Data Center

picture of QTS Chicago data center
QTS Chicago Data Center.

Gail Kalinoski’s piece in Commercial Property Executive focuses on a big adaptive reuse story in Chicago. At 317,000 SF, the Chicago Sun-Times newspaper built for the future, but not the future of newsprint.  Its printing presses fell largely silent and its need for logistics fell away as demand for daily news printed on paper was obliterated by the world wide web.

Built in 1999 and shuttered twelve years later, the facility is seeing new economic life ironically by giving shelter to the very technology that closed the property at first. The plant is now a thriving data center, still dedicated to distributing information, albeit bits and bytes.

Owned by QTS Realty Trust, an international operator of data centers, the building went through a reported $80M retrofit to make the conversion from distributor of dead trees to modern computing marvel:

The first phase has been completed and features 48,000 square feet of raised floor and associated critical power. When fully developed, the building will support a total of 133,000 square feet of raised floor encompassing 24 megawatts of power. QTS said it has the ability to add 213,000 square feet of raised floor and 32 megawatts in Building 2 for a total of 346,000 square feet of raised floor and 56 megawatts of power within the campus at 2800 S. Ashland Ave.

The company is planning an open house on July 15 to showcase the Phase One completion.

“We are pleased to formally open our new Chicago data center that extends our platform delivering a broad selection of integrated IT infrastructure services for Chicago and nationally,” Dan Bennewitz, COO of sales and marketing at QTS, said in a prepared statement. “We are focused on a collaborative, high-touch enterprise approach serving the dynamic needs of today’s agile enterprises seeking a partner that can right-size flexible and scalable IT solutions for today and tomorrow.”

McDonald’s HQ Set To Return To Downtown Chicago — On The Site of Oprah’s Studio

Harpo Studios, headquarters of talk show host ...

Crains Chicago Business reports that McDonald’s corporate HQ is bugging out from its sprawling suburban Oakbrook, IL campus back to a locale it once called home — downtown Chicago.  The reasons seem to stem from the classic reverse-migration of white collar workforces from suburban enclaves to metropolitan districts. Beyond that, the fast-foot behemoth’s business woes might play a role in the decision as well. From the Ryan Ori and Peter Frost piece in Crain’s:

McDonald’s is in advanced negotiations with Sterling Bay to move its headquarters to well over 300,000 square feet in a structure the Chicago developer plans to build on Randolph Street, according to people familiar with the deal.

The office development is planned on Oprah Winfrey’s former Harpo Studios campus, which Sterling Bay bought for $30.5 million in 2014.

[…]

The deal comes about nine months after McDonald’s backed out in the final stages of a deal for more than 350,000 square feet at One Prudential Plaza near Millennium Park.

McDonald’s is believed to have considered several existing office buildings as well as potential new projects before settling on Sterling Bay’s redevelopment west of the Loop and the Kennedy Expressway in the northwestern edge of the West Loop.

After former Harpo buildings are demolished, construction of the new office building McDonald’s will occupy is expected to be completed by 2018.

Back For More CBD Magic

The McDonalds HQ move would mark a return to downtown, as the company headquarters once called home the 1930 LaSalle-Wacker building at 221 N. LaSalle, growing to occupy eight floors before moving to Oakbrook in the 1980s.

Super (Down)size?

Having visited the truly huge Oakbrook McDonalds HQ complex many times, what struck me immediately about the deal was its potential to represent a backdoor real estate downsizing for the company. To speculate: if the company moves 100% from its campus, currently arrayed around a four-story, 700,000 sqaure foot building, nothing in today’s news item suggests more than 300,000 square feet for the new location. That’s a haircut on space of more than 57%, which, if pulled off, should please shareholders on its face, as the burger giant faces strong headwinds globally and peak profits are well in its rearview mirror. All that said, the company’s full relocation plans, future employment levels and ultimate disposition of the Oakbrook campus are unknown at this time. It’s a story to follow for sure.

The Next America: Connecting All Neighborhoods to Opportunity

thenextamerica
Panelists discuss urban revitalization in Chicago on Wednesday.

Urban centers and national demographic trends are meeting to produce significant opportunities and challenges for commercial development. A panel convened this week in Chicago to face these head-on in a session that illustrated practical commercial development outcomes across Chicago, and showed how the future of cities – and real estate profit –  is tied to inclusion.

Sponsored by MasterCard, The Next America: Connecting All Neighborhoods To Opportunity put together a panel led by Chicago Mayor Rahm Emanuel to discuss commercial aspects of the demographic changes gripping the country:  by 2043, the United States is, according to US Census projections, expected to become majority non-white, a trend led by urban centers.  It means that to be connected to opportunity, a more broad list of neighborhoods urgently needs to participate in and benefit from commercial development.

