3. Prospects for Chicago’s Real Estate Market
Chicago Association of REALTORS
January 11, 2018
Presented by Amy de Vallet
Senior Director
Tribune Real Estate Holdings, LLC.
4. • Tribune Real Estate Holdings was formed in
2013 after emergence from bankruptcy
• New Tribune Company management saw
opportunity to maximize value of real estate
assets to create shareholder value
• Since formation, we have sold over $700mm in
real estate assets and anticipate as much as
another $400mm in the coming years
TRIBUNE REAL ESTATE HOLDINGS
MAXIMIZING LEGACY REAL ESTATE IN A DIGITAL ECONOMY
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5. • Owned 76 properties in 23
states upon formation of
the holding company
• 8M SF on 1,200 acres
• Mix of urban office and
industrial, and large
suburban/rural parcels
• Large presence in Chicago,
Los Angeles, New York
OUR LEGACY FOOTPRINT
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6. OUR APPROACH
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Our experience as a holder, leaser and
renter of property advises our real
estate approach
A private equity approach to real estate
holdings:
• Define & execute optimal strategies for each
asset
• Perfect entitlements and enhance/improve
zoning
• Enter JV agreements with local operators and
monetize when appropriate
7. GROWTH AND DEMAND IN
CHICAGO’S URBAN CENTER
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• Chicago’s Downtown Central Business District is growing
• City of Chicago is modernizing policies to encourage growth
• Educated millennials overwhelmingly settle downtown, prefer CBD to suburbs
at a 15:1 ratio
• They demand live/work/play environments that emphasize connectivity
(digital & physical)
8. • Urban centers are replacing suburban campuses – and businesses are
relocating to Chicago
URBAN OPPORTUNITY: SUBURBAN FLIGHT
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9. • They’re looking for talent, unique and creative space and to use their
presence in an urban setting to further define their brand
URBAN OPPORTUNITY: CORPORATE TRENDS
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10. 10
So what does this mean for land owners
and developers – especially in a large
gateway market like Chicago?
11. WE’RE BULLISH…
BUT THERE ARE CHALLENGES
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• Old buildings with aging infrastructure
• Significant transportation infrastructure needs
• Absence of regional planning with widespread, cross-jurisdiction political
support and cooperation
• Potential for excess inventory
12. LINCOLN YARDS
28 acres
OLD POST OFFICE
2.5M sq. ft.
MICHAEL REESE
49 acres
GOOSE ISLAND/MORTON SALT
4.25 acres
THE RIVER DISTRICT
37 acres
RIVERLINE
14 acres
THE 78
62 acres
UNION STATION
14 acres
CAN IT ALL BE ABSORBED?
13. Why are we still bullish?
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Because geography and
demographics still matter
14. THE RIVER DISTRICT
37 CONTIGUOUS ACRES BOUNDED BY CHICAGO RIVER, HALSTED, AND GRAND AVENUE
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15. URBAN CONTEXT
NEXUS OF CHICAGO’S MOST DESIRABLE RESIDENTIAL NEIGHBORHOODS
LOGAN SQUARE
BUCKTOWN
HUMBOLDT PARK
2 Mile Radius
STREETERVILLE
29,507
79.1%
1 Mile Radius
RIVER NORTH
16,022
82.7%
THE LOOP
15,812
80.4%
WEST LOOP
FULTON MARKET
55,161
68.1%
WEST TOWN
RIVER WEST
35,077
43.4%
TRI-TAYLOR
7,141
62.6%
WICKER PARK
26,164
78%
GOLD COAST
OLD TOWN
40,133
72.3%
LINCOLN PARK
66,085
82.2%
LAKEVIEW
70,984
83.3%
SOUTH LOOP
PRINTER’S ROW
30,505
78.0%
UNIVERSITY VILLAGE
34,017
43.4%
UKRAINIAN
VILLAGE
11,450
59%
POPULATION ESTIMATE EAST PILSEN
51,527
44.6%
BUCKTOWN
LOGAN SQUARE
85,319
67%
COLLEGE DEGREE
15-30 minute
commute (or less) to
all of Chicago’s
most desirable
neighborhoods for
millennial talent
250,000 residents
(146,000
households) within
2 miles of site
953,000 residents
(442,000
households) within
5 miles of site
16. TRANSPORTATION CONNECTIVITY
CENTRAL LOCATION
TRANSIT CONNECTIVITY
CONVENIENT ACCESS TO MAJOR BUS, TRAIN, BIKE, AND COMMUTER HUBS
• 50% of site within ¼ mile of CTA
Blue Line
• CTA Blue goes direct to ORD
• Within ½ mile of 5 CTA train
stations (Blue, Brown/Purple,
Green)
• Bounded by 3 major bus lines
(Halsted, Chicago, and Grand)
• Halsted and Milwaukee are major
bike ‘spoke routes’
• 1 mile to Ogilvie / Union Station
commuter train system
17. • There’s good reason to be bullish on Chicago and other
gateway cities
• Geography and demographics still matter
• Watch out for oversaturation and challenges for absorption
KEY TAKEAWAYS
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Editor's Notes
Good afternoon – and thank you for having me today.
