In a fleeting moment, it appeared that J. Michael Drew was about to launch an offensive.Thank you for reading this post, don't forget to subscribe!
The creator of Chicago-based Structured Development — which has erected numerous of Lincoln Park’s largest projects since founding the company 21 years ago — was bestowed with the accolade from Chicago trade organization Lincoln Park Builders, commending his contributions to the area.
Facing an assembly of countless other real estate professionals at the Theater on the Lake building on the coast of Lincoln Park, Drew dismissed the customary expressions of gratitude and good wishes. He promptly aligned his concerns with city policy proposals advancing swiftly through government channels under newly elected Mayor Brandon Johnson.
“In today’s discourse, development is held accountable for exorbitant taxes, unaffordable rents, displacement of residents, and exploitation of neighborhoods,” Drew expressed. “It has been cited as a leading contributor to the escalating wealth disparity of our time.”
An elevated Chicago transfer tax on properties sold for $1 million or more — a measure the City Council sent to voters to decide in the March election — was acknowledged as a top concern. This is causing uneasiness within the industry. And for a moment, it seemed like Drew was preparing to vent his frustrations towards Johnson and his propositions.
“The real estate industry can no longer simply react to initiatives like this,” Drew emphasized.
He then underscored areas of disagreement between real estate and Chicago’s increasingly influential progressive political establishment, highlighting that the industry has opportunities to connect with the economic challenges of Johnson and the residents advocating for the transfer tax, as well as other recent policy proposals from businesses. The community has protested.
Developers should concentrate on how they can negotiate with those who are often perceived as the industry’s political adversaries and demonstrate that real estate should not be demonized, Drew conveyed.
Take an active role in addressing (Chicago’s) issues, emphasizing input and cooperation with policymakers rather than confrontation, presenting financial data to substantiate the state of the industry and its contribution to the economy and present-day societal Find alternative means to fund equity challenges,” Drew proposed. “Transform the dialogue within the development community about the issue and reposition it as part of the solution. “The future of the city and its neighborhoods may hinge on fresh and improved methods to communicate and respond to the forthcoming challenges.”
The address established the tone for the evening as a panel of real estate professionals spotlighted Chicago as the nation’s front-runner in the volume of distressed commercial real estate debt of any city, amidst other obstacles confronting the market during the unparalleled crisis. Discussed the situation. The surge in interest rates has precipitated a decline in property values in the office sector and across all asset classes.
Moderated by long-standing Chicago-based developer Steve Fifield — who aided in the creation of the 727 West Madison apartments, which recently secured $232 million from Zara founder Amancio Ortega — the panel featured R2 Company principal Matt Garrison. it was done. His Chicago-based firm is working towards finalizing the acquisition of the 41-story office tower at 150 North Michigan Avenue at a significantly reduced price from over $150 million, which seller CBRE Investment Management has been paying to purchase and upgrade the property since its acquisition in 2017. Was engaged in doing. ,
J. Michael Drew
Lenders on office buildings that are at least 80 percent leased and yielding some revenue are willing to extend loans, Garrison stated, but funding from commercial mortgage-backed security lenders for office acquisitions is “essentially non-existent.” Is”.
Additionally, he expressed, it would be an arduous journey to reset values.
“This is going to spur price discovery. This is authentic value discovery that is uncommon in real estate markets. This is enforced liquidation, this is a compelled sellers’ market. And we’re going to ascertain the true price in a market of compelled sellers with no capital markets. Therefore, this is a crisis,” Garrison disclosed.
Subsequent to the panel, he conveyed to the real dealthat Office pricing has changed so rapidly that “if this were the stock market, they’d shut it down.”
Panelist Frank Campese of Chicago-based multifamily landlord JAB Real Estate, alongside Corey Oliver, who manages the multifamily firm Strengths in Management, which possesses rentals on the South and West Sides, communicated that they are observing multifamily cap rates moving in divergent directions. I am experiencing growth. Nature of property owned by them.
“You should embrace (Essex Realty Group’s) Jim Darrow or (Marcus & Millichap’s) Kyle Stengel if they can secure a top rate of 6 percent,” Campese recommended. “We’re likely at 6.25, or 6.5, so not appealing.”
However, Campese remarked that rent growth has been robust lately. He attributed the trend to the city’s implementation of a new affordable requirement ordinance in 2021, mandating developers to allocate at least 20 percent of units in new rental projects as affordable housing. This is hindering new development and thus supply, Campese indicated, indicating that rents have greater room for escalation than in previous instances.
Yet, JAB’s concentration on well-established downtown neighborhoods like Lincoln Park presents a different scenario than the portfolio of properties it manages in communities deemed historically neglected. The company commenced purchasing properties at rates as high as 12 and 10 percent, while prices for properties in the south and west have recently escalated to 7 and 8 percent, in some cases due to investors from outside the state. He said Oliver contends that the prices paid are overly inflated.
“There’s going to be numerous opportunities in South Shore, Woodlawn, Bronzeville, Auburn Gresham, as some of these speculators are poised to start losing their assets over the next 18 months,” Oliver anticipated.