Chicago is emblematic of these trends as it’s one of the most diverse cities in the US and serves as a kind of test laboratory for initiatives in neighborhood revitalization, skills training and big data.  It was heads of these initiatives who took the stage on Wednesday.

Where exactly are the opportunities? Finding them is about including the communities.

Community Meetings , Community Benefits

Many projects were discussed, but probably most characteristic of the event was developer and President of Chicago Neighborhood Initiatives David Doig, who told of his group’s purchase of the Ryerson Steel site in the Pullman neighborhood on the far South Side.  After buying, Doig’s team hosted “70 community meetings over a year” to find out what the neighborhood needed before building anything.  The top discovery was the area’s status as a retail desert.  “You had to go outside of the community to buy a pair of socks,” said Doig.  

The project also found a lack of indoor recreational space — rare for a city with such a robust Park District — along with a lack of affordable housing.  Doig said the project’s retail anchor – a Wal-Mart – attracted other retailers including a Planet Fitness and Ross.  Key to the Wal-Mart’s arrival was a commitment on the part of the retailer to hire from the community, such commitment obtained by Doig’s group in the form of written Community Benefits Agreements.  “80% of Wal-Mart’s staff were hired locally,” claimed Doig.

The entire two hour session is available on video here.  It’s a fascinating perspective and a reminder of the circular nature of commercial development: the performance and profits of commercial real estate projects more than ever have to be tied to the unique needs of the local communities in which such projects are proposed.

Commercial Real Estate News Roundup for Sept 17, 2014

Centre ville d'Atlanta, Géorgie, Etats-Unis

An Atlanta transit landlord goes vertical, avoiding the perils of studying the wrong thing, and Chicago’s River North celebrates its fifth decade of renewal.  Its’ all here in the Commercial Real Estate News Roundup for Sept. 17, 2014

General

Survey Finds Commercial Real Estate Executives Overwhelmingly Optimistic About Next Year, REIT.com, Sept. 12, 2014 –  Law firm asks its commercial real estate clients what the coming year will bring, explosion of exuberance results.

Commercial real estate professionals cite pension reform and taxes among Illinois’ most critical issues, REJournals, Sept. 9, 2014 – Even though the commercial real estate industry in Illinois gets pretty favorable treatment from tax set-asides like TIFs, tax cuts named near the top of critical issues in the state.

The Rise of Real Estate Tech, CityLab, Sept. 11, 2014 – Bits and bytes reach dizzying heights in Gotham.

Banks shed bad loans, but Chicago delinquencies highest in U.S., Crain’s Chicago Business, Sept. 8, 2014 – Chicago lags behind in the unwinding of troubled loans.

Office

Tech Turns Chicago Skid Row Into Top Market, BusinessWeek, Sept. 11, 2014 – Chicago’s River North renaissance since the 1970s era of post industrial blight is really something to behold.

Start-up looks to solve start-ups’ real estate problem, Baltimore Sun, Sept. 8, 2014 – Start-up starts up, stalls as it searches for office space, the turns its experience in to a solution.

Amazon files plans to build two more office towers downtown, The Seattle Times, Sept. 11, 2014 – Emerald City orders up two more downtown office towers from Amazon. No word if the free shipping option was used.

The victims of open offices are pushing back, BBC, Sept. 12, 2014 – A backlash is forming against the wall-free notions recently popularized in office layout trends. As it turns out, there’s benefit to focus and concentration.  Who knew?

Industrial

Tulsa’s available industrial space continues to decrease, Tulsa World, Sept. 9, 2014 – The 1963 Gene Pitney hit recording of Burt Bacharach’s “24 Hours From Tulsa” notwithstanding, the trip downtown is seeing a little more commercial traffic.

E-retailing Boosts Industrial Demand, National Real Estate Investor, Sept. 10, 2014 – One more bit of evidence of the seesaw where online retail’s disrupting of traditional retail means heightened warehousing and logistics demand.

Retail

How Gentrification Impacts Retail Development, GlobeSt, Sept. 12, 2014 – When the neighborhood heightens, the same old retail solutions just don’t cut it.

Broker eats up data on New York City’s ever-evolving restaurant, retail scene, Real Estate Weekly, Sept. 15, 2014  – Wherein a young man is rescued from a diplomatic career to become an expert on Manhattan’s retail property scene.

