Key Take Aways from Chicago’s May 2023 Mastermind Group Meeting!
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• Hart Passman, Elrod Friedman, LLP: Still a troubling time in development due to so many uncertain outcomes. Seeing the challenges in two areas: Either the smaller developer (they have their banker, architect, engineer, etc. for 20-40 unit buildings); or the institutional projects. Just finished a project with the University of Illinois but also had institutional/government money and involved housing needs.
• Corey Walz, Walz Capital, LLC: Recently attended the BOMA Healthcare Conference and the general consensus was development is still slow, but cash is flowing, and offers are still going out. However, there is a spread of about two hundred basis points between the ask and what they are offering. The best-case scenario for deals is getting done at about a 7.5 cap. Also attended another industry event recently and for the first time there was some optimism about Chicago. A lot of other areas are slowing down, but Chicago remains steady. Still seeing the value of medical offices despite all the challenges.
• Rhea Stephen, CoStar Group: Recently attended a session on “Missing Middle Housing” at the University of Chicago that was extremely informative. They spoke on the interesting ways people want to live in walkable areas (i.e., use cars less). She also noted that the zoning map in most cities is easy to read and recognize, however not so much in Chicago.
• Lauren Zangl, ECS Midwest, LLC: The numbers she is seeing as a national company are showing some interesting trends. The midwest numbers are pretty level compared to other regions (e.g., the southeast or southwest who are struggling). However, the other service lines they offer have dropped. Hoping that whatever the industry is dealing with is temporary.
• Matt Berry, John Buck Company: Focusing on stabilized assets in Chicago. Rents are really strong; trade outs, however, are not as strong as last year but still achieving 6-8 percent. All that said, capital markets have assets at 30% off their value. On the development side, Chicago/Cook Country not so much but suggest Fort Myers, and ears perked.
• David Levy, Keen Summit Capital Partners: Since COVID, we saw a lot of freezing of the capital markets and after covid we have had to deal with the interest rate hikes and then the bank failures which has caused the entire system to tap the breaks to see how things unfold. There are just a lot of assets that banks do not want to own. There are clear trends in terms of strengths of the different markets. For example, some offices in north central Austin went from $75M to $102M. What is stressing out the lending community is that there is a huge deficit crisis coming down the pipeline causing issues for owners of buildings to get refinanced.
• Oksana Sevic, PNC Bank: Seeing a lot picking up in the healthcare arena as well as a lot of traction in equipment finance – a sector that also helps with creating jobs. Doing a lot now with selling assets with the SBA.
• Leon Walker, DL3 Realty: His firm focuses on development work for multiple industries including neighborhoods to create jobs. Leon is a member of the Chicago Loop Alliance Board and actively engaged with the design aspects of many projects within the City of Chicago. Currently working with four hundred units of mixed-use housing across the south side. Always looking for deals (distressed properties actually works in their favor). The whole industry, from real estate to civic leadership, to lending is all in a transition and all the parties need to work together and generate new ideas.
• Joe Stein, McCaffrey Interests: The month-over-month increase in construction costs has flattened out. Pricing is not going to come down and labor costs are still going up, Good news is the pro forma construction needed to get the interest rate side fixed is improving and the money will show up.
• Jason Basso & Greg Aikens, Farbman Group/Huntington Construction: Do primarily commercial and medical development work along with mixed use space. Also do a lot of receivership work with banks. They look at distressed properties and work closely with the City of Chicago to help elevate the city.
• Tom Donovan, Greater Indiana Title Company: They do commercial and national stuff outside the Chicago market. New construction, 1031 exchanges and other services. Indiana seeing some activity in medical buildings.
• Ginna Ryan, Mauge: The life cycle of where they get involved with projects continues to change. It is all about how you position yourself. In the past, they were involved in providing marketing support for projects that were already developed or being developed but now they are getting involved earlier and building a brand for new buildings before they are built.
• Bob Palffy, Equity LLC: Recently spun off a company that is like WeWork for medical/clinical professionals. Has been very active in industrial and healthcare but has recently taken on some interesting work with sports specialists and rec groups who use large sports domes (which can be built at a lower cost vs. industrial properties).
• Dean DeLisle, S2A Modular: Oversees capital raise and revenue generation. Just closed a $70M retail campaign and just opened up an institutional round to raise $450M to build factories. Has about 300,000 units in the pipeline; owns a ton of market data (especially as it pertains to modular i.e., how development is shifting). Not seeing any decrease in demand, but rather an increase in demand but with a change in product.
• Nancy Cirje, GAIN CRE Services, Inc.: If anyone is looking to go solar (commercial and industrial owners are shifting to go green, she is the person to talk to!
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