Crain's Chicago Business by crainschicago

ECONOMIC OUTLOOK:

With U.S. growth predicted next year, the numbers may not be as rosy for Chicago.

CHICAGOBUSINESS.COM | JANUARY 3, 2022 | $3.50

Ignoring reality: the property tax appeals game How the owners of pricey Chicago office buildings shrink their assessments

HIGHEST-EARNING

ATHLETES

BY ALBY GALLUN

IN CHICAGO

ALAMY

Last published in 2017, our list features an almost entirely different lineup PAGE 12

DeMar DeRozan, small forward, Bulls I 2021 salary (plus bonuses): $26 million

The McDonald’s headquarters building in the Fulton Market District sold for $412.5 million last year, but it’s really only worth $148.7 million. A couple blocks north, the home of Google’s Midwest headquarters sold in June for $355 million. Its true value: $135 million. Those estimates come courtesy of two recent appraisals filed by attorneys hired to appeal the properties’ assessments with the Cook County assessor. They may seem egregiously low to a casual observer, but the two appraisals, obtained through an open records request with the assessor’s office, illustrate the way things have been done for decades in

COSTAR GROUP

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McDonald’s headquarters, 110 N. Carpenter St. the weird world of Cook County property tax assessment. It’s a world tilted in favor of appeals attorneys and appraisers for deep-pocketed commercial landlords, where observed reality—like sale prices—doesn’t count for much. They are paid to argue why a commercial property like the McDonald’s building is worth a lot less than its assessed value, resulting in a much lower property tax bill if they succeed. Appraisers have multiple tools at their disposal. By lowering a building’s estimated rents, raising its expenses and See APPEALS on Page 22

Omicron is upending plans for a return to business as usual BY JOHN PLETZ Is it finally safe to go back to the office? Not long ago, returning to in-person work in January seemed like a sure thing. Now local companies aren’t so certain.

Plans to start doing business face-to-face again this month are getting a rethink as the rapidly spreading omicron variant of COVID-19 shakes confidence that workers can safely gather in offices and travel again. The number of new coronavirus cases

statewide reached a record high on Dec. 23. “Business leaders are currently figuring out how the omicron variant could impact their workplaces,” says Dr. Neal Mills, chief medical officer at Aon. “They are recognizing that they are going to need to revisit many of the decisions they’ve made.” See OMICRON on Page 18

PAUL GOYETTE

Some companies delay return-to-office target dates, as others move ahead with reopenings and resume travel

Kevin Rooney, chief administrative officer for consulting firm West Monroe Partners.

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ENGLEWOOD

YOUR VIEW

Artist maps where Black residents were denied homeownership PAGE 4

A young Nigerian immigrant expected the America she had seen on TV. But life on the South Side turned out to be a struggle for her and her family. PAGE 8

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2 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

GREG HINZ ON POLITICS

3 factors that will shape local political life in 2022

Chicago hedge fund mogul Ken Griffin, has to decide who he will endow with a grubstake large enough to take on billionaire Pritzker. As of this writing, everything on the Republican side appears much up in the air. Despite the recent flurry over whether Griffin is willing to back Aurora Mayor Richard Irvin, I hear that any deal is far from done, with at least two other big names being mentioned: Republican National Committeeman Richard Porter, a Chicago lawyer, and Chicago Cubs co-owner and national fundraiser Todd Ricketts. Others say the search for other candidates continues, so we’ll see. Hopefully, we’ll find out for sure by the time the last of that New Year’s champagne is gone. Pritzker’s fate also depends, as does Mayor Lori Lightfoot’s, on the crime issue, which has the potential to scare independents and soft Democrats into the Republican column and turn Chicago’s suburbs purple again, if not red. Right now, whether you agree or not, the notion is rising fast that Democrats like Cook County State’s Attorney Kim Foxx have let crime get out of control. That’s what was behind Lightfoot’s recent get-tough THE VIRUS CONTINUES TO HAVE A speech. But the STAGGERING IMPACT ON EVERYTHING. Democratic left—Cook County Board President Toni election year. Preckwinkle, for example— Pritzker appears to be don’t seem inclined to grant betting that, like a summer the mayor’s wish to keep storm, the omicron varilocked up accused murderers ant wave will be intense, and carjackers and pistoleye-catching and short lived, waving gangbangers, instead perhaps conferring a herd of releasing them on electronic immunity of sorts by spring. monitors. Perhaps. If that happens, Lightfoot’s problem is that some good trends will reit’s not all someone else’s fault. surface, like the remarkable For instance, she continues to growth lately of Chicago’s stick by Police Superintendent tech community, which David Brown even though Forbes recently dubbed “one he’s under fire from just about of the nation’s hottest cities everyone in Chicago public for start-ups.” life. And she continues to do Still, the lingering impact things such as promise a “draof unending COVID—all of matic” increase in homicide us (myself included) want detectives without providing it over, Over, OVER!—is not any real proof that she will good news for incumbents deliver. and ruling Democrats. The All of that raises the inevitaimpact on Joe Biden and the ble question of whether anyDemocratic brand nationally one of substance is gearing up has given Republicans some to oppose her for a new term reason to hope they actually in an election that now is less have a shot at unseating than 14 months away. Not yet. Pritzker, even in increasingly But let’s see how COVID and blue-state Illinois. crime go, and their impact on Of course, the GOP still Chicago’s economy. has to get its act together. Same old, same old, huh? Which means the state party’s Happy New Year. personal grand benefactor, OVID. Political intrigue. Soaring violent crime rates. If those items summed up 2021, they sadly head the political and governmental agenda in Chicago and Illinois for 2022. What happens with each, and how they interact with each other, will determine whether we finally can get past same old, same old to something that at least is different. The obvious elephant in the room is COVID. Now in at least its fourth wave, the virus continues to have a staggering impact on everything from whether the downtown office market will ever get back on its feet to whether kids will have a semblance of a normal life and whether the old folks will keep their sanity. At the moment, it’s Chicago’s mayor who’s taking the lead, implementing new proof-of-vaccination requirements that will kick in on Jan. 3 and guide who gets to visit a bar or a restaurant, take in a movie or head to the gym to work off those holiday pounds. In the background is Gov. J.B. Pritkzer, who has caught considerably more political heat in this state for things such as mask mandates and would prefer not to rile up the unvaxxed in an

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What’s gone wrong at the last Black-owned bank in Chicago?

Despite government intervention and new owners, GN Bank fights for survival as large municipal deposits prove too much of a financial burden BY MICK DUMKE, HARU CORYNE AND MARIAM ELBA OF PROPUBLICA The $20 million deposit was supposed to be a turning point. When the city of Chicago deposited the money into Illinois’ last Black-owned bank in 2017, the story received national news coverage. The city treasurer said the deposit represented a “paradigm shift” in how the government supported community investment. And the bank’s owner and chairman predicted that it would strengthen the institution and “help people fulfill their dreams.” But less than three years later, an officer at GN Bank told the city it would return the money. Instead of sparking new loans and investment, he indicated, the deposits ended up costing the bank hundreds of thousands of dollars in interest—more than it could afford. As Black-owned banks around the country disappear, government officials have come under pressure to save them. Often, they opt for a simple solution that seems popular with voters: depositing large sums of money in those institutions. Yet experts note that multimilliondollar deposits only benefit small banks if they are able to make loans in the community, which GN struggled to do. Unlike other tools at the government’s disposal, such as including smaller banks in bond deals, big deposits alone can’t help them make a profit. “Municipal deposits can be very

expensive for financial institu- regulators added restrictions to tions,” said Horacio Mendez, pres- the bank’s operations in the folident and CEO of the Chicago- lowing years. Acquiring more deposits wasn’t based Woodstock Institute, a nonprofit policy group that fo- one of the regulators’ directives. cuses on financial issues. “Some- In fact, officials had reported for times, a city or a state kind of years that the bank was holding thinks that putting a lot of money too much money in deposits for into a financial institution is doing the small number of loans it was making. But the bank was soon them a favor.” The city of Chicago has been drawn into campaign politics. In 2014, Bruce Rauner, a mostly unsuccessful at increasing the number of deposits at Republican, generated a media minority-owned and community buzz when he publicly presented $1 banks. No such banks currently million of his own money to another hold city deposits. City officials small South Side lender. It was one recently announced that, despite in a series of publicized campaign an outreach effort to smaller in- stops the white multimillionaire stitutions, just 11 banks applied made in Black neighborhoods on to accept municipal deposits for his way to winning the governor’s 2022, and all were large, corporate office in November 2014. entities, including BMO Harris “MUNICIPAL DEPOSITS CAN BE VERY and JPMorgan Chase. EXPENSIVE FOR FINANCIAL INSTITUTIONS.” The story of GN Bank, for- Horacio Mendez, president and CEO of the Chicagomerly called the based Woodstock Institute Illinois Service Three years later, Democrat J.B. Federal Savings and Loan, helps to illustrate why community Pritzker, a white billionaire, was banks may be shying away from aiming to win the nomination to face Rauner when he took questhe city’s proposal. Founded in 1934, the bank had tions from listeners on WVON, long been a small community in- a popular South Side radio stastitution that struggled to compete tion. One of them mentioned with larger lenders in the South Rauner’s 2014 deposit and asked Side neighborhoods where it did point blank: Would Pritzker put business. After the bank suffered $1 million of his own money into significant losses in the Great a Black-owned bank? Pritzker didn’t hesitate. He Recession, federal regulators intervened in 2013, urging it to im- already had. prove management and raise capBlack clergy had urged him to ital. Through enforcement actions known as consent orders, federal See GN BANK on Page 7

97% OF OUR CURRENT C U STO M E R S R A N K T H E I R S AT I S FAC T I O N W I T H U S A S “ E XC E L L E N T ” O R “A B O V E AV E R AG E .” B E Y O U R B A N K E R ’ S T O P P R I O R I T Y. W I N T R U ST.CO M / P R I O R I T Y

Banking products provided by Wintrust Financial Corp. banks. Source: 2021 Coalition Greenwich Market Tracking Program

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CRAIN’S CHICAGO BUSINESS • JANUARY 3, 2022 3

ECONOMIC OUTLOOK

JOE CAHILL ON BUSINESS

What Chicago business will be talking about in 2022

JOHN R. BOEHM

Here are five important Chicago business stories to watch in 2022

Jeremy Dubow, a founding partner of NDH, an accounting and tax consulting firm.

What does 2022 have in store for Chicago? Experts weigh in. Despite COVID, the “Great Resignation” and inflation, economists predict growth in the year ahead. And yet Chicago’s outlook isn’t quite as rosy as the rest of the nation’s. Here’s why. BY STEVEN R. STRAHLER

nstead of dreaming about a surprise pop quiz or discovering himself standing naked on Michigan Avenue, Jeremy Dubow confronts a different sort of recurring nightmare: He starts a new workday and finds his colleagues have vanished—all of them. That is one reason his accounting and tax consulting firm, NDH, paid out bonuses in 2021 averaging 20% of base compensation, double the industry median, he says. NDH’s revenue rose by 21%, to $7.8 million. And Dubow, a founding partner, is counting on another strong year in 2022, provided the firm can meet demand. “We have not received a single resume from an executive recruiter in over a month. Can you believe that?” he said in early December. “And I’m not looking for someone with 10 to 15 years of experience. See ECONOMIC OUTLOOK on Page 21

“I’VE GOT TO TELL YOU, OUR GENERAL OUTLOOK FOR CHICAGO IS NOT GREAT, MAINLY BECAUSE OF THE MANUFACTURING SECTOR.” Barbara Byrne Denham, senior economist with Oxford Economics

The local housing market has a tough act to follow in 2022 Why a slower pace of home price increases next year would be a good thing BY DENNIS RODKIN The 2021 housing market in metropolitan Chicago set so many records, it will be hard to surpass. More homes sold than ever, prices rose faster and higher than they had since the early-2000s boom, the highestpriced sector of the market rocked, and several towns around the area saw sale prices of individual homes hit new heights. Here comes 2022, which has to follow all that. After a year when the real estate market, powered by the twin fuels of pandemicinspired desires for different space

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and low interest rates, raced along at what felt like 90 miles per hour, the following year can’t help but feel slow at any speed. “It really can’t keep going on the way it has, can’t sustain that pace,” says Daniel McMillan, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago College of Business Administration. That’s good, for many reasons, according to McMillan and other housing industry experts Crain’s consulted for this forecast of what’s to come in 2022. Slower growth in prices may draw back into the market people who wanted

to move but couldn’t stand the chaotic pace of an overheated market, buyers’ affordability won’t continue galloping away from them, and home prices will have a more stable grounding in recent comparables. A strong economy is one more good ingredient in the mix, says Laura Ellis, president of Baird & Warner residential sales. “When people feel confident in their employment, confident in their savings, confident in the stability of their investment, they’re willing to [buy] a home,” she says. See HOUSING MARKET on Page 20

COVID-19. The dominant story of 2020 and 2021 will dominate again in 2022. A year ago, newly approved COVID-19 vaccines fueled hopes of a return to economic normalcy by now. Sadly, enough people refused vaccination that new variants emerged, dashing those hopes. With the omicron strain circulating rapidly, fresh uncertainty is confounding business decision-makers. Companies have suspended plans to bring workers back to the office early in January, travel demand has sagged again and the possibility of new restrictions has started to cloud the economic outlook. Most of the big economic questions facing business in 2022 hinge on the progress of the virus: Will the supply chain bottlenecks squeezing inventories ease? Depends on COVID. Will the labor shortages plaguing companies abate? Depends on COVID. Will the inflation driving up prices and wages cool off? Depends on COVID. Rivian. Illinois’ top contender in the electric vehicle race soared in an initial public offering last year, as investors bought into the promise of trucks powered by electrons instead of petroleum. In 2022, Rivian will have to start delivering on that promise. Specifically, it will have to start shipping electric trucks in large numbers from its factory in downstate Normal. Rivian has more than 55,000 pre-orders for its R1T pickup truck and R1S SUV. The vehicles will have to ship on time and perform up to the lofty expectations of buyers who have agreed to pay around $75,000 for an electric truck or SUV. Otherwise, Rivian’s slim first-mover advantage in electric trucks could slip away. Rivian has nothing like Tesla’s head start in electric cars. Ford, Tesla and Chevrolet all plan to bring electric trucks to market in 2022 or early 2023. Missed delivery dates and/or performance problems could leave Rivian eating dust, and hurt Illinois’ bid for a leading role in electric vehicles. Boeing. The Chicago-based aerospace company needs to put quality problems behind it in 2022. A string of production problems over the past three years caused hundreds of fatalities, while battering Boeing’s bottom line and bludgeoning its reputation for safety and reliability. Of course, it started with two fatal crashes of the 737 Max, which killed 346 people and took the company’s top-selling

plane out of service for 20 months. No sooner did U.S. regulators lift the grounding order on the 737 Max than when manufacturing defects forced Boeing to stop shipping long-range 787 Dreamliners. Quality concerns pushed back expected Federal Aviation Authority approval of the new 777X wide-body to 2023 from 2020. In Boeing’s space unit, two failed test flights marred the debut of a new craft designed to take astronauts to the International Space Station. Boeing can’t afford any new slip-ups, or more embarrassing revelations. A couple of key milestones will mark Boeing’s progress this year. Boeing hopes to resume 787 deliveries by April, and launch another Starliner test flight in May. Bears stadium. The business of professional sports gets more attention than its measurable economic impact warrants. Still, there’s no denying that a possible move by the Bears to Arlington Heights from Chicago will be among the most closely watched stories of 2022. Last year, the team agreed to buy the shuttered Arlington Park horse-racing track and surrounding property in the northwest suburb. The $197 million deal is scheduled to close in late 2022 or early 2023. Team officials have been coy, but their motivation couldn’t be clearer. A new stadium in Arlington Heights would open up moneymaking opportunities that the Bears’ current home at Soldier Field doesn’t offer. A move also would mean big things for Arlington Heights. For Chicago, the financial effect wouldn’t hurt as much as the PR damage from losing an NFL franchise at a time when the city’s image is on the rocks. In 2022, we’ll find out if the team is serious about moving, and if Chicago Mayor Lori Lightfoot will make a serious effort to keep the Bears. Crime. City officials can’t allow another year of lawlessness like we saw in 2021. It was a year of looting, random gunplay, carjackings, expressway shootings and smash mobs invading posh stores. Brazen criminality terrorizes residents and trashes Chicago’s reputation. When streets feel unsafe, shoppers buy online, tourists stay away and conventions go elsewhere. Mayor Lightfoot, Chicago Police Superintendent David Brown and Cook County State’s Attorney Kim Foxx must get crime under control now.

