Browse Tag: Ivanhoe Cambridge

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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$800 Million Silicon Valley Office Deal

Location in the state of California

The tech sector economy continues to lead in the eye-popping category: the Oakland Tribune this morning reports a 73-building Silicon Valley commercial real estate deal. The transaction includes extensive renovations. The office and research buildings are located in Northern California technology meccas North and South San Jose, Sunnyvale, Mountain View, Santa Clara and Fremont.

Driven by major expansions of tech companies including Apple, Dell, Samsung and Google, the demand for office space in the area has been nothing less than white-hot.  Reports from a year ago indicated Apple was in the market for up to 800,000 square feet of office space to allow room for approximately 3,000 employees.  This takes place against the backdrop of Apple’s construction for 2015 opening of its “mothership” Apple Campus 2 headquarters building in Cupertino, shown in development proposals as a giant ring with 2.8 million square feet supporting 13,000 employees.

The package of office properties, many in prime locations, was purchased by a partnership of real estate firms from Canada (Ivanhoe Cambridge) , San Francisco (DivCo West)  and Texas (TPG Real Estate).  The new partnership operates as M West Properties.

The seller was Mission West properties, headed by developer Carl Berg.  The buyers paid $400 million in cash and assumed $400 million in debt.  A press release from Mission West at the time of the deal closing announced a $1.3 billion “enterprise value” to the deal, vaulting the really big number to a really really big number.

Deal partner Ivanhoe Cambridge is a Montreal-based pension fund who aims at Silicon Valley office and apartments as its investment strategy,  saying in a statement “The $400-million-plus investment covers all aspects of the acquisition transaction and is a further step in building up Ivanhoe Cambridge‘s critical mass of assets in the Valley in the office and multiresidential segments.”

Not Multifamily, Multiresidential

Emphasis above is my own, notable for disappearance of the word “multiamily” when talking about investment in Silicon Valley’s apartment buildings.  As deal partner Ivanhoe Cambridge is a pension fund, I was reminded of the cultural reasons pension funds have traditionally shied away from multifamily investments – the prospect of a benefits provider, as a landlord, forced to evict one of its own beneficiaries, was according to some  perceived as a public relations nightmare, and kept pension funds away from “buildings with beds in them” as a result.

But pensioners aren’t mainly the tenants in Silicon Valley’s apartments.  Nor are, it would seem families – the tech industry employee working at Apple or Google is typically young and childless and spends most time in the office – hence the back rubs, basketball courts and gourmet food perks of such jobs.  How long can that work/life culture and the resultant property mix last in San Jose and environs? Watch the market to find out.