After a two-year hiatus, the Graaskamp Center was thrilled to host its Spring Board Conference at the Ritz Carlton Chicago on April 7th and 8th. Featuring a theme of “These Times They are a-Changin,” keynote presenters and panelists took a deep dive into the pressing issues of our times, including the war in Ukraine, inflation, and post-COVID supply chain issues. Over 140 board members, graduate students, faculty, and guests attended the event and we’ve received great feedback overall. Below you’ll find a recap of the CEO panel discussion.
The CEO Outlook: A Chicago Perspective
At the Graaskamp Center’s 2022 Spring Board Conference in Chicago, Rich Klawiter, a Partner at DLA Piper, moderated an insightful panel discussion with several Chicago-based development company CEOs. The speakers included Andy Gloor, Chief Executive Officer at Sterling Bay, Elzie Higginbottom, President and Founder at East Lake Management & Development, and Jim Letchinger, President and Founder at JDL Development.
The discussion started by outlining the current issues that face the industry on a macro level, such as rising interest rates, inflation, and the war in Ukraine, and on a micro-level, with Chicago-specific problems, such as crime, real estate tax uncertainty, ward remapping, and the changing landscape of the Magnificent Mile and LaSalle Street.
After that, the panel discussed “mega-developments” and the current state of commercial real estate development across the United States and in Chicago. Letchinger is developing North Union and Gloor is developing Lincoln Yards, both of which are massive undertakings that will dramatically change the landscape of the city once they are completed. Letchinger believes that construction costs will eventually level off by an external event, but not back to pre-pandemic levels. Gloor emphasized that you need to find the pockets within cities where development is possible, especially in distressed industrial areas, which are not creating revenue or job opportunities for the city. Higgenbottom then discussed Gateway Apartments, a mixed-use development on the south side, which emphasized his point that development is occurring in scatted pockets throughout Chicago. Additionally, he expressed his concerns regarding rising costs and interest rates, questioning how much more of it consumers are willing to take.
Next, they addressed hybrid work, the return to the office, and the potential re-development of Class B office space. Letchinger noted that the repurposing of old office buildings comes with challenges, but it can have an appeal due to a lower initial cost basis for the building. He believes that repurposing LaSalle Street offices into apartments could only work if the units are price-competitive. Since this commercial area is not the most desirable place to live compared to River North, the Gold Coast, etc., a rental price would be crucial to the repurposing’s success. Additionally, Letchinger said that hybrid work was the greatest thing ever for the multifamily industry since people desire nicer, bigger units as they spend more time at home. Younger people used to rent smaller, bare-bones apartments and spend most of their waking hours at their offices, but that is no longer the case. People are starting to care more about where they live. Higginbottom seconded the idea that repurposing LaSalle Street offices will be a complicated and costly feat. Gloor’s Sterling Bay is heavily invested in Chicago and their verticals with the best growth are life science and creative office. Gloor explained that not all offices are created equal, highlighting his firm’s strategic investment in creative office space. Sterling Bay has had great success with creative offices in the Fulton Market neighborhood; Fulton Market is 4% of the Chicago office inventory, but it has generated 25% of the recent office leasing. Moving on, Klawiter asked Gloor about Sterling Bay’s decision to expand to other markets outside of Chicago.
Sterling Bay first started in Fulton Market, expanded into Lincoln Yards, and more recently started pursuing development opportunities in other markets. Gloor explained that Fulton Market was “artificially protected by an archaic zoning that Mayor Daley set up in 1988,” which only allowed for industrial development. Once Sterling Bay secured Google as a tenant, the entire zoning for Fulton Market changed quickly. They had bought 31 buildings in six months, which turned into things such as the McDonald’s headquarters, other offices, and hotels. Gloor said the only reason Lincoln Yards exists is, again, “the artificial protection that this archaic zoning provided.” The expansion outside of Chicago was driven by outside capital and opportunities. Sterling Bay plans to build six to eight high-rises in Charlotte, North Carolina, which Gloor mentioned was a much easier process than working in Chicago. Gloor emphasized this by mentioning that in Charlotte, you can get a permit in 60 days, instead of many months, and taxes in Chicago are four to five times more than in Charlotte. Gloor believes that Chicago needs to make changes going forward to make it easier for people to do business there. He exclaimed that the cost of doing business and getting projects approved in Chicago is much larger than the cost of getting approvals in Dallas, Atlanta, and Charlotte.
Each of the panel members expressed the belief that developers should be looked at as community partners, rather than an enemy. Developers contribute millions of dollars to the local economy and create hundreds of jobs. In neighborhood groups, developers are often painted as the bad guy, but looking at their developments’ economic benefits might help to change this view.
Klawiter ended the panel by discussing city initiatives to support struggling neighborhoods and job training for underrepresented populations, particularly INVEST South/West and HIRE360. The panel agreed that these programs are taking a step in the right direction, but there might be more effective ways to achieve the goals of the initiatives. For example, Letchinger believes that investing in job programs and working with labor unions would be more effective than developing new buildings in these neighborhoods. He believes that creating more jobs and more income will create more opportunities for these neighborhoods. He further argued that building a building on a corner with no one to go into it and no one to work in it won’t help these neighborhoods. Letchinger’s JDL Development has made intentional efforts in its recent developments to recruit underrepresented individuals and they set benchmarks to ensure they hire a diverse workforce on their job sites. Higginbottom next discussed a project he worked on, Rockwell Gardens, which required subcontractors to hire some of the housing authority residents and train them. After initial reluctance, most of these subcontractors hired these individuals for other jobs after the initial training. Gloor believes that the city needs to be more creative regarding the ways we can invest in different neighborhoods throughout Chicago. The overall consensus is that creating good jobs and adequate housing is what these neighborhoods need.