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4 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

Artist maps housing discrimination in Englewood Tonika Johnson is creating an immersive guide to Chicago homes that were held in land sale contracts, a predatory lending vehicle of the 20th century In January, signs will start appearing in front of houses that were part of an onerous period in Chicago’s housing history, the mid-20th century era of land sale contracts, when Black households were allowed tantalizingly close to homeownership without attaining it. “We weren’t able to experience the economic benefits of homeownership,” such as building up household wealth via home equity, said Tonika Johnson, the artist and activist creating “Inequity for Sale,” a virtual exhibit that includes a podcast and walking tour. The exhibit unearths previously unpublished details about individual properties in Englewood and West Englewood that were held in land sale contracts. A land sale contract was “a discriminatory lending tool and a lie,” Johnson said. In the mid-20th century, when redlining and other practices kept Blacks from getting home mortgages, land sale contracts (also known as contract selling) were an alternative devised by predatory investors. The contract offered what appeared to be a path to ownership, but was weighed down with punitive fees and payoff

terms that typically prevented the buyer from ever paying it off. Ownership of the property came only with paying off the contract, which meant that generally the buyers reaped no financial benefit but the investor did. This was in an era when homeownership was a prime means of building household wealth for the American middle class. “This is a practice that actually stole money from people who came to neighborhoods like Englewood to become homeowners,” said Johnson, whose previous project Folded Map compared homes at identical addresses on Chicago’s South and North sides. In 2019, a report from Duke University estimated that land sales contracts in Chicago shifted as much as $4 billion out of the hands of Black residents and into the investors’ pockets. “The deterioration you see in these neighborhoods today started then because it started with theft,” via a lending vehicle that became like a pipeline pumping money out of them, Johnson said. Englewood and similar neighborhoods “never had a chance to build any economic value for themselves,” she said. Johnson wanted to build on that report with what she calls “an

immersive history lesson,” where Chicagoans can see individual properties where some of this wealth was plundered. Among them is a house on the 7100 block of South Aberdeen Street that an investor bought from White owners for $10,500 and sold via land sale contract to a Black buyer for $17,900.

NATIONAL PUBLIC HOUSING MUSEUM

BY DENNIS RODKIN

‘FIRST OF ITS KIND’

Produced for the Chicago-based National Public Housing Museum, “Inequity for Sale” includes an online map of the roughly 200 homes in Englewood and West Englewood held in land sale contracts in the 1950s and 1960s. Johnson hopes to add information on other Chicago neighborhoods later. Johnson will put signs in front of two houses in January and in subsequent months add at least 13 more. They are abandoned homes or vacant lots. She is working to engage with residents of occupied homes that were once in land sale contracts to get their cooperation on placing signs on their property. With the map, podcast and signs in front of real-life properties, the exhibit “will give you a whole different understanding than if you were seeing it in a museum,” said Tiff Beatty, director of arts, culture and public policy at the National

Tonika Johnson stands with one of her “Inequity for Sale” signs at a house on Green Street that was once held in a land sale contract. Public Housing Museum. “It’s important to be in the community while you’re learning about this,” Beatty said, “feeling the neighborhood feeling, being able to see not only one house, but the context and make those connections” to the conditions of these disinvested neighborhoods today. “The gun violence, the empty lots, the closed schools,” Johnson said, “that all came after the discriminatory lending tool of land sale contracts stole so much from the neighborhood.” Johnson lives in Englewood in a bungalow she bought this year.

The exhibit appears to be the first of its kind in the country—fittingly, as Chicago was one of the pioneers of using housing laws to create and perpetuate racial segregation. “Chicago showed the rest of the country how to cement segregation into real estate,” Johnson said. Now, “we should be a city that shows how to make that history more accessible to the public and grapple with it.” Down the line, Johnson hopes to buy a lot or house that was once held in a land sale contract, to create some sort of permanent exhibit about the predatory practice.

These Gold Coast buyers were in for a surprise They paid almost $2.9 million for their North State Parkway mansion. Only then did the buyers learn about an extremely rare easement that means they can’t change the interior. Now they’re suing. It was only after paying almost $2.9 million for an 1880s Gold Coast mansion filled with stained glass, carved wood and tile that the buyers learned they are permanently barred from changing the interior without a historic preservation group’s approval. Now they’re in a court fight over how much less the home is worth, in light of the limits on what they can do. Lynn McGovern and Jim Jann bought the six-bedroom, 7,100-square-foot home on North State Parkway in 2018. In a lawsuit they filed in September 2021, the couple said the company that provided their title insurance, Floridabased Chicago Title, failed to notice the property comes with an interior easement. Far more rare than an exterior easement that governs the facade of a historical home, this easement gives Landmarks Illinois authority over many indoor changes or repairs the homeowners might make. McGovern and Jann are suing the title company. According to the lawsuit filed by their attorney, Kendall Woods of Chicago firm Laurie & Brennan, Chicago Title estimates the house is worth $450,000 less because of the

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The house is one of only three private homes in Illinois with interior easements, according to Suzanne Germann, director of reinvestment at Landmarks Illinois. “Interior easements are challenging,” Germann said, because they require the property owner to allow The foyer of an 1880s Gold Coast mansion on North State Parkway. Landmarks Illinois easement, or about 17% of the annual access to inspect the propurchase price. An analyst for the tected space, and require the ownhomeowners says the diminution er to seek approval for any changes. “It’s a challenge for anyone is more than that. How much more is not stat- to say, ‘OK, come in and tell me ed in the lawsuit, and Woods did what I can and can’t do inside my not respond to Crain’s request for home,’ ” Germann said. German, who joined Landmarks comment. Lisa Pagel, managing counsel for Fidelity National Law Illinois 25 years after the easement Group, said Chicago Title would began on the North State Parkway not comment. (Chicago Title and home, declined to comment on the Fidelity National Law Group are specifics of that particular easement. owned by Fidelity National.) The easement document, 25 ‘CONSERVATION RIGHT’ pages long and part of Cook The homeowners’ argument is County public records since De- not with Landmarks Illinois, but cember 1989, says the home’s inte- with Chicago Title, whose standard rior has “extraordinary character” research in public records ordinarily and stipulates that “there shall be turns up any attachments to a deed. no change to the facade and inteIn the Cook County Recorder of rior” without written approval by Deeds’ online files for the property, Landmarks Illinois. the easement is the 27th item, near COMPASS

BY DENNIS RODKIN

the bottom of the second screen of entries. A title researcher would need only to have scrolled down for less than 30 seconds to spot the document, labeled “restriction,” and flag it to be checked. Signing the easement, also called a conservation right, in 1989 were Susan Baldwin, head of the group then called Landmarks Preservation Council of Illinois, and Randall and Allison Toig, who at the time had owned the house for two years. According to the easement, both the Toigs and the owners before them “devoted a great deal of time, effort and money to the restoration on both the interior and the exterior. It has been preserved in a condition very much like when it was built” in 1886-87. The Toigs, according to the easement, “desire to preserve the facade as well as the interior to prevent the destruction of the building and its replacement with a larger structure and to protect the profile and silhouette of the building.” In 2016, when the 14-room house was on the market at $4.8 million, Randall Toig, an obstetrician and gynecologist, told Crain’s that “some of these details, like the dining room ceiling, have never been covered up or removed, and they’re irreplaceable today.” Crain’s could not reach Toig for comment. The listing from that time, still

available online, does not mention an easement. By mid-2018, the asking price was down to $2.9 million. McGovern and Jann paid a little over $2.58 million for the home in September of that year. Through Woods, their attorney, homeowners McGovern and Jann declined to comment on the suit. Crain’s could not determine whether they had any plan to paint or change the historical finishes, or if they might have taken a pass on buying the house if they’d known it didn’t come with a homeowner’s usual right to redo the interior. Landmarks Illinois has easements on 504 buildings across the state, according to Germann. Of those, seven have interior easements, four of which are places that are at least in part open to the public, such as Glessner House on Prairie Avenue. Landmarks has three interior easements on private residences, Germann said. They are: A Prairie-style house in River Forest that was converted from a women’s club and whose photogenic auditorium is protected by an interior easement. A house in Winnetka designed by eminent architect David Adler in 1937. In 1990, it was moved to a new site in a multiparty agreement that included putting an easement on the interior. The house that McGovern and Jann own. It was originally the home of brewer George A. Weiss and his wife, Martha.

12/23/21 3:03 PM

Our neighbors across the Chicago region deserve equitable opportunities for ssuccess, and we know how to make that possible. United Way of Metro Chicago works k with community groups to help them develop programs and initiatives to bring their visions to life. With your support, we can ensure individuals and families can meet their basic needs—like food, healthcare and housing—and work together to reverse the effects of disinvestment in our Black and Latinx communities.

UNITED, WE WILL BUILD A STRONGER, MORE EQUITABLE CHICAGO REGION. Join us at LIVEUNITEDchicago.org

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6 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

TECH TAKEAWAY

Kayne Grau

2022

Nominate at ChicagoBusiness.com/NotableMinorityExecsHC

Yikes! What happened? When the FBI found out it was me, they left, and my parents took my computer away for six months. Basically a slap on the wrist.

You launched several companies. What was the biggest flop? In 1997, I worked with the brightest people on the West Coast, building eToys.com, which was one of the hottest dot-coms on the planet. When we took it public, it was bigger than Toys R Us, but eventually the company went bankrupt. I didn’t make a dollar.

How tough was that? I wouldn’t trade that four years for anything. I call that my crash course MBA. I was building the technology, handling fulfillment in the warehouse and working on real estate projects—virtually doing everything operationally.

How did you celebrate? I bought myself a sprinkler system for the house. My wife still laughs about it, but I was tired of watering the lawn.

Nomination deadline is Friday, Jan. 7, 2022. Section publishes Mar. 7, 2022.

> < >

Your most successful company? I was co-founder of Drivin, which optimized the buying and selling of used vehicles for car dealers across the U.S. We sold it for $43 million to KAR Global in 2017.

Your newest app? Headway, an audiobook reader that condenses books into the most important content.

To view Crain’s Notable Executives nomination programs, visit chicagobusiness.com/notablenoms. Your latest listen? “The Language of Love.” I like making sure that my relationship with my wife stays healthy.

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Worst job ever? After high school, I worked in a warehouse six nights a week from midnight to 8. We emptied hundreds and hundreds of trucks nightly, inspected the merchandise, repacked and reloaded it onto a truck or into the warehouse. It was backbreaking work.

Crain’s 2022 Notable Minority Executives in Health Care will recognize accomplished minority executives within Chicago’s health care industry.

Did you ever get caught? One day I got pulled out of school and taken away in a cop car to my house, where the FBI had my parents under arrest for hacking into the local telephone company.

Deadline is Jan. 7

When did you get into computer programming? In fourth grade, I got my first computer and taught myself machine-language programming. By middle school, me and a friend got into hacking. I was enamored of the movie “WarGames,” about a young guy who hacks into a military computer.

NOW ACCEPTING NOMINATIONS!

MINORITY EXECUTIVES IN HEALTH CARE

Grau, 48, was recently named CEO of Uptake, an industrial data analytics company that provides clients intel on issues such as equipment failure and power usage. Grau and his wife live in the northern suburbs with their three children, ages 14, 13 and 11. By Laura Bianchi

A tech device you dream of? A new device, whether internal or external, that would give my middle son and millions of others a way to live a normal, healthy life with Type 1 diabetes.

12/23/21 3:05 PM

CRAIN’S CHICAGO BUSINESS • JANUARY 3, 2022 7

As Black-owned banks shutter, government officials are urged to save them

FINANCIALS

As Summers and his aides considered a deposit with ISF, the bank remained under a federal consent order flagging “unsafe or unsound banking practices.” Summers said in an interview that he and his staff spoke to federal regulators about the Nduoms and their plans for reviving the bank. His office also asked the bank to provide collateral in the form of a letter of credit from the Federal Home Loan Bank of Chicago, a government-sponsored institution that provides other banks with access to funding for loans and other services. The letter of credit ensured that a city deposit would be safe even if ISF imploded, Summers said. Those steps, he added, were the “most fiscally responsible and sound approach to protecting” taxpayer money. “The process wasn’t one that we took lightly,” Summers said. “We felt good about giving them a shot.” That September, Summers held a press conference with ISF

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GN Bank in Bronzeville. employees to announce that the city would deposit $20 million at the bank. In media interviews after the event, Summers said that by providing more funds for the bank to lend, the city would provide an economic boost to the community. At the time, Summers was reported to be mulling a run for higher office. The day after the ISF announcement, Summers’ political campaign committee highlighted the deposit in an email blast to supporters. “If you agree with the work we’re doing, can you show your support with a $5, $25, or $55 donation?” Summers asked in the email. Still, he said in the interview, politics “really wasn’t a factor in this decision at all.” He added: “I grew up five blocks away from ISF. I know exactly that community that it’s intending to serve. It was much more personal for me and [about] the potential impact of it.” The following spring, the bank decided to seek a deposit from the state as well. The state treasurer’s office has for years run a program designed to put deposits into community banks and credit unions. In July 2018, three months after bank officials submitted an application, the office of Treasurer Michael Frerichs deposited $10 million with ISF. That same month, Frerichs spoke at an event the bank held to announce that it was changing its name to GN Bank. With those deposits, nearly a quarter of the bank’s deposit total came from the city, the state and Pritzker. By the fall of 2018, city officials’ optimism had turned to

concern. After they asked the bank for records charting its loan activity, they were alarmed when ISF officers couldn’t readily produce them. “I hope you can appreciate the urgency here, and would request more effort in meeting these requests immediately if our relationship is to continue,” a lawyer in the treasurer’s office wrote to bank officers. The bank eventually provided the records, allowing the treasurer’s office to conduct an analysis of GN Bank’s lending activity. According to the bank’s own records, it was making few loans at this time. In August 2019, three months after newly elected Chicago Treasurer Melissa ConyearsErvin took office, succeeding Summers, several of her aides held a meeting with GN representatives to discuss the institution’s lending practices and financial health, including its “strategy to increase capital,” as a treasurer’s office memo put it. The bank officers’ presentation reviewed GN’s history and noted the city deposit had earned $295,583 in interest in just under two years. The officers stressed their ongoing mission to promote homeownership and economic development. And they detailed the bank’s growth plans, which included marketing to college students and millennials. But despite the optimism of its PowerPoint, the bank remained in such grave condition that its officers soon decided they could no longer pay the interest on the public deposits. They returned the state funds first. In a letter dated Jan. 17,

JOHN R. BOEHM

make the deposit at Illinois Service Federal, Pritzker said, because “that’s a very important way for us to create employment in the African American community.” Pritzker defeated Rauner in November 2018. Not long after Pritzker made his deposit, city and state officials deposited public money at ISF. Chicago City Treasurer Kurt Summers began discussing ISF with his staff in February 2017, soon after the shutdown of Seaway Bank and Trust left ISF as the only remaining Blackowned bank in the state. According to messages obtained through a request under the state’s Freedom of Information Act, Summers emailed his staff news coverage of ISF. That March, Summers met with Papa Kwesi Nduom, the bank’s owner and chairman. The leader of a business conglomerate in Ghana, he and his family had acquired the bank the previous year. Over the next several months, Nduom and Summers, along with their staffs, discussed steps the bank could take to receive a deposit of city money. By law, city officials are required to issue a request for proposals from institutions interested in serving as municipal depositories. The responses are then supposed to be evaluated by city finance officials and approved by the City Council. But by 2017, the city had not completed a full evaluation and approval process for depositories in seven years. As a result, city funds were typically left in banks that had submitted bids or applications years earlier. ISF, which didn’t have a city deposit at that time, had applied to be a depository previously.