MARTA moves forward to build atop rail stations, Atlanta Business Chronicle, Sept. 15, 2014 – Air rights in Atlanta are the topic as a transit giant decides to go vertical.

Multifamily

Developers warn of multifamily glut in NJ real estate, North Jersey Record, Sept. 12, 2014 – Is New Jersey building too many apartments?  Some developers think so.

Apartments on the rise? Applications for multifamily projects jump 86 percent in Oregon, Portland Business Journal, Sept. 10, 2014 – Oregon’s residential real estate picture has lots of room for multifamily, says recent report.

Even with rising rents, apartment living dominates Omaha housing landscape, Omaha World-Herald, Sept 13, 2014 – Raising the rent in a market like Omaha isn’t the most common local trend among the secondary markets, but it sure is a welcome one for landlords.

Is Chicago’s Infrastructure Trust A Bust?

Chicago Skyway Tollbooths

When the now-embattled Chicago Mayor Rahm Emanuel announced, shortly after his 2011 election, his plan to create an infrastructure trust, the idea sounded pretty good — at first. When the details came out  — that the trust would be a private, opaque financing platform separate enough from government to not be beholden to public inquiry or FOIA requests — many privatization-weary Chicagoans braced for the worst. And why not? It turns out that so many Wall Street style “innovations” in real estate and infrastructure finance (the Chicago-style TIF comes to mind) do less to address civic need than they do to provide unaccountable disbursements to developers of already-desirable city land.

At the time, Bill Clinton characterized the idea as an “infrastructure bank”. But banks have one typical advantage that the Chicago Infrastructure Trust doesn’t: capital to allocate. As it turns out, far from a bank, the Trust is little more than a lightly-staffed financial innovation laboratory headed by a private equity guy. This is the lesson in a recent Crain’s Chicago Business piece, confusingly titled “Emanuel’s Infrastructure Trust Looks To Help Commercial Landlords“.  I say the piece is confusingly titled because it appears the “help” landlords can look forward to consists mainly of a tax hike:

Yet Mr. Beitler manages to keep expectations high by touting a $1.5 billion pipeline of potential deals, including a voluntary property tax assessment of commercial properties to pay for energy-related improvements. The trust is evaluating a dozen proposals totaling about $1 billion from 15 firms for the Property Assessed Clean Energy program, although not all those Pace bids will be accepted, he adds.

The trust’s slow progress is the result of several factors, including the novelty of a middleman trying to bring together City Hall and investment firms. Despite its hype, the trust is a small venture, financed with an estimated $1.5 million in city funds over its first two years (see the PDF). And the deals are difficult to do, with Mr. Beitler discarding more than a dozen proposals.

While the cash-strapped city’s need for “transformative” improvements in transportation and other infrastructure has not gone away, the trust has suffered from overly ambitious predictions.

“When the trust was set up there were certainly some high expectations set up for it,” says Peter Skosey, an expert on infrastructure finance and executive vice president of the Chicago-based Metropolitan Planning Council, where the trust’s board holds its meetings. “Many of those expectations weren’t warranted.”

So it’s an infrastructure trust, if you consider swimming pools infrastructure.  It’s an aid to commercial landlords – if those landlords aren’t paying enough taxes.  It’s a bank – but it has no money to lend. And it’s somehow a boon to the public – as long as the private equity deals are complicated enough and profitable for a very few.

Pretty innovative.

Commercial Real Estate News Roundup: June 5, 2014

 

The commercial real estate crowdfunding space gets…crowded, prime office space in Chicago fetches prices high enough that some are using the dreaded “b”-word, and speaking of high, what’s above your retail ceiling?  It’s all here in today’s commercial real estate news roundup.

General

Office

 

Industrial

 

Retail

 

 

 

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The New Industrial Midwest: Chicago’s South Side Data Centers

Chicago Skyline
Chicago Skyline (Photo credit: Frank Kehren)

Giant commercial properties built in the early 20th century to handle the business of an entire country — to bake its bread or to print its mail-order catalogs — don’t often age well.  They meet their end close to a century later with a swing of the wrecking ball.  Some, spared that fate, languish in blight, abandoned testaments to market forces long having evolved.

The industrial midwest has plenty of of these empty shells shadowing communities that once depended upon them for economic vitality.  But in Chicago, the local stretch of the rust belt that girds North America is  being reshaped by new market forces and the fiber optic cable they travel upon. The next industrial midwest is rising in the old one’s walls: data center retrofits.

Setting The Tone

The terrific development and history blog Chicago Patterns has been taking a long, photography-rich look at the city’s recent evolutions in its industrialized property base.  To get a sense of the potential impact of gut rehabs on such venerable industrial inventory as Schulze Bakery building, definitely check out John Morris’s coverage at this excellent blog.