I’m guessing that many of you looked at the speaker lineup and asked, “Why does the Chicago Association of REALTORS have someone from a media company up here talking about the future of Chicago real estate – who is not a real estate reporter?”
Let me familiarize you a bit with who we are – Tribune RE Holding s was formed at emergence from BK to to manage the company’s fairly significant real estate portfolio. I am a senior director in the firm, and responsible for our large projects in Chicago, which I will get into a bit later on
You may not know this, but Tribune Media owns a lot of real estate around the nation, and our team has been focused on maximizing value of these assets since 2013 – In fact, we have sold over $700mm in real estate to-date, with up to $400mm more in sales anticipated In the current cycle.
In 2013, Tribune owned 76 properties in 23 states.
We had approximately 8 million square feet of space spanning across 1,200 acres.
Some sites were core urban historical buildings like the Tribune Tower here in Chicago and Times Mirror Square in Los Angeles,
Others were urban industrial sites on large tracts of land (Freedom Center Chicago, Times Plant in Orange County CA, Newsday sight in New York) with great opportunity for redevelopment and increased value, and some are home to our 42 TV stations around the nation
Much like a private equity firm, we look for best way to maximize value and bring a return to our investors.
We do this a number of ways. As I mentioned, Since 2013, Tribune has sold almost $1B in assets nationwide – and we continue to move forward with the sale of other properties.
As you know, we closed on the sale of the Tribune Tower in September 2016, and just closed last month on a 21-acre site in Orange county CA, and sold out of JV in downtown Ft Lauderdale
On other properties, we work to create value by perfecting the entitlements and zoning for future development.
Our perspective on the market generally - or individual markets specifically – are shaped and influenced by where we sit and what we are doing in that market.
In Chicago, for example, we have done it all. We are land owner, land lord, tenant, master developer and joint venture partners – this mix gives us a very unique perspective
And speaking of Chicago, We think it is is a great market – and from where we stand, we are rather bullish on growth in Chicago
It’s true that many downtown markets nationwide are growing. But this is especially true in Chicago’s Downtown Central Business District - and this has been the trend for a while.
I say this because, First, the city is taking aggressive steps to remain competitive compared to other markets and transform underutilized industrial land into new neighborhoods
For example, The 2017 North Branch Framework Plan which modernized zoning expanded the Downton district to allow dense mixed use developments on sites like our 37 acres in the River District.
This modernized zoning on the 760-acre North Brand Corridor to allow a mix of uses (vs strictly industrial) and is an innovative policy to spur growth
Second – Chicago is the undisputed capital of the midwest for milennials - There are more than half a million undergraduate students enrolled in the Big Ten each year, for example, and Chicago is the number one city where Big Ten Alumni live.
Chicago Millennials prefer CBD to suburbs at a ration of 15:1 vs New York at 1.5:1 or Los angeles at 1:1 (according to 2015 census data)
Third - there has been an average of 2,000 new residential units have coming online downtown every year for the last 10-15 years. I hope many of you have benefitted.
This new amenity-rich resi inventory is catering to the demands of early career adults which has helped to create Chicago’s vibrant central neighborhoods and deep talent pool
There’s no reason to believe these trends is going to change.
Likewise, companies are making the move to Chicago from the suburbs and other states, seeking to tap into the rich DT talent pool
They’re bringing hundreds and thousands of jobs with them.
McDonald’s (moving from Oakbrook) – 3,000 jobs
Motorola Solutions (moving from Schaumburg) – 800 jobs
ConAgra (moved from Omaha, NE) – 700 jobs
Wallgreens (moving from Deerfield) – 600 jobs
Gogo (moved from Itasca) – 460 jobs
Beam Suntory (moving from Deerfield) – 400+ jobs
ADM (moving from Decatur) – 100 jobs
Kraft Heinz (moving from Northfield)
While the job growth is great, it is too early to tell what these new jobs mean for downtown residential inventory. Many of these companies will retain employees who commute from the suburbs, vs relocate DT.