JOHN R. BOEHM

GN BANK from Page 2

Chicago City Treasurer Kurt Summers began discussing the Illinois Service Federal Savings and Loan with his staff in February 2017, soon after the shutdown of Seaway Bank and Trust left ISF as the only remaining Black-owned bank in the state. 2020, an officer for GN informed Frerichs’ office that the bank was returning the money, effective immediately. “Please be assured that this is not goodbye,” the bank officer wrote. “We value our relationship with the Treasurer and will be utilizing your programs at a later time.” The city deposit was next. Over the next few weeks, bank officers tried to persuade the city to accept a lower interest rate on its deposit. But the bank officers were unable to get the new terms they wanted. On March 24, 2020, GN told the city it would return its money. In a written statement to ProPublica, Nduom said the bank returned the deposits “to maintain the bank’s loans-to-assets ratio consistent with best practices. That has not impacted our positive relationship with both the City of Chicago and the State of Illinois.”

Taxpayers lost no money with both the state and city deposit. A campaign spokesman for Pritzker said the governor still has a deposit at the bank and “it is not less than his initial investment.” In October 2020, a GN Bank manager submitted an application in response to the city’s request for proposals for banks seeking to receive municipal deposits. As required, the bank provided a large packet of documents, including an annual audit, a statement detailing collateral for the deposit and a signed city affidavit promising the bank would “use reasonable efforts” to make loans in low- and moderate-income areas. The city approved GN to serve as a depository again, but this time the bank decided not to accept any funds. It did not apply for a deposit in 2022. This story is from ProPublica.

12/23/21 3:35 PM

8 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

YOUR VIEW

I expected the America I had seen on TV. But life on the South Side is a struggle.

he realities of racism, poverty, food insecurity and gun violence surprised me. My name is Ajibola (pronounced ha-jee-boh-la). Try saying it three times, and I’m pretty sure you’ll say it wrong. Most people do. My name is Nigerian, and so am I. I moved to Chicago almost five years ago, five days before my 14th birthday. Before that, we lived in Ibadan, Oyo State, Nigeria. Then my dad lost his job, and my god mom died. My mom, an assistant to the police commissioner, had quit her job to start her own shop so she could have time with my little sister and me. But thieves were constantly breaking into the shop, making it impossible for her to earn a living. So my parents decided to sell their house and move to the U.S. We thought coming to America would end our family’s adversity. I imagined an America of TV and movies, with nice tilled roads and fancy suburban houses. It seems silly now, but I really thought America was paradise on earth, an ideal country where everyone who lived there was rich. I never knew systemic racism existed and still exists here. I just figured that everyone would be treated equally. I had to board two planes to get to America—one from Lagos, Nigeria, to Dubai, and another from Dubai to Chicago. I was on the plane for 23 hours. It was exhausting, but I believed I was on my way to starting a new life where I’d live like Angelina Jolie. When we arrived in Chicago, my dad showed me where we’d be staying: an antiquated South Side apartment shared with about three other families. There was no privacy. There was no heat. Our lights and water were going in and out. There

was one bathroom that we all had to share, which made me uncomfortable. My younger sister and I had to sleep on the floor. Food was also very scarce because my parents had no income. My mom would go around looking for people who needed help cooking their meals. She’d work for free so she could bring home some of that food. That was what my family lived on for the first couple of months. I started school in Chicago just two months before my eighth grade graduation. I might not remember my middle school classmates’ names or faces, but I definitely remember the lockdown drill I experienced soon after arriving. My teacher explained that it meant we were supposed to act as if there was a gunman in the school. I remember thinking: Why would there ever be a shooting in a school? These drills, plus the reality of gun violence in my South Side neighborhood, made me realize I could be shot in class, or on my way to and from school, or while playing outside. Back in Nigeria, I had never even heard a gunshot. I used to play outside a lot there. Here, I imagined going to one of those fancy suburban parks every day after school. I was expecting a different version of America. My living situation improved after my parents applied for asylum and got work permits. We moved out of that cramped apartment, but now my parents worked such long hours, six days a week. I barely saw them. Some days, they left our apartment, in Chicago’s Englewood neighborhood, at 1 p.m. and didn’t return until 2 a.m. Often, when I was up and getting ready for school, my parents were sleeping; when I came back from school, they were at work.

BY AJIBOLA ELIZABETH JUNAID

YOUNGRAE KIM FOR CHALKBEAT

The realities of racism, poverty, food insecurity and gun violence surprised me

Ajibola Elizabeth Junaid They still work long hours to keep our family afloat. America is believed to be the land of opportunities, but America makes those opportunities very difficult to access for people who are not born into privilege. The American Dream narrative of “go to school, get good grades, apply for scholarships, and better yourself ” is not that easy in an underfunded community where people don’t have access to basic amenities. It is not that easy when everyone is fighting for their lives because of poverty and the threat of gun violence. (As of mid-December, more than 800 people in Chicago were killed by homicide, according to the Chicago Sun-Times.) It’s not that easy when you attend a school where guidance counselors have too many students assigned to them, and where many students

have never heard of the common application, which allows you to apply to multiple colleges, or the FAFSA, the federal financial aid application. So they graduate and get the next available job, like at McDonald’s. By the time some students finally realize what they want to do, they may not have the knowledge, skills, support or money to thrive. But by then, they must prioritize their basic needs, not their dreams. Despite the challenges ahead—as an asylum-seeker, my immigration status makes it harder for me to get financial aid and some scholarships— I’m not giving up on my dreams. America is known to have some of the best colleges, and I’ve already been accepted at five schools. Since coming to the U.S., I haven’t been anywhere but Chicago, and I would love to see and feel what it’s like to live

in another part of the United States. Although I plan to go away for college, I don’t plan to stay away. After I get my degree, I hope to go to medical school at the University of Chicago, here on the South Side. Because leaving this neighborhood isn’t going to make it any better. But coming back, serving the community, working to get programs funded, and working to get guns off of the streets could make a difference for others who are born on the South Side or arrive here with big dreams of their own. Ajibola Elizabeth Junaid is a senior at Wendell Phillips Academy High School in Chicago and is a Student Voices Fellow at Chalkbeat, a nonprofit news site covering educational change in public schools.

A subdivision near O’Hare has disappeared. A logistics firm is moving in. BY ALBY GALLUN The developers that cleared an entire subdivision in Bensenville to make way for a warehouse development have landed their first tenant. Apex Logistics has leased a 297,600-square-foot warehouse under construction on the former site of Mohawk Terrace, a community of 106 homes razed last year. The unusual project shows the extraordinary lengths some industrial developers are going these days to grab land amid soaring demand for warehouse space.

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Itasca-based ML Realty Partners and San Franciscobased Prologis spent more than $64 million buying up all the homes in Mohawk Terrace, many of them at inflated values, only to tear them down. ML, which is leading the project, is building two warehouses totaling 605,300 square feet on the 35-acre site at the southwest corner of Busse Road and Devon Avenue. After completing the Apex deal, ML has a 605,300-square-foot building left to lease. Apex, based in Shanghai,

currently operates out of warehouses in Franklin Park and Des Plaines but plans to consolidate its shipping activities at the Bensenville building, which should be ready by 2023, said Dan Fung, Chicago general manager for Apex. The company needs to be close to O’Hare International Airport because most of the freight it handles ships by plane. The logistics business is booming these days, which is good for companies like Apex, though finding warehouse space is a major challenge—

one reason industrial developers can justify going through the trouble of buying a subdivision near O’Hare for a big project. Apex picked the ML site for one main reason, Fung said. “Basically, there’s no other options,” he said. “Within a 10-mile radius (of the airport), there’s nothing.” The residents of Mohawk Terrace were happy to create an option, enticed by prices for their homes that far exceeded what they would get if they sold them to a traditional buyer. ML and Prologis paid an average of

$615,000 per house, spending more than $1 million on six, according to BlockShopper and DuPage County records. Publicly available sales data shows only five prior home sales in the subdivision exceeding $400,000. An ML representative did not return a call. Brokers Matthew Stauber and Tom Rodeno of Colliers International represented Apex Logistics in the lease, while Andrew Maletich, Matt Garland and Dustin Albers of Cawley Chicago represented ML.

12/23/21 3:36 PM

2022

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10 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

EDITORIAL

3 issues to tackle in the year ahead, Chicago

CRAIN’S ILLUSTRATION / GETTY IMAGES

ou live in Chicago long enough, you learn to take the good with the bad. When it comes to finding work and what we get paid for it, we can appreciate the fact that our diversified economy is relatively stable. We’re not overly dependent on any one industry, so Chicagoans avoid the boom-and-bust cycles that can rock other cities. On the other hand, this multi-pronged economy also means this area doesn’t enjoy the same lift that other regions get from fast-growing industries— particularly tech. So our paychecks might not explode like they do in, say, San Jose, but then again, the cost of buying a house or renting an apartment around here is still reasonably within reach for most workers. For years, we’ve contented ourselves with being the Goldilocks of the national economy, with growth that’s neither too hot nor too cold. As Crain’s contributor Steven R. Strahler reports in the Jan. 3 issue, that Goldilocks effect is going to wear a little thin in 2022. Yes, we’ll experience economic growth in the year ahead, but because two pillars of our local ecosystem—hospitality and manufacturing—are in the doldrums for reasons related to COVID and the ongoing supply-chain crisis, our growth will lag the rest of the nation’s. “I’ve got to tell you, our general outlook for Chicago is not great,” is the bracing point of view conveyed by Barbara Byrne Denham, senior economist at Oxford Economics whose research underpins much of Strahler’s forecast for the next 12 months. Oxford projects metro gross domestic product expansion at 4.3%, below its 4.4% U.S. forecast. Meanwhile, the University of Illinois Flash Index—a weighted estimated average of growth rates in corporate earnings, consumer spending and personal income—is little changed in recent months after recovering to pre-pandemic levels, Strahler reports. Since the start of 2020 through September 2021, Chicago’s manufacturing employment

shrank 5.5% and is expected to add back fewer than half of the lost jobs in 2022, according to Oxford Economics. That’s important for the local economy because manufacturing makes up a higher share—9.1%—of Chicago’s economy than it does for the U.S. as a whole (8.6%). Another key driver of Chicago’s economy, tourism and conventions, is unlikely to recover before 2023. Oxford Economics says 27% of Chicago’s job losses are tourism-related, and business travel also isn’t expected to return to what it was before the pandemic—at least not anytime soon. Still, buried within the data compiled for Crain’s reporting, there are a few glimmers of hope. One is infrastructure spending: Illinois is promised $17 billion or more on top of $45 billion approved by the state in 2019 for the Rebuild Illinois infrastructure program. Another is that the Chicago area’s diverse manufacturing base and extensive global transportation connections could draw interest as companies consider relocations and bringing supplier operations closer to home. And,

as always, our academic medical centers, world-class universities and deep knowhow in trading and finance will continue to be a lure for employers and investment. All that said, we can’t pretend there aren’t other factors that will undoubtedly determine how well Chicago is able to leverage its strengths and meet even the modest growth targets laid out by economists. Our elected representatives and business leaders are going to have to pull together and strategize around three key priorities in the year ahead: COVID. Politicians and employers can and must implement reasonable policies to curb the spread, while supporting business owners and workers whose livelihoods are undercut by those policies. As large employers like Chicago’s own United Airlines have demonstrated, vaccine mandates work. Others should follow United’s lead, while also encouraging employees to take the next step and get a booster shot as soon as they’re eligible. CRIME. Some may quibble that the statis-

tics don’t support Chicago’s outsized reputation for violence—and they may be right, but that’s cold comfort. Recent data support the feeling of fear in the air across the city nevertheless: In 2020, as the pandemic gripped Chicago and the world, crime spiked up precipitously, according to data from the Chicago Police Department. The situation got even worse in 2021, with the number of shooting incidents alone up about 9% citywide. Carjackings have been so commonplace in the city and suburbs that they hardly register on the 10 o’clock news anymore. One recent victim: state Senate Majority Leader Kim Lightford. Meanwhile, organized retail theft sent a chill through merchants and shoppers during the holiday season. Chicago can’t afford this sustained damage to its global reputation. Our civic leaders must find a way to balance the legitimate need for fair and equitable policing with the need for safer streets. Other cities are finding ways to do it. Start learning from them. PENSIONS. Sure, COVID and crime have soaked up much of the political bandwidth in the past year, but that doesn’t mean our perennially underfunded, public employee pension problem has gone away. Far from it. The Illinois Commission on Government Forecasting & Accountability did deliver us a needed piece of good news in early December, namely that unfunded liability in the state’s five pension systems shrank by a hefty $14.2 billion in the fiscal year ended June 30, thanks to exceptionally good returns on invested capital in fiscal 2021. That’s cause for celebration. But before you uncork the champagne, remember this: The unfunded tab still stands at $130 billion. The state’s funded ratio of pension assets to liabilities is 46.5%, still way short of the 90% goal. We have to work together to tackle all three of these problems in the year ahead, Chicago. The start of a new year is as good a time as any to be thankful for our blessings, take a clear-eyed look at our challenges, and map out an action plan. Let’s get it done.

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YOUR VIEW

Mark

Where is the outrage on crime?

parents to remove him from life here is the outrage? support three days later. July Why are we not 4 would never be the same for demanding change? his family. Or for me. How can we accept the senseThere are so many senseless less violence that is plaguing tragedies now that we seem our city? to have become desensitized. It was July 4, 2021. I had just The news cycle is a river thatreturned from a hike and was passes and never returns, such checking email. I was very that each incident quickly fades confused by an email from a away, only to be replaced by colleague: “I just learned of tomorrow’s news. Except for the devastating news of Max’s Philip Hildebrandt those families that are forever passing.” It took me a minute to is CEO of Segall regain my bearings and I franti- Bryant & Hamill in changed. There is plenty of blame to go cally began reaching out to other Chicago. around, but frankly that is not colleagues to find out what had happened. Our summer intern, Max Lew- even the point. Violent crime has crept is, had been hit by a stray bullet July 1 rid- into the Loop and to North Side neighboring the el train home to his apartment in hoods. The West and South sides are used Hyde Park from our Loop office. His spine to this senseless violence, but now that it was completely severed. He convinced his has moved to more affluent areas, it seems

to get more attention. But even that hasn’t seemed to fully grab our leaders’ attention. Most recently, a 71-year-old man was ruthlessly gunned down. His accused shooter was out on a “misdemeanor gun violation.” What the hell is that? If someone is arrested with an unregistered gun, make it a mandatory felony sentence of five years. No questions asked. Maybe that would be a deterrent. This is such a clear failure of leadership in the city, starting with the mayor’s office, then the police and finally with Cook County State’s Attorney Kim Foxx. Why my indignance? I have a son who lives in the city. He could just as easily have been Max. I have a workforce that commutes into the city. Their fear of public transportation is just as real as their fear of COVID. It is not good business for the city as its reputation across the country and the world is being

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited. Send letters to Crain’s Chicago Business, 150 N. Michigan Ave., Chicago, IL 60601, or email us at letters@chicagobusiness.com. Please include your full name, the city from which you’re writing and a phone number for fact-checking purposes.

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tarnished as we speak. Why our business community is not taking a stand on all of this is just inexplicable. Any CEO who has an office in Chicago should literally be showing up at City Hall with their peers en masse to demand a plan. The mayor’s address on Dec. 20, 2021, was a step in the right direction, but at this point, the city needs more than words—we need action. To be clear, I am not anti-gun, but I am anti-unregistered gun. I am pro-police, but I am also pro-police reform. I am prosocial justice, but I am also pro-justice for the law-abiding citizens who are being terrorized in their own neighborhoods. There needs to be justice for those in our neighborhoods. They deserve to be safe in their homes. My employees deserve a safe place to work. My son deserves a safe place to live.

Sound off: Send a column for the Opinion page to editor@ chicagobusiness.com. Please include a phone number for verification purposes, and limit submissions to 425 words or fewer.