A keystone of South Side data center development is the South Loop’s 350 East Cermak.  An eye-popping 1.1 million sq. ft. project at the very edge of the central business district,  owned by Digital Realty Trust, this new industrial center in an old wrapper is the second-largest consumer of electrical power, trailing only O’Hare Airport in kilowatt hours.

Once used to house the printing presses for the R. R. Donnelly company – the name that produced the Sears mail-order catalog to a growing nation – the facility still produces revenue by pushing words from point A to point B.  It’s just that this time, no trees are harmed in the process.

New Rails

The essential railroad links that drove Chicago’s commercial 19th and 20th century growth took advantage of the city’s geography and made it the hub for the United States.  Geography again looms large in Chicago’s 21st century renaissance, and for similar reasons of geography.  Where material traveled on rail through the town, data now travels on fiber optic cable through Chicago, the metro area that boasts the nation’s third-largest fiber optic capacity behind New York and Washington, DC.

That capacity means a competitive advantage: customers who pick a central location to host their data — their websites, their customer databases, their remote storage, their videos — enjoy the greatest speed of access.  This matters to everybody who clicks a mouse and waits for the page to load or refresh.

Not Especially Bubbly

With a whopping $550 million slated for near South Side data center projects, it’s instructive to note that capital constraints felt by many (if not most) commercial real estate sectors and specialties and locales seem to have far less effect upon Chicago’s data center development.  Some of this is undoubtedly chalked up to the psychology behind internet investment, which enjoys — perhaps more than any other broad type of investment  —  a benefit of the doubt and inclination toward enthusiasm.  The wider trend is approaching its third decade and has already outpaced its history.  Its lowest point – the 1999 internet stock bubble – is a distant memory more associated with specious branding plays and Super Bowl tv spending profligacy.

Today’s data center expansions and gut rehabs, on the other hand, have far more to do with infrastructure and logistics, making it a race to match capital to the raw demand of wireless services and devices.  Pets.com and sock puppets on TV have nothing to do with it this time around.  This time, it’s actual business.

 

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Chicago’s Central Business District: Capital Attraction Against Other Markets

IMAG0649Localism is inevitable sometimes in real estate. But when the topic is huge metro areas, at least some macro trends tend to hold up across different metro areas.  The flow of investment capital to Chicago’s downtown office market may not tell much about similar flows to CBDs in Dallas or to New York, but the ways in which capital is matched with office demand are worth study no matter what market you’re in.

This week’s Chicago State Of Office conference (follow the link for a description of the conference panel)  took a good look at the Chicago central business district’s sell and buy sides for office square footage.

Panel Moderator Ted Yi (Attorney with Quarles & Brady) asked how the state of Chicago’s and Illinois’s economy was afffecting its ability to compete with other markets.   Greg Van Schaalk (SVP, Hines) offered:

“In trying to launch RiverPoint again, which is a million-square foot building on the river that we just started construction on, we spent really the entire year of 2012 trying to find equity to start that building.  It’s a $400 million project so we were looking for at least $200 million of equity.  We ended up working with Ivanhoe Cambridge out of Canada [EDITOR’S NOTE: Regular readers of The Source will recall this pension giant’s involvement with Silicon Valleys’ recent blockbuster office deal -WG].  90% of our work was talking to them about Chicago.  Chicago was off their list.  This is the tenth largest real estate investor in the world. And they are heavy into European cities and the coasts – New York, San Francisco – but Chicago was off their list.  So our work was to try to change their perception of Chicago and we were able to do it with facts, with what [Chicago Mayor] Rahm Emanuel has been doing, bringing jobs into the city, and they’ve completely turned around.”

Van Schaalk went on: “That’s just an example of why you haven’t seen new development in Chicago. It’s because the major capital sources believe that there’s fundamental problems here with barriers to entry and overbuilding and things like that.  I think that is changing and will continue to change. I think the global capital markets are starting to circle Chicago now.”

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Chicago’s Central Business District: Office Market In A War For Talent

Bisnow 3rd Annual Chicago State of Office

At the Bisnow 3rd Annual Chicago State Of Office conference this week, a strong gathering of commercial RE pros listened to a blue-ribbon panel drawn from around Chicago’s office marketplace to hear perspectives on the local and national economy.  Gathered were:

Demographics And CBD vs. Suburban Office

From the get-go, these professionals of property management and market matchmaking described a Chicago central business district marked by a drive to capture young talent to serve the industries that rent the most CBD  space: legal, technical and professional.  Where’s the demand coming from?