West coast tech giants are eyeing alternative urban centers - reduce risk/add redundancy, better access to talent, and lower cost of operations
Two good examples of this are the recent news of Google search for a home for 5,000 new jobs
And, of course, we all know about Amazon’s HQ 2 and its 50,000 jobs
We think Chicago is well positioned to be competitive in these contests, and either (or both!) would be a huge win or the city.
These companies have a number of locations from which to choose within the city– ours included. We think we have a great location for a new urban innovation center, but at the end of the day we all win if the city is selected, so we are supporting the City’s efforts to woo these companies.
Again, from our perspecitve we are bullish on Chicago. We think this is a great market and have a long, deep history with the city and its residents.
But the market isn’t without challenges.
There is a lot of older inventory in Chicago and and these buildings are stressed by the demands of modern high-density office tenants. Retrofits and upgrades are expensive and floor plates are quirky and inefficient –making this older inventory less attractive to new tenants
Additionally, the region has significant transportation needs that will require financial and political solutions. As new neighborhoods emerge, strategies to connect those neighborhoods to transit options will be necessary
But, perhaps the greatest challenge for a developer today is making a winning bet on the the absorption rate – there is a lot of inventory in the pipeline, a lot of exciting projects in the city, and competition for tenants is fierce
Let’s look at this more closely:
There’s plenty of capital in the city looking for return – and people are spending a lot of money on a number of transformational projects.
This map shows some of the largest real estate projects currently being planned – and the 47 high rises over 100 feet tall currently in the works
Many are transformational on their own. But there’s also only so much that can be absorbed.
Look: No one knows when the bubble will burst – and we don’t think it will be in 2018.
So why are we still bullish?
Because geography and demographics still matter.
We don’t think we’re recession proof. But our site’s unique location and accessibility will help drive more interest/demand than may be experienced at some sites further from CBD
Downtown land in gateway markets is ideal for master-planned, mixed-use development. - We see this site as analogous to exciting urban developments such as Hudson Yards in NY, South Lake Union in Seattle, Boston’s Seaport, and The South Bay of San Francisco
Opportunities to develop at scale in downtown core locations are increasingly scarce, but the value added by these urban in-fill developments can be tremendous. They will create new urban destinations for businesses and resident and will help drive Chicago’s future
As you may have read, Tribune Media has big plans for this site – we have submitted a Master Planned Development application for our 30 acres in The River District and Riverside Investment and Development (our JV partner) has submitted a Planned Development 700 W Chicago (7 acres).
Together these Planned developments (as currently written) will accommodate over 12 million square feet of mixed use development
The River District is the next, natural extension of the Downtown District due to the compelling location and demographics:
We are showing a 2-mile radius from our site here, where 250K residents live, and and college degree attainment rates are up to an astounding 83%
As you can see, our River District site fills the hole between the Loop, River North, the West Loop, West Town and Gold Coast. We are also at the center the city’s ”tech triangle”, between Goose Island, the Merchandise Mart, and Fulton market
Another key factor in our optimism for this site is its accessibility to public transportation. Transit options beyond private vehicle will be critical to the success of any urban development
In our case, we have proximity to CTA stops , most of the site is w/in1/2 mile radius stops on the Blue, brown and green lines. We are also bounded by 3 major bus lines
While enhancements might be needed, existing transit infrastructure is already in place around the site.
In the end, we think our location and immediate connectivity to downtown positions us well.
Layer this in with the innovative, sustainable, ‘smart city’-approach we are taking on the site for a multi-cycle buildout – we have every reason to be excited and bullish about our plans in the River District
In summary, Some takeaways from today:
There’s good reason to be bullish on Chicago and other large Gateway cities.
There’s no shortage of capital and projects are flowing.
There is also great support for growth from city government.
Geography and demographics still matter
Success and growth will still come down to projects and locations that geographically make the most sense and meet the demands of the market.
Watch out for oversaturation and challenges for absorption.
There is risk associated with the amount of inventory and absorption rates. Yet there could be a game changing event if the tech giants select Chicago.
In closing, without the benefit of a crystal ball, We remain focused on our master plan, and building the best multi-phase PD possible, but we are excited to see how 2018 unfolds for the city