12/23/21 3:46 PM

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CRAIN’S CHICAGO BUSINESS • JANUARY 3, 2022 11

READERS RESPOND

‘Very disappointed in her tenure’ The week leading up to Christmas was chock full of events on the crime front that drew a fair bit of commentary on Crain’s social media channels On Dec. 20, 2021, a judge ordered the release of Special Prosecutor Dan Webb’s report on Cook County State’s Attorney Kim Foxx’s handling of the Jussie Smollett case. Not surprisingly, Webb’s findings—that the prosecutor’s office badly mishandled the case—prompted a tsunami of responses. Here’s a sampling:

got my vote the first time but hasn’t gotten it since and won’t ever again.” —Thomas Huntley on Facebook

“She has lost the confidence of the

“She’ll survive this.”

“Very disappointed in her tenure. She

Later that same day, Mayor Lori Lightfoot called for new steps to reverse Chicago’s

public. She should step down.” —Mike Halston on Facebook

“It will be hard to ever believe her again.

A bad position for a prosecutor even in Cook County.” —@thefotowarrior on Twitter —@robertfwhitejr1 on Twitter

crime wave, including a total ban on releasing people accused of murder, carjacking and many gun offenses. The social media response was immediate: “While most will say that this is too little

too late I will say that this is a small step in the right direction. I’m just as upset and discouraged as the naysayers.” —Christopher W. Thompson on Facebook

“She has done nothing to stop the violence

in Chicago. In fact, her policies have

contributed to the rise in crime. Now fearing that she will likely lose re-election, she decides to do what should have been done long ago. That’s not leadership, that’s the very definition of self-serving behavior.” —Brent McDaniel on Facebook “If you don’t fix the economics of

poverty-blighted neighborhoods and their PTSD suffering constituencies, then mere law enforcement will only stoke further crime and chaos. Stop reacting and start being proactive.” —@JMSimonChi on Twitter

CRAIN’S CHICAGO BUSINESS

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12/23/21 3:46 PM

12 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

Crain’s list of Chicago’s highestpaid athletes is officially out of retirement. Last published in 2017, our list features an almost entirely different lineup. Four of the top five highest earners on this year’s list are Bulls players: DeMar DeRozan, Zach LaVine, Nikola Vucevic and Lonzo Ball. Only two Cubs made the list as the North Siders rebuild their roster. Same with the Blackhawks, whose franchise faces almost didn’t make the top 25. The White Sox and Bears have seven players apiece, though their teams had very different levels of success on the field this year. Crain’s ranked the pro athletes by total income, which includes base salary and bonuses, plus industry expert estimates of how much players made in 2021 from promotional deals, appearance fees and endorsements. Estimated marketing incomes were created with the help of Doug Shabelman, CEO of Burns Entertainment, and industry experts from sports marketing agency rEvolution. The results reflect both the direction each team is heading in 2021 as well as broader financial trends across each major league. Boosting the fortunes of the Bulls’ roster is the NBA’s lucrative media rights agreement worth $2.6 billion per year through 2024. That deal pushed the league’s salary cap up by 61% since 2015 to more than $112 million this season. The Bulls, which are off to their best start in years and have two of the league’s top 10 scorers in DeRozan and LaVine, have also crowded the top of the list, thanks to a roster shake-up this summer under the new management that took the reins in 2020. Granted, these NBA stars bring home generous base salaries, but marketing deals for DeRozan, LaVine and Ball help set them apart. Sports marketing has changed drastically since the advent of social media, says sports agent Mark Pieper, CEO of ISE Baseball. The biggest change is a player’s engagement with social media and their number of followers. “If you’re comparing two players of somewhat equal talent, but one player has a bigger social media platform, he will likely get a deal with a brand, even if he’s a lesser player on the field,” said Pieper. This is true if you’re comparing Vucevic and Ball. Vucevic is a twotime All-Star who maintains a low profile off-court, whereas Ball has been in the spotlight for years— thanks in part to his “Ball in the Family” reality TV show—and touts

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NEWSCOM

Last published in 2017, our list features an almost entirely different lineup | BY SOPHIE RODGERS

Chicago Bulls small forward DeMar DeRozan (11), guard Lonzo Ball (2) and guard Zach LaVine (8) go through a photo session on Sept. 27, 2021, during media day at the United Center in Chicago.

“IF YOU’RE COMPARING TWO PLAYERS OF SOMEWHAT EQUAL TALENT, BUT ONE PLAYER HAS A BIGGER SOCIAL MEDIA PLATFORM, HE WILL LIKELY GET A DEAL WITH A BRAND, EVEN IF HE’S A LESSER PLAYER ON THE FIELD.” Mark Pieper, CEO, ISE Baseball

12 million Instagram followers. Vucevic doesn’t even have an Instagram account. This might explain why you saw Ball in ads for Marvel movies “Black Widow” and “Shang-Chi,” and Vucevic only on the court. Crain’s estimates Ball generates about $3 million from deals, while Vucevic makes half a million from Nike and YouTube. Unlike NBA players, MLB players have a harder time scoring brand deals, primarily based on their smaller celebrity. Over the summer of 2021, Chicago lost its biggest household names in baseball when the Cubs traded Kris Bryant and Anthony Rizzo. Pieper outlined what makes MLB players successful in marketing: players’ individual success, their team’s success, players’ genuine interest in a brand and a significant social media presence. The White Sox’s Tim Anderson— coming in at No. 23 with a total income of $7.6 million—earns the most in marketing income out of all the MLB players on the list. Anderson only has about 256,000 followers on Instagram, but he has lined up partnerships with Barilla,

Ankin Law Office, BMW, Taco Bell and Wilson. While Anderson has been playing for the White Sox since 2016, some new big names on the Chicago sports scene also made the list. The most notable is Bears rookie Justin Fields, who has shown signs that he could turn into an endorsement magnet as the face of the city’s most popular franchise. The 22-year-old quarterback has leveraged his Chicago spotlight to supplement his relatively low base salary. Fields, No. 14 on the list, has a base salary of only $660,000 but received a signing bonus of nearly $11.1 million. Fields created buzz around his signing and subsequently lined up a slew of deals with brands that include Progressive, Bose, Lowe’s, Chipotle, Wonderful Pistachios and C4 Energy. Crain’s estimates he has made about $2 million in marketing, bringing his total income to $13.7 million. Then there are the veterans, the Chicago greats who were on the first list published in 2016 and remain: Patrick Kane and Jonathan Toews. Kane comes in at No. 24, with a total income of $7.4 million,

and Toews comes in at No. 25, with a total of $7.3 million. By comparison, Toews ranked No. 8 in 2017 with a total income of $15.1 million, with $1.3 million of that total coming from marketing deals. Kane ranked No. 9 with a total of $14.9 million, with $1.1 million coming from endorsements and partnerships. The eight-year contracts Kane and Toews signed with the team in 2014 were heavily front-loaded, which has allowed other athletes in the market to pass them by in the money they earn from their playing contracts. The list also highlights the growing disparity between the value of NHL contracts and those of the other leagues. DeRozan alone is making more money from his Bulls contract than the four highest-paid Blackhawks players combined, according to contract database Spotrac. Kane is no longer on Instagram, and Toews’ account is now private. The two Blackhawks legends no longer dominate the world of sports news like they did from 2010 to 2015. Only time will tell if they’ll make the cutoff on next year’s list.

12/23/21 3:49 PM

JOE PINCHIN /CHICAGO BULLS

CRAIN’S CHICAGO BUSINESS • JANUARY 3, 2022 13

NIKOLA VUCEVIC Center, Bulls Age: 31 2021 total income: $24.5 million 2021 salary (plus bonuses): $24 million Contract (year started): $100 million; 4 years (2020) Estimated marketing income 2021: $500,000 Affiliated brands: Nike The Bulls acquired this 6-foot-10, two-time All-Star in March 2021 in a deal with the Orlando Magic. Vucevic earned $26 million in the 2020-21 season, dropping down to a base salary of $24 million this season, then $22 million next season. The Montenegrin NBA veteran leads the Bulls in rebounds this year, despite missing seven games in November after testing positive for COVID-19. He maintains a relatively low-profile off-court, though he has endorsements with Nike and YouTube.

NEWSCOM

ZACH LAVINE Shooting guard, Bulls Age: 26 2021 total income: $27 million 2021 salary (plus bonuses): $19.5 million Contract (year started): $78 million; 4 years (2017) Estimated marketing income 2021: $7.5 million Affiliated brands: Adidas, Mountain Dew, CarMax, Finish Line, Cherrish, Panini America, Zenni Optical The 26-year-old had an exciting offseason in 2021, winning a gold medal playing for Team USA in the Tokyo 2020 Summer Olympics. The All-Star has been staying busy off-court doing marketing for Mountain Dew and CarMax’s “Call Your Shot” campaign. In 2017, LaVine scored a four-year shoe deal with Adidas for $35 million, though the deal expired in October.

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STEPHEN GREEN/CHICAGO CUBS

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DEMAR DEROZAN

JASON HEYWARD

Small forward, Bulls Age: 32 2021 total income: $30 million 2021 salary (plus bonuses): $26 million Contract (year started): $81.9 million; 3 years (2021) Estimated marketing income 2021: $4 million Affiliated brands: Nike, Spalding, Gatorade The Bulls picked up this four-time All-Star and two-time All-NBA player over the summer from the San Antonio Spurs through a sign-and-trade deal. He’s the highestpaid player on the team and on Crain’s list with a base salary of $26 million. In 2020, DeRozan ranked No. 76 on Forbes’ Highest-Paid Athletes list with a total of $24.8 million in earnings. The 32-year-old has sponsorship deals with Spalding, Nike and Gatorade, and he recently launched his own clothing line, Comp10, inspired by his hometown of Compton, Calif.

Right field, Cubs Age: 32 2021 total income: $23.8 million 2021 salary (plus bonuses): $23.5 million Contract (year started): $184 million; 8 years (2016) Estimated marketing income 2021: $300,000 Affiliated brands: Nike, Rawlings, New Era With the exception of a now-fabled clubhouse speech he gave during a rain delay late in Game 7 of the 2016 World Series, Heyward’s Cubs career has been a massive disappointment for fans. He suffered perhaps the worst statistical season of his 12year career in 2021 and played in only 104 games before suffering a concussion that ended his season. Yet he still made $23.5 million this year under a huge contract the Cubs signed with him in 2015. Heyward’s agency said he didn’t focus on marketing in 2021, instead opting for community events. That said, the All-Star’s income was supplemented by sporting Nike gear on the field and using a Rawlings field glove. Heyward ranked No. 7 on our list in 2017 with a total income of $15.7 million.

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12/23/21 3:49 PM

14 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

CRAIN’S LIST CHICAGO’S HIGHEST-PAID ATHLETES

CHICAGO WHITE SOX

ALAMY

CHICAGO BEARS

JOE PINCHIN /CHICAGO BULLS

Ranked by 2021 total income.

LONZO BALL

ALLEN ROBINSON

YASMANI GRANDAL

DALLAS KEUCHEL

Point guard, Bulls Age: 24 2021 total income: $21.6 million 2021 salary (plus bonuses): $18.6 million Contract (year started): $85 million; 4 years (2021) Estimated marketing income 2021: $3 million Affiliated brands: Airbnb, C4 Energy, Foot Locker, Uber Ball initially came into the sports and pop culture spotlight through his boisterous father, LaVar, who hyped all three of his basketball-playing sons before they hit the national scene and created the Big Baller Brand clothing and shoe company. But Lonzo made his own name at UCLA, bolstered it in the pros, and is now helping lead an impressive Bulls roster after joining the team through a sign-and-trade deal with the New Orleans Pelicans over the summer. In 2021, Lonzo and his brother LaMelo—who plays for the NBA’s Charlotte Hornets—did commercials for Marvel movies “Black Widow” and “Shang-Chi.” Lonzo was also featured on “Ball in the Family,” a reality TV series following the lives of the Ball family.

Wide receiver, Bears Age: 28 2021 total income: $18.5 million 2021 salary (plus bonuses): $18 million Contract (year started): $17.9 million; 1 years (2018) Estimated marketing income 2021: $500,000 Affiliated brands: Gillette, Verizon, Action Network, Hylux The Bears placed their franchise tag on the team’s top wide receiver for 2021 after his three-year, $42 million deal expired, locking him into a oneyear contract with a base salary of nearly $18 million and making him the highest-paid player on the roster. Whether he stays in Chicago next season is one of several big questions facing the franchise in 2022. Robinson stayed busy doing marketing deals for Gillette, Verizon, Action Network and Hylux.

Catcher, White Sox Age: 33 2021 total income: $18.4 million 2021 salary (plus bonuses): $18.3 million Contract (year started): $73 million; 4 years (2020) Estimated marketing income 2021: $140,0001 Affiliated brands: BM Authentics, Franklin, New Balance, Topps The veteran White Sox catcher is the highest-paid player on the team, with a base salary of $18.25 million. But he isn’t particularly active on the marketing front, with partnerships limited to baseball apparel-focused brands New Balance and Franklin. The 33-year-old also owns a multimillion-dollar equity stake in Force3 Pro Gear, a sports safety-oriented equipment company. Grandal, who is entering year three of a four-year, $73 million contract, underwent knee surgery in July and spent nearly two months on the injured list this season.

Pitcher, White Sox Age: 33 2021 total income: $18.2 million 2021 salary (plus bonuses): $18 million Contract (year started): $55.5 million; 3 years (2020) Estimated marketing income 2021: $175,000 Affiliated brands: Nike, Rawlings Keuchel posted the worst statistical season of his 10-year career in 2021 and was left off the Sox’s playoff rosters as a result. But the veteran southpaw was still one of the highestpaid athletes in the city as he rides a three-year, $55.5 million contract he signed with the South Siders before the 2020 season. Keuchel has earned more than $77 million from MLB contracts so far in his career.

Name, position, team

11 12 13 14 15 16 17 18 19

Age

2021 total income

2021 salary (plus bonuses)

Contract (year started)

Estimated marketing income 2021

CRAIG KIMBREL Pitcher, White Sox

$16.2 million

$16 million2

$43 million 3 years (2021)

$200,000

Nike

ROBERT QUINN Linebacker, Bears

$16.2 million

$16.1 million

$70 million 5 years (2020)

$50,0003

500 Level

KYLE HENDRICKS Pitcher, Cubs

$14.6 million

$14.5 million

$55.5 million 4 years (2014)

$100,0001

Fanatics, Rawlings, New Balance

JUSTIN FIELDS Quarterback, Bears

$13.7 million

$11.7 million

$18.9 million 4 years (2021)

$2 million

Progressive, Bose, Lowe’s, Chipotle, Wonderful Pistachios, C4 Energy

LIAM HENDRIKS Pitcher, White Sox

$12.2 million

$12 million

$54 million 3 years (2021)

$175,000

Adidas, Rawlings

AKIEM HICKS Defensive lineman, Bears

$10.8 million

$10.5 million

$48 million 4 years (2016)

$250,000

Pepsi Dig In

ALEX CARUSO Shooting guard, Bulls

$10.7 million

$8.7 million

$37 million 4 years (2021)

$2,000,0001

ANDY DALTON Quarterback, Bears

$10.6 million

$10 million

$10 million 1 years (2021)

$550,000

PATRICK WILLIAMS Power forward, Bulls

$10.4 million

$7.4 million

$32.1 million 4 years (2020)

$3,000,0001

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Affiliated brands

Anta, TravisMathew, Manscaped, Tonal, Carushow Apparel

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Nike Google, Nike, Panini America, AT&T, BM Authentics, Legal Zoom

12/23/21 3:49 PM

CRAIN’S CHICAGO BUSINESS • JANUARY 3, 2022 15

JOSÉ ABREU First baseman, White Sox Age: 34 2021 total income: $16.3 million 2021 salary (plus bonuses): $16 million Contract (year started): $50 million; 3 years (2014) Estimated marketing income 2021: $275,000 Affiliated brands: New Balance, Wilson, Franklin This three-time All-Star ranked No. 19 on our list in 2017 with total income of $10.3 million. The White Sox veteran is back, this time making the top 10. Abreu has been with the White Sox since 2014, originally on a six-year, $68 million contract. In November 2019, he agreed to a threeyear, $50 million contract extension with the South Siders. He’s earned about $83.9 million from his eight seasons with the Sox, according to Spotrac. Danny Ecker contributed to this reporting.