“What we’re seeing quite a bit of at least in the CBD is more or less a war for talent,” said Jim Karras.  “We’re seeing a drive to the young talent, the millennials, as well as trying to secure the baby boomers as well, the empty nesters who are now living in the city.”

Andy Davidson: “Most of the demand is the younger generation, it’s IT, it’s tech,  overall.  A lot of the demand is education, the City of Chicago has a big educational base.”

Some early contention appeared over CBD vs. suburbs.  Andy Davidson was more down on the outlying areas while Jim Karras saw greater stability.  “The only reason the suburbs, I think are doing okay, is that the people who have to go out to the suburbs, the education groups, the hospital groups that have to go out to be near the client.  That’s what I think is holding up the suburbs.  There are big companies that are doing build-to-suits that aren’t lowering the vacancy when they do it, and there’s a lot of old buildings out there that quite honestly at 25% vacancy don’t make any sense to retrofit.  So I’m not as positive.”

Davidson continued on demographics: “You’ve got ahuge trend of people coming downtown, I don’t see that stopping  You’ve got a  generational shift – 10,000 people who are turning 65 every single day. It’s the biggest generational shift we’ve ever had. So companies have got to get downtown, near the young.”

Watch The Source for more coverage of Bisnow’s 3rd Annual Chicago State of Office conference.

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Mart And Science: Merchandise Mart’s 21st Century Transformation Underway

English: Merchandise Mart, Chicago, Illinois. ...
Merchandise Mart, Chicago, Illinois.  (Photo credit: Wikipedia)

Time to indulge in a little blatant localism.  Just a short trip along the river from NAR’s downtown Chicago headquarters downtown is the Merchandise Mart, that massive 1930 monument to merchandising and architecture of the early 20th century.  Its four million square feet see 20,000 visitors and tenants passing through its art deco doors every day, most in the retail and wholesale business. But a recent 15-year, 600,000 sq. ft. deal involving a technology giant creates a lot of upheaval, changing the mix significantly while it projects the Mart well into the 21st century.

Motorola Mobility’s Reverse Migration

In the largest single employer influx to Chicago in decades, cellphone and communications technology maker Motorola Mobility announced a move of their operation with its 3,000 employees away from suburban Libertyville to the Mart.  A rare reverse of the decades-long commercial trend emptying city centers in favor of suburban locales, the move came soon after the company had been acquired in a $12 billion deal by internet search engine and applications giant Google.  The moving and build-out costs alone are $300 million, as the merged company’s product design and hardware engineers. More or less, this means Motorola’s efforts in the rapidly-changing mobile device market will be footed in downtown Chicago, suggesting that 3,000 jobs could be just the ground floor number.

Make Room, Make Room

When a single-building tenant needs 600,000 square feet, chances are that means changes for existing tenants.  No exception in this deal, as debt collection firm Harris & Harris can attest.  The deal pushed an early end to their lease in the Mart, occupying 68,000 sq. ft. of office space, said Harris & Harris CEO Arnie Harris.  The firm received a “substantial” sum to terminate the lease early according to Harris, and the company quickly found new digs about one mile south at 111 W. Jackson, a 24-story tower brought out of foreclosure in March of last year.

Downtown Chicago Picking Up Steam

Downtown Chicago vacancy overall fell to 14.8 percent at midyear, down from 15.9 percent a year earlier, according to CBRE Inc.   Like most urban centers in the US, downtown remains a tenants’ market, but some feel this is changing as suggested by the Mart upheaval. The 88.5% occupied Mart itself is expected by some to be in the news again soon as the subject of another blockbuster deal: its own sale.

“If you were going to decide that you wanted to sell the building, doing it with some big, positive momentum is the time to do it,” said Bruce Miller, a managing director at Chicago-based real estate firm Jones Lang LaSalle Inc., who sells office buildings.

The Merchandise Mart was 88.5 percent occupied at the end of the second quarter, according to a Vornado quarterly report.

Vornado almost sold the building two years ago, and lately has been shedding properties to streamline its portfolio. In September 2010, Vornado confirmed it wanted to unload the property as part of a sale of its Merchandise Mart Properties Inc. division. But a $1.25 billion deal for the business fell apart.

Vornado in January sold the property next to the Mart, the former Apparel Center at 350 N. Orleans St., to San Francisco-based private real estate company Shorenstein Properties LLC for $228 million. But the company has said it plans to hold onto the Mart for the time being.

Adaptive re-use, technology, commercial property and jobs.  Thus is a 21st century economy made.

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