Courtney Vandersloot midfielder Gaston Gimenez will be back in 2022 after the Fire recently shook up its roster. Gimenez pulled in nearly $2.4 million in 2021 as the clubs’ second-highest-paid player, according to Spotrac. Lastly, the most grossly underrepresented players: everyone on the Chicago Sky. Despite the WNBA team bringing home its only championship trophy in the 2021 season, none of its players made the list. The highest-paid player on the team, Courtney Vandersloot, made only $200,000 in 2021.

ALAMY

KHALIL MACK Linebacker, Bears Age: 30 2021 total income: $18.1 million 2021 salary (plus bonuses): $17.2 million Contract (year started): $141 million; 6 years (2018) Estimated marketing income 2021: $850,000 Affiliated brands: Nike, New Era, Fifty Deuce, Mack Trucks The Bears made Mack the highestpaid defensive player in NFL history in 2018 when they signed him to a six-year, $141 million contract promptly after trading for him. The six-time Pro Bowler remains one of the team’s highest-paid players and supplements his on-field income with deals with Nike and New Era, plus his own official merchandise store, Fifty-Deuce. Mack and the Bears haven’t been able to replicate their 2018 defensive success over the past three years, and the All-Pro linebacker played in only seven games in 2021 before undergoing season-ending foot surgery.

If it weren’t for the Cubs’ restructuring during the summer of 2021, this list of Chicago’s highest-paid athletes would have featured more veteran North Siders. Cubs fans were left heartbroken when the team traded heavy hitters Kris Bryant, Anthony Rizzo and Javier Báez to the San Francisco Giants, the New York Yankees and the New York Mets, respectively. Báez recently signed a six-year, $140 million contract with the Detroit Tigers. Had Bryant, Rizzo and Báez signed new contracts with the Cubs, they would have made the top of this list. Willson Contreras is another Cubs vet who didn’t make the cut. The two-time All-Star just missed our list with a total income of $7.2 million—$6.65 million from base salary and $520,000 from marketing deals. After winning the World Series with the Cubs in 2016, Contreras scored deals with Nike, Rawlings, Gatorade, Budweiser, Topps and Panini America. On the South Side, White Sox stars Lucas Giolito, Eloy Jimenez and Luis Robert are still on early-career contracts that keep them off the list for now. Five-time Pro Bowler Jimmy Graham also didn’t crack the top 25. The Bears tight end will make $7 million for the 2021 season and an estimated $150,000 from endorsements and partnerships with Adidas and USAA. Nobody on Chicago Fire FC came close to making the list, which is no surprise, given that neither would the highest-paid players in all of Major League Soccer. Fire

CHICAGO SKY

CHICAGO WHITE SOX

CHICAGO BEARS

CHICAGO WHITE SOX

Who’s missing?

Chicago Cubs infielders Anthony Rizzo (44), Addison Russell, Javier Baez (9), and Kris Bryant (17). Name, position, team

Age

2021 total income

2021 salary (plus bonuses)

Contract (year started)

Estimated marketing income 2021

Affiliated brands

DERRICK JONES JR. Small forward, Bulls

$10 million

$9.7 million

$19 million 2 years (2021)

$250,000

EzFill

EDDIE JACKSON Defensive back, Bears

$9.3 million

$9.1 million

$58.4 million 4 years (2017)

$200,000

Progressive, BoJacks cereal (sold at Mariano’s)

LANCE LYNN Pitcher, White Sox

$8.3 million

$8 million

$38 million 2 years (2021)

$250,000

Nike

TIM ANDERSON Shortstop, White Sox

$7.6 million

$7.3 million

$25 million 6 years (2016)

$340,000

BMW, Wilson, FOCO, R.B.I. Baseball, Ankin Law Office, Barilla

PATRICK KANE Right wing, Blackhawks

$7.4 million

$6.9 million

$84 million 8 years (2007)

$500,0004

Bauer, Sparx, Chevrolet, Frameworth, Upper Deck, Fanatics

JONATHAN TOEWS Center, Blackhawks

$7.3 million

$6.9 million

$84 million 8 years (2007)

$400,0004

Chevrolet, Canadian Tire, Frameworth, Upper Deck

List includes all athletes currently on Chicago pro team rosters who played here in 2021. Salary figures include player bonuses and reflect playing contracts from the 2021 or, in some cases, the 2021-22 season. Marketing income was calculated using estimates from agents and industry experts of what players made from endorsements (including gear), promotional deals and appearance fees. Not included are other financial investments and ownership stakes in companies. 1. Figure from Wasserman. 2. $10.4 million from the Cubs and $5.6 million from the White Sox. 3. Figure from Athletes First. 4. Figure from CAA Sports.

Researched by Sophie Rodgers (sophie.rodgers@crain.com), with additional data provided by Spotrac.com, Doug Shabelman (CEO of Burns Entertainment) and industry experts from sports marketing agency rEvolution.

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12/23/21 4:44 PM

16 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

What should we expect for manufacturers in 2022? The industrial economy is entering a new stage of the recovery, which has implications for everything from capital spending to equity valuations BY BROOKE SUTHERLAND

hauls. These trends add up: “Perhaps somewhat astoundingly, the outlook for robust growth in demand for most industrial end-markets has not appeared as bright since the 1980s,” William Blair industrial analysts led by Nicholas Heymann wrote in a report this month.

FREDERIC J. BROWN/AFP/GETTY IMAGES

t has been 21 months since the World Health Organization declared the COVID-19 outbreak a pandemic, but it has felt like eons longer. That’s in large part because we keep reliving the same story lines again and again. Business operations and air travel are getting disrupted yet again by a spike in COVID cases and the emergence of the omicron variant. Americans just keep buying boatloads of physical stuff, overloading logistics infrastructure. I recently looked back at some of my early pandemic columns: The virus has solidified overly globalized supply chains “as a liability” and should “accelerate the unwinding of far-flung parts networks” and boost the adoption of industrial software to guard against unplanned downtime, I wrote in February 2020. The observation would be just as pertinent today. So what should we expect for manufacturers in 2022? Much like COVID itself, the key themes of 2021 aren’t going away, from supply chains to increased automation and a bevy of breakups. The industrial economy is entering a new stage of the recovery, though, and that has implications for everything from capital spending to equity valuations. Here’s what I’m watching:

Supply chain congestion may be easing, but it’s not fixed.

support the narrative that the challenging operating environment isn’t eating into demand— at least not yet. Even businesses with shorter production cycles, such as Fortive Corp.’s Fluke test LOGISTICS LOGJAMS ARE HERE and measurement unit, have TO STAY, BUT SO IS DEMAND backlogs. Concerns about overThere are some encouraging ordering and an eventual glut of signs that the supply chain con- inventory linger, but manufacgestion in the U.S. may be easing turers, including Dover Corp., as freight rates moderate from say they’re selling everything record highs and ports chip away they can supply right now. Outside of the still-beatenat container pileups. Nothing is fixed, though: “The problem is down aerospace sector, sales really severe, and it will remain at many industrial compasevere for at least another year,” nies are already running ahead Sanne Manders, chief operating of pre-pandemic levels. But officer of Flexport, said in an in- there’s reason to think the secterview last week. But barring a tor is due for more than just a shutdown of the West Coast ports run-of-the-mill recovery. The because of coming labor negoti- globalized supply chain isn’t ations, manufacturers have most vanishing entirely; it still makes likely already seen the worst of perfect sense for certain busithe supply chain crunch—and ness models. But the pressures the larger companies have gen- of COVID have forced companies big and small to reevaluerally managed just fine. ate how resilient their opera“THE PROBLEM IS REALLY SEVERE, manufacturing tions truly are, and many AND IT WILL REMAIN SEVERE FOR have concluded they need to have factories AT LEAST ANOTHER YEAR.” closer to home. For the most part, the blockSanne Manders, chief operating officer of buster North American Flexport factory announcements remain heavily concenWhile disruptions and rising trated in the semiconductor and costs have pinched margins and electric-vehicle industries as near-term sales at the edges, the U.S. government scrambles pricing power is off the charts to rectify its over-dependence and orders just keep climbing. on Asia for these crucial nextThere’s no guarantee that the generation technologies. sales manufacturers couldn’t But the chip factory announcecomplete in 2021 because of ments amount to at least $50 supply chain challenges will still billion so far. Remember that be there for the taking in the fu- semiconductor plants also need ture, but bloated backlogs help lights, air conditioning and roads.

P016_CCB_20220103.indd 16

Bank of America Corp. analyst Andrew Obin estimates the new chip factories alone will add 1.8 percentage points of growth to the pace of capital expenditure expansion in the U.S. over five years. There are also signs the spending is spreading. Danish medical-device maker Ambu A/S, Chinese furniture maker Keeson Technology Corp., industrial conglomerate Boyd Corp. and toymaker MGA Entertainment are among those setting up factories just across the border in Mexico to shrink their supply chains, as detailed by my Bloomberg News colleague Thomas Black.

SPENDING BOOM

One reason there haven’t been more announcements like this at the mega-cap level is that most large industrial companies have long oriented their supply chains to put the final assembly process near the end customer. But if growth is going to be as robust as some of these companies are saying, they’re going to need more capacity. Schneider Electric SE, for example, is adding three new North American plants to boost production of circuit breakers, switchboards and other electrical equipment. Big capital spending increases were limited among large industrial manufacturers in 2021, in part because of challenges getting the materials and people necessary to build new factory lines. But plans for 2022 have started to take shape, and the early read from companies such as Rockwell Automation and Deere that have already given guidance indicates a big step

up in spending, according to an analysis by Melius Research analyst Scott Davis. It’s also not free to go green. Reaching carbon neutrality as a manufacturer means investments in more efficient equipment, development of more environmentally friendly technologies, analytics to measure progress and perhaps an electricvehicle fleet. Plastic-container maker Berry Global Group aims to spend $800 million on capital expenditures in fiscal 2022, double pre-pandemic levels. The outlay is meant to help the company keep up with robust demand and prioritize faster-growing markets—one of which is recycled plastic, CEO Tom Salmon said in an interview last month. Meanwhile, rising wages and difficulties filling jobs in a tight labor market will likely accelerate adoption of industrial automation, fueling yet more spending on equipment. Robots are the great equalizer when it comes to geographic assessments of supply chains; they cost about the same no matter where they are in the world. The International Federation of Robotics projects that North American robot installations will grow 17% in 2021 and that a “post-crisis boom” will continue to fuel low double-digit growth rates in 2022 and beyond. And this is all before factoring in the knock-on effects from the $550 billion in fresh infrastructure spending planned in the U.S. and the tens of billions of dollars of COVID aid that could find their way to air-conditioning upgrades or water system over-

ROOM TO RUN OR OLD NEWS? The question is whether all this good news has already been priced into industrial stock valuations. Manufacturers tend to outperform in periods of inflation, and the various engines of potential over-the-top growth should theoretically make many of these stocks even more attractive. That hasn’t really happened: Backing out aerospace-related stocks, the S&P 500 Industrial Index has outperformed since stocks bottomed in March of 2020, but has tracked only slightly ahead of the broader benchmark in 2021, according to data compiled by Bloomberg. This was due in part to a sell-off in November on concerns about the omicron variant and further supply chain disruptions. And yet, industrial stocks broadly are still expensive: Those tracked by RBC Capital Markets analyst Deane Dray are trading at more than 25 times their earnings, well above the historical 10-year average of about 19.5 times. The multi-industrial sector’s price-earnings multiple is about 21% higher than that of the S&P 500, a level that typically kicks off a period of valuation compression, Dray wrote in a report this week. Capital spending is typically a rising tide that lifts all boats in the industrial sector; these companies buy and sell to one another. But in this environment, investors may have to be choosier. Obin of BofA recommends focusing on companies with lesselevated valuations that have the management chops to navigate the supply chain challenges and the pricing power to offset inflation; Emerson Electric, Carrier Global Corp., General Electric and Fortive are among his top picks. Barclays analyst Julian Mitchell is more skeptical that a capital expenditure boom will materialize, citing the pressures from rising interest rates and a slowdown in Chinese markets. He recommends focusing on companies with significant valuation disconnects to peers, such as nVent Electric and Parker-Hannifin Corp.; aerospace companies, including Honeywell International, that have more room for a rebound; and those with opportunities for value-enhancing breakups and acquisitions, such as Dover, Ingersoll Rand and Roper Technologies. Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies.

12/23/21 3:12 PM

BANKING Wintrust Private Client, Chicago Wintrust Private Client is excited to welcome Michael Pavlis to the team. As a lead advisor and relationship manager, Michael draws upon Wintrust’s tremendous intellectual capital and team of strategists to recommend customized solutions to build and preserve his clients’ wealth. Michael does this after first gaining a thorough understanding of his clients’ goals, priorities, and financial assets. Reach out to Michael and his team at Wintrust, they are ready to talk with you!

CONSTRUCTION

PEOPLE ON THE MOVE LAW

NON-PROFIT

REAL ESTATE

Cancer Treatment Centers of America, Zion

Burke, Warren, MacKay & Serritella, P.C., Chicago

All Chicago Making Homelessness History, Chicago

Elmdale Partners, Skokie

Cancer Treatment Centers of America® (CTCA), a premier national oncology network of hospitals and outpatient care centers, is pleased to announce that Dr. Jalal Baig has begun seeing patients at its Zion, IL hospital. Board certified in internal medicine, Dr. Baig joined CTCA as a medical oncologist at the Outpatient Care Center in Gurnee, IL in 2019. He now evaluates and treats patients with various types and stages of cancer at both locations. For more information, visit cancercenter.com.

Burke Warren partner Rachel Bossard has been elected a shareholder of the Firm effective January 1, 2022. She chairs the Firm’s Labor & Employment Law practice group. She represents employers in all aspects of the law including client counseling, training, litigation and benefits. She is a frequent lecturer and has a tremendous amount of experience presenting and training on important employment topics. Women have been elected in the last four shareholder elections held at Burke Warren.

All Chicago Making Homelessness History thanks Richard Sciortino for his service as Board Chairman and welcomes new Board Chairman Mark Hennessy. Sciortino Sciortino, Principal of Brinshore Development LLC, has served as Board Chair for two years. Hennessy, a former General Manager at IBM, brings extensive experience advising and serving on the boards of nonprofits. “Rich Hennessy has guided us during the pandemic, a period of great challenges and significant growth for our organization, and Mark will continue that legacy of addressing homelessness through emergency financial assistance, community partnerships, data analytics, and training,” says All Chicago CEO Carolyn Ross.

HEALTH CARE Cancer Treatment Centers of America, Zion Cancer Treatment Centers of America® (CTCA), a premier national oncology network of hospitals and outpatient care centers, is pleased to welcome Dr. Kumar Gaurav to the medical staff at its Zion, IL hospital. Board certified in internal medicine, pulmonary medicine and critical care medicine, Dr. Gaurav has practiced in a variety of health care settings since 2014. He is trained in robotic bronchoscopy, which allows for better precision and control during biopsies. For more information, visit cancercenter.com.

FINANCIAL SERVICES OriginPoint, Chicago

INVESTMENT BANKING

OriginPoint, a new mortgage origination joint venture between Guaranteed Rate Inc. and Compass, welcomes Jamie Franz as Senior Vice President of Sales Support and Transition in Chicago. In addition to originating loans, his primary focus will be recruiting and on-boarding top-producing talent. Franz brings almost two decades of mortgage industry experience to OriginPoint, including 10 years at Guaranteed Rate, where he was a Regional Manager. Franz has been honored as a Top 1% Mortgage Originator by Mortgage Executive Magazine, a Top Producer by National Mortgage News and a Guaranteed Rate President’s Club Member for eight years. (Jamie Franz; NMLS #221285. OriginPoint, LLC; NMLS #2185899. For licensing, visit nmlsconsumeraccess.org.)

Duff & Phelps, A Kroll Business, Chicago

INSURANCE Health Care Service Corporation, Chicago Health Care Service Corporation (HCSC) appointed Manika Turnbull as Senior Vice President and Chief Human Resources Officer, responsible for all aspects of the company’s people strategy in support of its mission to create pathways to health for its communities. Turnbull has held multiple roles at the company since joining 15 years ago. She holds a master’s degree in industrial and organizational psychology and Ph.D. in organizational leadership from The Chicago School of Professional Psychology.

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To place your listing, visit www.chicagobusiness.com/peoplemoves or, for more information, contact Debora Stein at 917.226.5470 / dstein@crain.com

HEALTH CARE

Clayco, Chicago Clayco welcomes Sam Boynes as Diversity & Inclusion Manager. Sam will assist in the design and launch of initiatives that accelerate minorityowned small-business growth. He will also lead on-theground efforts in the development and execution of economic impact programs. Sam previously led diversity efforts for construction trades at HIRE360, managing relationships with major developers, contractors and unions. Sam holds a B.S. in business and human resource management from Purdue University.

Advertising Section

Duff & Phelps, A Kroll Business, the world’s premier provider of services and digital products related to valuation, governance, risk, and transparency and a leading middle-market transactions advisor, has announced the appointment of Howard P. Lanser as a managing director and head of U.S. Private Capital Markets, based in Chicago.

LAW Elrod Friedman LLP, Chicago Elrod Friedman LLP proudly announces the election of Liz Butler to partnership in the firm. Liz concentrates her practice in the areas of land use, zoning, historic preservation, economic development incentives, and general real estate for the firm’s public and private sector clients. Prior to joining Elrod Friedman in February 2021, Liz was an associate in the land use group at DLA Piper in Chicago. LAW McDonald Hopkins LLC, Chicago Elliot Raff has joined the Chicago office of McDonald Hopkins, adding more than 30 years of experience to the firm’s tax and benefits team and executive compensation and governance practice, from a career that includes nearly a decade holding senior inhouse legal positions at major U.S. companies and as a trial attorney for the U.S. Department of Labor. He comes to McDonald Hopkins from the Washington, D.C. office of Keightley & Ashner, where he was senior counsel for compensation and benefits.

NON-PROFIT Reading Between the Lines, Chicago Nelly Viramontes has joined Reading Between the Lines as Administrative Manager bringing 20+ years of nonprofit administrative experience. Nelly will coordinate the office operations, manage the organization’s databases and maintain its centralized documents system. “We are thrilled to welcome Nelly and to benefit from her substantial expertise as Reading Between the Lines continues to grow our transformative programming for vulnerable individuals transitioning from prison back to society.”

MARKETING The Mx Group, Burr Ridge LAW Willkie Farr & Gallagher, Chicago Willkie Farr & Gallagher is pleased to announce that Laura L. Norris and Thomas A. Spencer have been elected to partner, effective January 1, 2022. Laura is in the Norris Litigation Department. Her practice focuses on complex commercial litigation, assisting clients in an array of highstakes matters including ERISA matters, asset management disputes, consumer class actions, breach of contract, RICO Spencer and copyright disputes. Thomas is in the Corporate & Financial Services Department, focusing on mergers and acquisitions, PE and VC transactions, joint ventures, capital markets transactions and general corporate and securities advice. He has provided counsel on billion-dollar deals, including the sale of analytics company Appriss Insights.

The Mx Group, one of the fastest-growing B2B agencies in the country, welcomes Brennen Roberts as senior director of growth and John Gallagher Roberts as video production director. Roberts, with his 20+ years of B2B sales experience, will continue to grow the agency’s opportunities to make an impact on sales by implementing strategic insight-based multi-channel sales and Gallagher marketing campaigns. Gallagher has 10+ years of production experience that he’s funneled into B2B by building in-house video teams and collaborating with a network of external partners to produce, direct, shoot and edit hundreds of videos. He will use his award-winning filmmaking experience to guide teams through a dynamic blend of video insights and capabilities.

NON-PROFIT Skills for Chicagoland’s Future, Chicago Skills for Chicagoland’s Future, a nonprofit focused on increasing the economic mobility of unemployed and underemployed talent by connecting them Tully to quality jobs with a network of committed employers, is excited to welcome Pamela Tully as Chief Program Officer and Michael Bradley as Chief Financial and Administration Officer. Pamela brings over 30 years of achievement and Bradley success across for-profit and nonprofit organizations. Most recently Pamela was EVP/COO at The Chicago Lighthouse. Michael brings a wealth of knowledge from the education, consulting, and investment banking industries. Most recently Michael was the CFO at After School Matters.

Elmdale Partners, the Skokie based real estate investment firm with brokerage operations, is pleased to announce the appointment of Arthur Wang as Corporate Controller. Wang, who previously served as the Director of Finance at the Renaissance Chicago O’Hare, will oversee operational accounting for Elmdale’s brokerage arm, Century 21 Affiliated - the largest global franchise of the iconic CENTURY 21® brand.

REAL ESTATE Project Management Advisors, Inc., Chicago Natasza Naczas has joined Project Management Advisors, Inc. (PMA) as Project Manager on the healthcare team. Natasza brings experience in interior design, facilities planning and emergency response from her work at both architecture firms and healthcare systems in the Chicago area, with specializations in pediatrics, cancer centers and medical workplaces. At PMA, she’ll lead the healthcare team on local and national projects.

REAL ESTATE Village Green, Chicago A multifamily industry veteran, Robert Caplinger was promoted to Vice President at Village Green. A selfstarter with a passion for excellence, he quickly advanced into new and exciting roles in his 11-year tenure. He previously served as Property Manager, Executive Manager, Assistant Area Director, Area Director, and Senior Area Director. He has extensive experience in oversight of assets in urban and suburban environments and significant capital renovation projects in numerous markets.

RECRUITING StevenDouglas, Chicago StevenDouglas, one of the nation’s leading boutique Search and Interim Resources firms; is proud to announce the promotion of Stacy Kelly to Vice President of our Midwest Search Division. Stacy will lead the search team with a focus in Chicago, Wisconsin, and Minneapolis. With over 10 years of experience in Finance & Accounting recruiting, she will continue to develop new accounts and match quality talent through the network she has built for over 20 years.

12/20/21 3:56 PM

18 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

Can you trust your suppliers after a lousy 2021? So long as the supply chain is marred by a trust deficit, the snarls that upended global trade last year will continue The supply chain crunch has turned the once-staid world of manufacturing and industrials upside down. The imbalance is so severe that consumers are feeling the pain, as prices of raw materials and goods are thrown out of whack. Debates about inflationary pressures are raging. What more could go wrong? Well, a lot. Especially if the grease that makes the wheels turn starts drying out. That lubricant is trust. So far, the world has had to deal with the supply-and-demand imbalance of physical goods. It has been painful, no doubt. But as that’s persisted, with few long-term solutions in sight, the assurances that keep businesses going have also started running low. This matters because trust plays an unquantifiable but critical role in the codependency between manufacturers and several tiers of suppliers. Without it, the commitment on receipt and delivery of products, parts and payments weakens. That uncertainty cripples businesses, raises costs, and decreases productivity and efficiency. Around one-third of alliances fail due to “a lack of trust among trading partners,” a study on designing and managing supply chains from the 1990s showed.

MOVING TARGETS

In supply chain literature, trust is broadly defined as a “firm’s belief that another company will perform actions that will result

in positive outcomes for the firm” and that the other business won’t take “unexpected actions that result in negative” results. Measuring it is challenging, but there are proxies, such as surveys of business sentiment, managers and suppliers. The trouble right now is everything is a moving target. Firms aren’t actively taking actions to hurt other companies, but are protecting themselves from the constantly evolving shortages and glitches. The supply chain uncertainties are dynamic, Chief Executive Officer Mark Smucker of food-products maker J.M. Smucker Co. said in a recent earnings call. Challenges, he said, can “change week to week, month to month; it could be an ingredient or a packaging component; at one point, it could be some isolated labor challenges in a particular geography.” Smucker concluded that this dynamic would continue for the foreseeable future. These uncertainties are forcing businesses to change their behaviors along with production. For instance, executives at heavy-machinery maker Caterpillar described a workaround: The company has “proactively redirected components and altered our assembly processes as much as possible to keep output flowing.” Inventory grew by about $1 billion in the third quarter compared with the previous period, over half of which was an increase in production inventory. Another unknown is that the supply base is mostly in Asia, and largely concentrated in China, while demand is pre-

dominantly in the U.S. The regions’ pandemic-era strategies— Zero COVID versus living with COVID—are increasingly divergent, leading to distinct differences in how their economies are functioning. Choices made in China and other parts of Asia that remain heavily restricted can inject uncertainty elsewhere. Domestic lockdowns are often imposed suddenly, which forces companies to alter course quickly.

UNCERTAINTIES

The case of Toyota Motor Corp. shows how to do this well. After years of making their system natural disaster-proof and mastering the art of just-in-time manufacturing, the company started holding more inventory early in the pandemic. It has maintained clear communication and information exchanges with suppliers through its “rescue” system. Toyota has also engaged with dealers in real time, adjusting supply of its cars in parts of the U.S. This has helped ward off severe issues that other automakers have faced. Toyota, though, is largely an outlier. For most, these changes tend to constrain business and muddy the picture for orders. Despite high demand, manufacturers’ sentiment is deteriorating, as in the case of large Japanese companies. This leads to lower future capital spending. The uncertainty creates issues for balance sheets. Suppliers often engage in short-term financing and the protracted pressures we’re seeing affect

BLOOMBERG

BY ANJANI TRIVEDI

In ports we trust. repayment, delivery and credit availability that lands them in a painful cycle. Taken together, these snafus start looking like all the trappings of relationships with a trust deficit. As one study put it, “A lack of trust among trading partners often creates a condition where every transaction has to be scrutinized and verified.” That increases costs to unacceptably high levels, and productivity, efficiency and effectiveness are lost. The “cornerstones of supply chain goals” are compromised. It’s worth wondering whether, if everything eventually snaps back into place—with timely supplies and production lines back on like clockwork—the trust would return. Perhaps. But the issue is, even if the supply chain snarls ease, companies will still have to figure out how

to navigate a new normal. Manufacturers probably have a new perspective about how their customers and suppliers behave after watching them manage through deeply stressful times. That stands to change relationships for better—or worse. One way to alleviate the pressures, experts say, is by pushing managers to get more deeply involved in relationships with suppliers, and making a habit of communicating and exchanging information—kind of like Toyota did. The sooner companies start acknowledging a growing trust gap, the quicker they’ll start to find solutions. Until then, supply chains will remain strained. Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia.

Omicron shakes confidence workers can safely gather in offices, travel again OMICRON from Page 1 Credit card lender Discover Financial Services is delaying its previously planned January return to the office until March 1. Mondelez also has postponed its plans to return in January. Google has put off its planned January return, but Facebook is moving ahead. Citadel, which fully reopened its offices in June, told employees they could work from home during the second half of December because of rising COVID cases. Companies are trying to get back to something resembling normal operations, while acknowledging they’ll never completely return to the way things were before the pandemic. For most, that means some combination of traditional office work and the COVID reality of working from home. It also includes getting back on the road, although not as often. How quickly they return to the office and to the air have big economic implications for Chicago as a major corporate center and travel hub. West Monroe Partners, a consulting firm with about 800 workers in Chicago and 2,000 globally,

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decided to stick with its Jan. 18 return date, which was set in September. “There are going to be variants, spikes and waves; and if we continue to kick the can with every wave, we’re going to kick the can in perpetuity,” says Kevin Rooney, West Monroe’s chief administrative officer. “This is a habit (working from home) that’s been well worn and trained over many months, and changing it is not going to be easy.” The benefits of bringing workers back together are worth it, he says. “There are more opportunities from a mentorship standpoint: Our young consultants are craving a connection. Having your team together and whiteboarding, the conversation is richer and deeper. A 25-minute Zoom call can be a 5-minute conversation face to face.” Companies must weigh those advantages against the health risks of requiring employees to gather in offices as COVID transmission accelerates again. Another concern is potential backlash from employees who have come to rely on the flexibility of working from home. Not wanting to commute to an

office was the second-most common reason people turned down job offers, according to a survey of human resources, finance and operations executives by LaSalle Network, a Chicago recruiting firm. Scott Sargis, president of Strategic Search Corp., which specializes in technical recruiting, says an engineer he recently placed at a suburban firm left the job after the company required employees to return to the office.

‘NEW NORMAL’

Further complicating the picture are government edicts, such as vaccine requirements and indoor mask mandates. Kyle Kamin, a vice chairman and office broker at CBRE, says more companies will require workers to come back to the office when state and local requirements to wear masks indoors are lifted. “So long as we have a mask mandate, it’s an acknowledgement we’re still in a pandemic, and it’s difficult for business leaders to ask their employees to come back,” he says. “If my people have to wear a mask while walking around the office, it’s an acknowledgement that things are not

normal. Many of them feel they’ve lost political capital in having to make announcements and then change their plans.” Business travel also is starting to return, even as omicron dents demand for leisure flying. Fred Hoch, the founder of TechNexus, a venture capital investment firm in Chicago, plans to attend the Consumer Electronics Show, which starts Jan. 5 in Las Vegas, for the first time in two years. “Hopefully it’s the start of the world coming back to life,” he says, but acknowledges omicron could change things. “It will take shows like this to get us back up and running. The world does not progress on Zoom alone. There are a lot of overdue meetings in person that need to happen and a lot of relationships that need to be nurtured.” United Airlines sees CES as a kickoff to a long-awaited return of business travel. The airline added 44 flights to Las Vegas to service the tech trade show. It kept the schedule intact even after the omicron variant was detected after Thanksgiving. “People will sign up and make last-minute decisions whether

to go or not,” says Helane Becker, an airline stock analyst at Cowen. “We expect that attendance may not be as great as it was in 2019. But it will be strong, as people are tired of not fully doing their jobs, and this is one of those things that ‘everybody’ likes to attend. We think people will go, and airlines will add flights to support that show and others.” PR firm Edelman, which is beginning a voluntary return to the office in January, started traveling last year. “We do fly and meet with clients if everyone feels comfortable,” says Kevin Cook, president of Edelman’s Chicago office. “We seem to take baby steps. Some clients are eager to be in person, others are on a different part of the spectrum.” Still, companies are watching omicron carefully. “For now, we are traveling more than we did earlier in the year and expect that trend to continue,” says Jacob Babcock, CEO of NuCurrent, a Chicago startup that makes wireless-charging systems. “The new normal is to expect radical changes to pop up in a matter of days and . . . adapting to those decisions on the fly.”

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CRAIN’S CHICAGO BUSINESS • JANUARY 3, 2022 19

Illinois students missed a lot of school last year

Much attention has been paid to Illinois’ enrollment losses during the pandemic. Less has been paid to students who stay but don’t attend school regularly, which can cause them to fall behind and possibly drop out. BY SAMANTHA SMYLIE

rose from 23.6% in 2019 to 26.7% in 2021. Lack of access to in-person learning last year could be one reason for the increase in chronic absenteeism, Brenda Dixon, research and evaluation officer for the Illinois State Board of Education, said during a press conference in late October. “We know from national studies from the [Centers for Disease Control & Prevention], that school districts serving primarily Black and Hispanic students provided the least access to in-person learning last year,” said Dixon. “We suspect that less access to in-person learning contributed to lower engagement among Black and Hispanic students.” English learners, students with disabilities and students from low-income families also recorded higher rates of chronic absenteeism last year compared to previous years. The rates for English learners increased from 17.2% in 2019 to 23.8% in 2021, while the rates for students with individualized educatio programs went from 26.3% in 2019 to 30% in 2021. Chronically absent students from low-income households rose from 25.4% in 2019 to 31.7% in 2021. For students with disabilities, those from low-income families or exhomelessness, “WHEN STUDENTS DON’T SHOW UP TO SCHOOL, periencing and English learners, schools IT’S A SIGN THAT SOMETHING ISN’T WORKING.” were difficult to navigate before the coronavirus panHedy Chang, executive director of nonprofit Attendance Works demic. It was even harder for marginalized students once The Illinois State Board of Education has schools closed and everything went remote. Joshua Axelsen, coordinator of alternative taken notice of the problem. At its December meeting, the board approved a recommen- programs at Kane County Regional Office dation to increase spending by $12 million of Education, said remote learning made it next year for regional education offices to harder for students with disabilities to show help them hire more truancy officers as part up for classes because they did not have the of the state education department’s $9.7 support they needed. “There are students who may have physibillion budget proposal. That plan is heading to the governor and will be voted on by the cal disabilities or orthopedic impairments,” Axelsen said. “Working on a computer is general assembly. Students of color, those experiencing tough. They need a caregiver. They need a homelessness, students with disabilities, and one-on-one.” Even prior to the pandemic, lack of transEnglish learners are those most impacted by chronic absenteeism, according to the portation, child care, stable housing, health Illinois State Board of Education 2021 state care and mental health support often prevented students experiencing homelessness report card. According to that data, Black, Native, from going to school, said Alyssa Phillips, and Hispanic students had higher rates of education attorney at the nonprofit Chicago chronic absenteeism than other racial and Coalition for the Homeless. “COVID has been challenging for everyethnic groups. Black students saw a significant increase from 30.9% in 2019 to 39% in one, but I think it’s been a heightened level 2021. Hispanic students went from 19.5% of difficulty for those who don’t have a conin 2019 to 24.8% in 2021. Native students sistent place to stay,” said Phillips. “Children

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MAX HERMAN FOR CHALKBEAT

or the past 19 years, when students in Kane County have missed school, Kari Glenn has visited their homes to see what’s preventing them from attending classes. As a truancy officer, she says this year has been the hardest. In one of the families Glenn works with, the single parent died, leaving behind four young children. “Now they’re going to be living with a relative and that relative isn’t completely prepared to take on four little kids,“ she said. Since the coronavirus pandemic has hit the communities her schools serve the hardest, Glenn said that home visits have become more essential than ever. It’s been harder to reach families over the phone and their lives have drastically changed as families have lost loved ones, jobs, homes and reliable transportation. Much attention has been paid to Illinois’ enrollment losses during the pandemic and why almost 70,000 public school students left their districts. Less has been paid to students who stay but don’t attend school regularly—a pattern that can cause them to fall behind, miss learning, struggle to catch up and possibly drop out of school. The number of students who are chronically absent in Illinois spiked during the pandemic, and experts and truancy officers such as Glenn say it’s still a concern. Statewide chronic absenteeism rose to 21.2% in 2021, up almost 5 percentage points from 2019, when it stood at 16.5%. Students are considered chronically absent when they miss 18 to 20 days of the school year—an average about two days a month—with or without a valid excuse for being absent. Despite a push to fully reopen schools this fall, truancy officers and experts say the problem persists as families deal with a lack of transportation, due to a school bus driver shortage, and the number of students being quarantined after possible exposure to COVID is increasing. “When students don’t show up to school, it’s a sign that something isn’t working,” said Hedy Chang, executive director of nonprofit Attendance Works. However, if schools intervene early enough, she said, they can get students back on track academically.

are more exposed if they are in a shelter and not having that consistent access to Wi-Fi or technology when classes are remote.” This was the first year Chang, with Attendance Works, saw an increase in chronic absenteeism for English learners. She says schools need to be better equipped at connecting with families and parents who don’t speak English to ensure they are getting access to resources.

SUPPORT STEPS

In addition to students with disabilities, English learners and students who are experiencing homelessness, Chang said schools must look at students in transition grades, such as preschool to kindergarten and ninth grade to 10th grade. Preschool and kindergarten lay a foundation for students to learn how to behave in a classroom, engage with their peers, be independent of parents and prepare for academic classes. In ninth and 10th grade, students who miss their core classes are on track to drop out of school, according to Chang. While each family’s situation is different, there are solutions school districts can implement early in the year to get students into classes. And, with the state receiving more than $7 billion in COVID relief funding, there is more flexibility in what school districts can do this year. First, experts say, districts must figure out how to reach out to families to determine why a student is chronically absent. Patricia Graczyk, an assistant professor of clinical psychology at the University of Illinois at Chicago, believes that school districts should be using federal funds for mental health support for students, families and staff. These supports could help students experiencing “re-entry anxiety,” a phrase born out of the pandemic, which refers to students who have been in remote learning for a long time and are transitioning back to in-person learning. Anxiety could be one red flag signaling that a student may miss school. Students who are chronically absent could also have other mental health issues, Graczyk said. “It’s estimated that about 50% to 80% of those students who have school refusal behaviors that are chronically absent also have serious mental health issues.” Having an adequate number of school psychologists and social workers in school can provide extra support to students, says Graczyk. If schools are unable to increase

staffing due to funding or shortages, she added, districts should look into partnerships with community mental health providers. Joliet Public School District 86, which had a chronic absentee rate of 21%, has ramped up its mental health support for students. The district placed a social worker and school counselor in every building and has increased funding for partnerships with agencies to provide mental health support to families, said Sunni McNeal, assistant superintendent of equity and student services. In the first six weeks of the school year, the school district did social-emotional learning for six weeks to “re-acclimate our students to school, reestablish our relationships with teachers, and help students feel comfortable after the trauma of just being sheltered in place at home,” McNeal said. Peoria Public School District 150 has used COVID relief funding to hire additional staff to make home visits, call parents, and offer incentives such as prizes and awards to decrease chronic absenteeism. The Central Illinois school district, which has over 12,000 students, saw a chronic absenteeism rate of 43% for the 2020-21 school year. Prior to the pandemic, Peoria created attendance teams—made up of principals, teachers and social workers—at each of the district’s 25 schools. The teams look at attendance data reports each month to see how students are doing. As school districts create new initiatives to bring students back into classrooms, parents also want districts to communicate when a child is considered truant or chronically absent. Truancy is when a student misses school without a valid excuse; chronic absenteeism is when a student misses 18-20 days with or without an excuse. “The question that I had, and I still have, was how many days is a child allowed to be absent before extreme measures are taken place?” said Lettie Hicks, a parent facilitator with nonprofit organization Community Organizing & Family Issues. “Nobody answered that question.” Although school buildings have reopened this year, a number of variables could determine if chronic absenteeism will decrease: coronavirus cases are on the rise again, but school districts are committing to testing students regularly for the virus; virtual learning is available to students in quarantine; and students ages 5 and up are eligible for the vaccine. As of November, Joliet reported an attendance rate of 92.3%, while the chronic absenteeism rate was 11%. Peoria has reported an attendance rate of 90.2%, but does not have data on chronic absenteeism. While these districts are reporting high attendance rates, that can mask the issue of chronic absenteeism. Even though the statewide attendance rate was 92.5% during the 2020-21 school year and has hovered around 90% for the past five years, some students were missing a large number of days. Kari Glenn, truancy officer at Kane County Regional Office of Education, hopes schools will be able to get students back into classrooms because they missed out on learning, engaging with other students and learning social norms in classrooms last school year. But she notes that it will take a lot of work to keep them there. “It’s going to take time to get us back to where we were,” she said. Samantha Smylie writes for Chalkbeat, a nonprofit news site covering educational change in public schools.

12/23/21 3:13 PM

20 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

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Debbie Pawlowicz, managing broker of DPG Real Estate in Lisle and president-elect of the Mainstreet Organization of Realtors.

Slower growth in home prices would be good HOUSING MARKET from Page 3

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In the city, and particularly the downtown neighborhoods, the strongest headwinds are continuing uncertainty about when normal, pre-pandemic work life will be back downtown and the crippling wave of carjackings, smashand-grab thefts and other crime. While they certainly haven’t stopped the dual booms in buying or renting homes downtown, they’ve “kept it from being as strong as I expected,” McMillan says. But if crime isn’t brought under control soon, the housing market could suffer more. “The future health of the real estate market will be affected by Chicago’s ability to create a perception of more stability,” says Jennifer Ames, broker at Engel & Völkers Chicago.

‘LIFE CYCLE MOVES’

Connect with Claudia Hippel at claudia.hippel@crain.com for more information.

P020_CCB_20220103.indd 20

Here’s some 2021 data to digest before looking ahead: In late December, year-to-date home sales in the Chicago metro area eclipsed the top-selling year, 2005. (An exact tally of December sales won’t be available until midJanuary, but rough figures Crain’s compiled during the month indicate it’s a fait accompli.) The home sales boom that kicked off in mid-2020 appeared to ebb last fall, but that’s only because yearover-year comparisons gave 2021 a disadvantage. For example, October 2021’s metro-area home sales volume was down more than 11% from October 2020, but still exceeded, by a healthy margin, any October before that since 2008, the earliest year for which Illinois Realtors has data. Why is that important? McMillan notes that the home sales boom was largely driven by people choosing to move, not people forced to move by circumstances.

“Life cycle moves” because of increase that went into effect marriage, a growing family or Jan. 1, 2021, reflecting fast-rising downsizing continued, of course, home prices nationwide. The raised ceiling “is going to but the outsized growth on top of that “was people who wanted help a lot of people afford the more room, better space, a dif- house they want in Chicago,” Ames said, which will add fuel ferent location,” he says. They were making their moves, to existing demand. FHA-backed even as home prices were ris- mortgages usually have lower ing faster and faster all the time, down payment and credit score in several months jumping by requirements than jumbo loans. double-digits above prices the same month a year before. INFLUENCING FACTORS At some point, “there must be Also keeping demand strong, a limit to the number of people Pawlowicz and McMillan both who can do that,” McMillan says, said, is the very real likelihood and if we reach that limit, the that after 14 years of generally boom will fade. declining interest rates, recent At least two agents, one in the signs of inflation in the U.S. suburbs and one in the city, say economy may force interest rates they don’t foresee demand run- up as a control mechanism. ning down, at least not yet. “We’ve lived with low interest “There are people who got out of rates for so long, people forget,” the market, and they’ll come back McMillan says. Seeing an innow that it’s calmer,” says Debbie crease looming, Pawlowicz says, Pawlowicz, managing broker will encourage buyers to get off of DPG Real Estate in Lisle and the fence, and “if [rates] take a president-elect of the Mainstreet substantial enough jump that it Organization of Realtors. A tight looks like an upward trend, we’ll inventory of homes for sale and see a big rush of buyers” hoping high demand led to a frenzied market in the early months of “THE FUTURE HEALTH OF THE REAL the year, with homes ESTATE MARKET WILL BE AFFECTED selling lightningquick and often BY CHICAGO’S ABILITY TO CREATE A at full price or for more than their sell- PERCEPTION OF MORE STABILITY.” ers were asking. As a Jennifer Ames, broker at Engel & Völkers in Chicago result, many buyers who didn’t have to move, merely to land a home before rates cut wanted to move, sat it out. into what they can afford. Many of them still want to move— There’s another ceiling that and “they’ll be getting back into the might be lifted in 2022: the market,” Pawlowicz predicts. allowed deduction for state and As of Jan. 1, there’s a new in- local taxes, or SALT. The tax centive for mid-priced home reform plan of 2017 reduced the buyers, whose budget is less than allowed deduction to $10,000, a $650,000. In early December, the figure well below the property tax Federal Housing Administration bill on countless homes in highannounced that the ceiling for tax Illinois. Although he doesn’t FHA-backed mortgages will go believe the $10,000 limit has hurt up to $647,200. The increase, the high-end market, McMillan about 18% above the 2021 ceil- says lifting the cap “could have a ing, is more than double the 7.4% stimulative effect.”

12/23/21 3:52 PM

CRAIN’S CHICAGO BUSINESS • JANUARY 3, 2022 21

Dependence on manufacturing, tourism drags city’s 2022 economic outlook ECONOMIC OUTLOOK from Page 3

BLOOMBERG

I’m looking for someone with two to five years’ experience.” Dubow’s worries are an allegory for the crosscurrents whipping a recovering, but still COVIDdisrupted economy haunted by labor force turmoil, supply chain bottlenecks, and pessimistic but free-spending consumers. Inflation is at a four-decade high, workers are quitting in record numbers and COVID presents another wild card: the omicron variant. Nevertheless, economists are projecting more growth in 2022— 3.7% after a 5.6% gain in 2021, according to the Organisation for Economic Co-operation and Development. A Federal Reserve Bank of Chicago survey of economists has unemployment dropping below 4% by the end of 2022, and inflation subsiding to 2.5% from 6.1% during 2021’s fourth quarter. Here, the numbers won’t be so rosy because of the Chicago area’s relatively higher dependence on manufacturing, business travel and convention attendance, among other factors. “I’ve got to tell you, our general outlook for Chicago is not great, mainly because of the manufacturing sector,” says Oxford Economics Senior Economist Barbara Byrne Denham, who also lists retail and construction as areas that won’t recover to pre-pandemic levels by the end of 2022. Oxford projects metro GDP expansion at 4.3%, below its 4.4% U.S. forecast, on account of stagnant population growth, public finance woes and, compared to the coasts, a smallish tech sector. The 5% net decline of the city’s office sector is nearly twice the U.S. average and isn’t expected to recover lost jobs until late 2023.

Hotel occupancy downtown rebounded, to 41% year-to-date through October from 29%, but is a fraction of 2019’s 75%.

‘LOT OF DOWNSIDES’

The University of Illinois Flash Index—a weighted estimated average of growth rates in corporate earnings, consumer spending and personal income—is little changed in recent months after recovering to pre-pandemic levels. “Chicago has a lot of downsides of the pandemic still haunting it,” says Diane Swonk, Grant Thornton’s chief economist. Like much of the U.S., Chicago is counting on a jump-start from infrastructure spending, which could rival what it was during the

workforce worries, according to BMO’s Stritch, who was a panelist. The Federal Reserve has since signaled the 2022 likelihood of three quarter-point increases in the federal funds rate to tamp inflation.

of business owners struggle over where to make their next investment. Illinois has been on the lower receiving end.” SWD, a metal finishing firm in Addison that employs just over 200, has raised starting wages twice by a combined $3 per hour over the last 12 months, to as much as $19.50. Still, it has a dozen unfilled positions, partly the result of people applying for work but not completing the process, according to President Rick Delawder, who says revenue jumped 15% in 2021 and should rise just shy of 10% in 2022. The demand side is brighter, despite SWD’s traditional dependence on the microchip-starved automotive industry for more than half of revenue. The firm also supplies ITW, Caterpillar, Deere, and the maker of Weber grills with coated fasteners and other components. It plans to add robots to increase efficiency while doubling capacity in one part of the business. But the company has been forced to rebuild an electric motor that powers a blower because of a 15-week wait for a replacement, Delawder says. At the Illinois Manufacturers’ Association annual meeting in December, the durability of commodity inflation was a paramount concern, along with logistics and

New Deal as a share of gross domestic product. Illinois is promised $17 billion or more on top of $45 billion approved by the state in 2019 for the Rebuild Illinois infrastructure program. But how much of that will be felt by the end of 2022? Since the start of 2020 through September 2021, Chicago’s manufacturing employment shrank 5.5% and is expected to add back fewer than half of the lost jobs in 2022, according to Oxford Economics. That’s important for the local economy because manufacturing makes up a higher share—9.1%—of Chicago’s economy than it does for the U.S. as a whole (8.6%). Dustin Burke, who co-leads Boston Consulting Group’s manufacturing and supply chain practice from Chicago, says the area’s diverse manufacturing base could favor it and other large manufacturing centers as companies consider relocations and bringing supplier operations closer to home. Yet Michael Stritch, chief investment officer of BMO Wealth Management U.S., says anecdotal evidence points away from Chicago as a preferred choice for companies diversifying supplier bases or “onshoring” operations from abroad: “Regionally, a lot

SUPPLY AND DEMAND

Another key driver of Chicago’s economy, tourism and conventions, also has a supply problem, one unlikely to recover before 2023. Oxford Economics says 27% of Chicago’s job losses are tourismrelated, and Swonk warns: “Business travel will not return for various reasons to what it once was.” Hotel occupancy downtown rebounded, to 41% year-to-date through October from 29%, but is a fraction of 2019’s 75%. The number of citywide conventions booked for the fourth quarter is back on track for 2021 and 2022, but depressed attendance remains the culprit, according to Stacey Nadolny, a managing director of hospitality industry consultant HVS. Still, she says, the downtown average room rate—$186 compared to 2019’s $205—should recover by the end of 2022, in part because only 700 rooms were added in 2021, instead of the annual pace of 2,000 or so in the mid-2010s. There are a few positive trends

for Chicago business. Its software publishing, securities and software industries have grown at least 5.2% since the start of the pandemic, according to Oxford Economics. Industrial real estate is booming as a consequence of e-commerce and work-fromhome trends. Venture capital is chasing deals. A lot of venture-backed startups today actually make money, with valuations, particularly in later investment rounds, rising quite a bit, according to Steven Kaplan, a finance professor at the University of Chicago Booth School of Business. “The big negative is that a lot of money drives down returns,” he says. “Whether there is too much right now or not is very hard to know.” Drawing an analogy to the dot-com era, he says we could be in a period like 1997-98 or in the two years afterward when the boom started to go bust. “Net-net, I think the fact that there are a lot of interesting startups now makes me more positive than negative, particularly on early-stage VC, but I would not put all my chips there.” NuCurrent, a venture-backed provider of wireless charging technology, is still growing by triple digits after six years. But CEO Jacob Babcock says component shortages threaten new product delays and choices between using lower-grade parts today or better ones tomorrow. “You can’t build a (microchip) foundry fast enough to have an impact on 2022,” he says. Supply chain chokepoints could peak for consumer goods producers in 2021’s fourth quarter and for other industries in the first or second quarter of 2022, Stritch says. The era of the “Great Resignation” may last longer. Job postings on Indeed.com and LinkedIn are up about 50%. LinkedIn Chief Economist Karin Kimbrough told a Chicago Fed conference in December that applicants are three times more likely to respond to a posting offering remote work options. “Remote work is here to stay,” reckons Dubow, the restless CPA. “I anticipate the percentage will drop to 50% (from 80%), but do not expect employees to return to full-time work in the short or intermediate term—or possibly ever.”

ZIGZAGGING After a snapback from 2020’s pandemic depths, much of the Chicago-area economy will keep growing, though more slowly than in 2021. CHANGE IN GROSS DOMESTIC PRODUCT

CHANGE IN PERSONAL DISPOSABLE INCOME

CHANGE IN EMPLOYMENT

UNEMPLOYMENT RATE, PERCENT

CHANGE IN POPULATION

CHANGE IN CONSUMER SPENDING

10 8 6 4 2 0 -2 -4 -6 -8 -10

10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 -8 -8 -10 -10

10 8 6 4 2 0 -2 -4 -6 -8 -10

4.3%

‘19

‘20

‘21

‘22

10 8 6 4 2 0 -2 -4 -6

-2.1%

-8

‘19

-10

‘20

‘21

‘22

10 8 6 4 2 0 -2

3.9%

-4 -6 -8 -10

‘19

‘20

‘21

‘22

10 8 6 4 2 0 -2

4.1%

-4 -6 -8

‘19

-10

‘20

‘21

‘22

-2

-4

-6

-8

-10 -10

‘19

-0.3% ‘20

‘21

‘22

‘19

10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 -8 -8 -10 -10

3.5%

‘20

‘21

Note: 2022 data is a projection. GDP, personal income and consumer spending data is inflation-adjusted.

‘22

CHANGE IN AVERAGE WEEKLY WAGE 10 8 6 4 2 0 -2 -4 -6 -8 -10

-2

-4

-6

-8

-10

10 8 6

‘19

3.8%

‘20

‘21

‘22

10 8 6

-10 -10

Source: Oxford Economics

-0.2%

-0.2% P021_CCB_20210103.indd 21

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22 JANUARY 3, 2022 • CRAIN’S CHICAGO BUSINESS

Appeals attorneys, appraisers use many tools to lower property valuations APPEALS from Page 1 manipulating a key variable known as a capitalization rate, they can knock tens of millions of dollars off a property’s value, giving attorneys the evidence they need to make their case on appeal. Appraisers of the McDonald’s and Google buildings, for instance, both used below-market rents to value the properties. In many cases, however, their facts and assumptions don’t stand up to scrutiny, says Cook County Assessor Fritz Kaegi.

Berrios, who was widely criticized for undervaluing commercial properties, which shifted more of the county’s property tax burden onto homeowners. Berrios accepted campaign donations from property tax appeals attorneys and faced accusations that he was too chummy with them. In the past, Berrios denied being part of any pay-to-play scheme. Kaegi doesn’t take donations from appeals attorneys, but landlords charge that he’s overvaluing commercial properties, scaring off investors and “IT’S CLEAR TO ME THAT IF SOMETHING undermining the local economy. SOLD FOR $413 MILLION, IT’S WORTH Assessments are only one variable MORE THAN $149 MILLION.” used to calculate property taxes, but Robert Denne, a property taxation and they form the baassessment consultant sis for a zero-sum “There is a subset of the game: when one group of propappraisal community that is erty owners, like office landlords, all about arguing that a bacon is underassessed, another group, double cheeseburger is really a like homeowners, pays more in taxes than they should. If the side salad,” he says. Commercial property valuation owners of the city’s biggest, most is an arcane, complex topic, but expensive properties all succeed it’s critically important in Cook in their appeals, they would County today, as Kaegi, now com- effectively shift millions of dolpleting his third year as assessor, lars of taxes onto other property tries to shake up the office. He owners. Someone has to pick up campaigned in 2018 as a reformer the slack. Landlords contend Kaegi is against his predecessor Joseph

shifting too much of the burden onto them. In West Chicago Township, which includes the Fulton Market District, his office increased residential assessments by 24% this year from 2018, the last time the city was reassessed. But nonresidential assessments jumped 115%—more than five times that much. Nonresidential properties now represent 60% of the township’s tax base, up from 46% in 2018. Kaegi’s office increased the value of the McDonald’s headquarters, a 575,000-square-foot building at 110 N. Carpenter St., by 30% in 2021, to $213.6 million, from $164.3 million in 2020, county records show. The assessor raised the value of the Google building, also known as 1K Fulton, to $197.3 million, up 56%. But property owners have several chances to appeal their assessments if they think they’re too high. They can start with the assessor, who is still reviewing appeals for the McDonald’s and Google buildings.

‘THROUGH THE LOOKING-GLASS’

If landlords aren’t satisfied with the result there, they can appeal to the county Board of Review, headed by three elected commissioners. The Illinois Property Tax Appeals Board is next. As a last

resort, they can file a lawsuit. Appeals attorneys often will commission appraisals, including them as a key piece of supporting evidence to make the case that their client’s property has been overassessed. Appraisals carry weight, but the assessor or other appellate body still can reject an appeal outright, or provide a partial reduction in value. The Board of Review has generally been more willing to reduce assessments on appeal than has the assessor’s office. So how does the owner of the McDonald’s building and its appeals team make the case—with a straight face—that a property it just bought for $412.5 million is actually worth just $148.7 million? After all, state law requires that assessors estimate a property’s “fair cash value,” or what it would sell for in an arm’s-length, nondistressed transaction—exactly like the sale of the McDonald’s building last fall. Another inconvenient fact: An appraisal completed last October for the building’s lender valued the property at $409 million. With Kaegi’s valuation of just $213.6 million, why appeal at all, considering the much higher sale price and previous appraisal? It seems like a stretch to Robert Denne, a property taxation and assessment consultant who used

to work for the International Association of Assessing Officers, a professional group. “It’s clear to me that if something sold for $413 million, it’s worth more than $149 million and may even be worth more than $214 million,” he says. Here’s where we step through the looking-glass to understand how appeals attorneys and their appraisers are able to depart from reality. When a property owner or appraiser for its lender value a commercial property, they use its actual revenues and expenses to arrive at an estimate—figures straight from a financial statement or budget. But property tax assessments are supposed to be based on a “fee-simple value”—what a property would be worth with hypothetical tenants at estimated rents, assumed expenses and other variables based on market data. A buyer might pay a premium for a building leased long term to a marquee tenant like McDonald’s, but a feesimple appraisal is supposed to ignore the identity of the tenant and what it’s actually paying in rent. The difference in appraisal methodologies goes a long way toward explaining why an appraisal filed in support of an

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appeal could be much lower than a sale price or an appraisal done for a lender, says Mike Elliott, president of Elliott & Associates, a Chicago property tax appeals firm. But because appraisers on appeal aren’t required to use property-specific financial data, they have a lot of wiggle room to fudge the numbers. Appraisers working on appeals can reduce a property’s value by assuming below-market rents, inflated expenses and a higher vacancy rate, often all at the same time, says Tim Wilmath, chief appraiser in the Palm Beach County (Fla.) Property Appraiser’s Office. They “sort of spread it out,” he says. “That way, no one variable looks particularly out of line.” But one variable can make a big difference. The appraisal of the McDonald’s property, for instance, bases its $148.7 million value on a market office rent of $25.50 per square foot. That’s well below what McDonald’s actually pays. The fast-food chain started out paying rent of $31.75 per square foot when its lease started in August 2018, according to appeals documents. By August 2020, its rent had increased to $33.94 per square foot. But what matters in a feesimple appraisal is what the space would rent for on the date of assessment, Jan. 1, 2021, to a random, nameless tenant. The Chicago office market took a turn for the worse in early 2020, when the coronavirus swept into town, a convenient trend well documented by the appraisals for both the McDonald’s and Google buildings.

RED-HOT NEIGHBORHOOD

The appraisal of the McDonald’s building dedicates nearly 50 pages, including multiple news stories, to explain the devastatingly negative impact of the pandemic and the civil unrest of last year on the local office market. “Due to the virtual halt in the market caused by the global pandemic, the long term impact on real estate values is still considered to be somewhat unknown,” the appraisal says. “However, the immediate impact is considered significant and the effect by all market participants is unquestionably recognized.” Not in the Fulton Market District. Demand for office space in the neighborhood never plunged, and rents there have actually ticked up over the past year. Brokers who work in the neighborhood say the going rate for Class A office space ranges from $35 to $42 per square foot, well above $25.50 per square foot used in

WHAT’S IT WORTH? Cook County Assessor Fritz Kaegi has valued the McDonald’s headquarters and 1K Fulton buildings well below their recent sale prices, but appraisers working for the properties’ owners say they’re worth even less.

COSTAR GROUP PHOTOS

al s,

CRAIN’S CHICAGO BUSINESS • JANUARY 3, 2022 23

MCDONALD’S HEADQUARTERS 110 N. Carpenter St. $164.3 million

2020 assessed value

$213.6 million

2021 assessed value 2021 appraised value* 2020 property taxes*

$148.7 million

P023_CCB_20220103.indd 23

$355 million (June 2021)

Sale price (date)

$126.8 million

2020 assessed value

$197.3 million

2021 assessed value 2021 appraised value* 2020 property taxes*

$9.2 million

$135.0 million $7.1 million

*Paid in 2021, as estimated in appraisal filed in support of assessment appeal

the appraisal of the McDonald’s building. “Fulton has been the real COVID winner” in downtown Chicago, says Kyle Kamin, vice chairman in the Chicago office of CBRE, who represented Google in its lease at 1K Fulton. “It’s been lifted significantly.” Had the appraiser of the McDonald’s building used a more accurate market rent, the property’s estimated value would have been much higher. Even at $35 per square foot— the low end of what Class A office space rents for in Fulton Market—the building’s net operating income would increase by $3.8 million. Holding all other variables constant, the property’s estimated value jumps to $196.5 million. Representatives of Normandy Properties, a Pennsylvaniabased real estate investor that acquired the McDonald’s building last fall, did not return phone calls, nor did Craig Donnewald, a partner at Chicago-based Finkl Martwick & Colson, the law firm handling the appeal for Normandy. The appraiser, Neil Renzi, president of Elmhurst-based Renzi & Associates, declined to comment while the appeal is still open. The appraiser of 1K Fulton, a 531,000-square-foot building at 1000 W. Fulton Market, also used a below-market office

HOW TO CONTACT CRAIN’S CHICAGO BUSINESS EDITORIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312-649-5200 CUSTOMER SERVICE. . . . . . . . . . . . . . . . . . 877-812-1590 ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . 312-649-5492

1K FULTON 1000 W. Fulton Market $412.5 million (October 2020)

Sale price (date)

CLASSIFIED . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312-659-0076 REPRINTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212-210-0707 editor@chicagobusiness.com

rent—$30 per square foot—to arrive at a value of $135 million. Google—the property’s largest tenant, with 475,160 square feet—pays a base rent of $26.87 per square foot under a lease that began in 2016, according to the appraisal, filed to support the appeal of Kaegi’s assessment. But rents are much higher today. At $35 per square foot, the value of the building rises from $135 million to $146.6 million, holding all other variables constant. An executive at Newton, Mass.-based Office Properties Income Trust, which acquired the property in June, did not return phone calls, nor did the company’s tax attorney Kyle Hausoul of Ryan LLC. The appraiser, James Elkins of MVS Chicago, said he was too busy for an interview. Appraisers also can lower a building’s value by inflating what’s known as a capitalization rate, or cap rate. A cap rate is a rate of return that investors and appraisers use to value commercial properties. It represents a property’s net operating income, or NOI, divided by its price, or value. After estimating a property’s NOI, an assessor or appraiser can divide it by a market cap rate to calculate a value. The lower the cap rate, the higher the value.

Source: CoStar photos, Cook County Assessor, Cook County Treasurer

CRUNCHING NUMBERS

The appraisal on the McDonald’s property, for instance, assumed a 7% base cap rate, but cap rates for recent sales in the Fulton Market neighborhood have fallen closer to the 5% to 6% range. Kaegi’s office used a base cap rate of 5.5% to come up with its value of the McDonald’s headquarters. If Renzi, the appraiser, used that rate, his value would have increased to $182.9 million, from $135 million. Add in the higher market rent of $35 per square foot, and the building’s value jumps to $241.8 million, even higher than Kaegi’s estimate. When Office Properties Income Trust acquired 1K Fulton in June, it disclosed that the cap rate in the deal worked out to 4.7%. But Elkins used a 7.5% base cap rate to value the property, and Kaegi went with 5.5%. Combine a 5.5% rate with the higher $35 per square foot rent and the building’s value rises to $174.5 million, well above the appraiser’s estimate, but still below Kaegi’s figure. Though many appeals attorneys say a property’s recent sale price is irrelevant in an assessment, a spokesman for the assessor’s office says a sale price is a key indicator of value, one of many that it considers during appeals. Appraisers also must discuss recent sales

of properties they value in their appraisals, an especially awkward disclosure when it comes to McDonald’s and Google’s buildings. But the appraisals of both dismiss the high prices paid for the two properties. The McDonald’s headquarters appraisal briefly cites the impact of COVID, but fails to mention that the building sold for such a high price in the middle of the pandemic. It also implies that rents in the neighborhood have fallen when they actually haven’t. “This prior sale is not reflective of fee simple market value since these lease rates do not reflect market conditions that existed as of the effective date of value (January 1, 2021),” the appraisal says. The two Fulton Market properties illustrate the wide latitude that appraisers have when it comes to appeals, but no one, including Kaegi, has accused the two appraisers of wrongdoing. Still, Kaegi says he “sees some systematic behaviors that are concerning to us.” He has asked the Illinois Department of Financial & Professional Regulation to investigate appraisers who he believes have violated professional standards. “We are on the lookout for patterns of abusive behavior, and we won’t hesitate to bring it to the attention of regulators when we see it,” he says.

Vol. 45, No. 1 – Crain’s Chicago Business (ISSN 0149-6956) is published weekly, except for the last week in December, at 150 N. Michigan Ave., Chicago, IL 60601-3806. $3.50 a copy, $169 a year. Outside the United States, add $50 a year for surface mail. Periodicals postage paid at Chicago, Ill. Postmaster: Send address changes to Crain’s Chicago Business, PO Box 433282, Palm Coast, FL 32143-9688. Four weeks’ notice required for change of address. © Entire contents copyright 2022 by Crain Communications Inc. All rights reserved.

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