February March 2023 Illinois Real Estate Journal

©2023 Real Estate Publishing Corporation February/March 2023

Construction trends: Sustainability and precon technology among those shaping Chicagoland

Against all odds, 2022 brought an explosion of construction activity around Chicagoland. Not much has changed one month into 2023, yet there are plenty of emerging trends to poise the market for continued success.

One of the biggest trends is the incorporation of sustainable methods and materials, such as lower-carbon concrete and steel and the use of electric cranes. Lendlease is one company that’s become a proven leader in sustainability across all

By Mia Goulart, Senior Staff Writer

markets and exemplifies it through their portfolio of projects throughout Downtown Chicago.

Lendlease has two main goals: (1) to achieve net zero Scope

1 and 2 emissions by 2025 and (2) absolute zero for Scopes

1, 2 and 3 by 2040. To achieve these, Lendlease must operate in a manner which maximizes its reduction in greenhouse gas emissions and achieve the balance by way of carbon offset schemes for Scopes 1 and 2, and without any carbon offsets

CONSTRUCTION (continued on page 10)

A macro perspective of finance and multifamily with Marquette Bank

By Mia Goulart, Senior Staff Writer

Finance is the hot topic industry-wide, and while much of the concern has to do with volatile economic factors, it’s more so the lack of clarity surrounding them. Everyone has different opinion regarding what might or might not happen, but to find a solution, it’s important to look at the macro picture.

Illinois Real Estate Journal recently spoke with Patrick Tuohy, Senior Vice President at Marquette Bank, to discuss the past, present, and future as it relates to multifamily finance.

The Reed at Southbank – Developed and constructed by Lendlease, The Reed is a 41-story, 440-residence community in the South Loop.

CONTENTS

FEATURES

FEBRUARY/MARCH 2023 ILLINOIS REAL ESTATE JOURNAL

8

RENOVATION NATION: WHY MULTIFAMILY REHABS CAN RESIST ECONOMIC TURMOIL

Though demand among apartment renters remains steady, economic headwinds and weakening multifamily fundamentals are having an effect.

CONSTRUCTION TRENDS: SUSTAINABILITY AND PRECON TECHNOLOGY AMONG THOSE SHAPING CHICAGOLAND

Against all odds, 2022 brought an explosion of construction activity around Chicagoland.

A MACRO PERSPECTIVE OF FINANCE AND MULTIFAMILY WITH MARQUETTE BANK

Finance is the hot topic industry-wide, and while much of the concern has to do with volatile economic factors, it’s more so the lack of clarity surrounding them.

TEMPERED OPTIMISM FOR THE INTERIOR CONSTRUCTION IN 2023

With construction cost increases in Chicago among the highest in the nation, many office building owners and companies are feeling the pinch.

GROWTH AND NORTHWEST INDIANA GO HAND IN HAND, BUT THE REGION IS JUST GETTING STARTED

Northwest Indiana has made a name as one of the most sought-after regions to do business.

“ Knowledge of Midwest industrial real estate is DarwinPW’s strength. We want to share that strength and knowledge with you.”

George Cibula, SIOR Managing Broker

RE MARKETPLACE

4 6 14 The Illinois Real Estate Journal (ISSN 08932255) is published bimonthly for $59 per year by Real Estate Publishing Corporation, 1010 Lake St. #210 Oak Park, IL 60301. Periodicals postage paid at Chicago, IL. POSTMASTER: Send address changes to Illinois Real Estate Journal, 1010 Lake St. #210 Oak Park, IL 60301. Single copies $7.00. Back issues $7.00. Subscriptions are non-refundable. Phone: 708-622-0074. © 2023 Real Estate Publishing Corporation. No part of this publication may be reproduced without the written permission of the publisher.

For over 45 years, DarwinPW Realty has been a leader in industrial and commercial real estate. The company specializes in brokerage, property management, investment and development services primarily in the Midwest. DarwinPW’s highly qualified professionals are problem solvers and utilize a breadth of tools and knowledge to serve our clients best.

6 8

Tempered optimism for the Interior construction in 2023

By Steve Boulukos, John Angelovich and Joe Maguire (JC Anderson)

PUBLISHER Mark Menzies menzies@rejournals.com

VICE PRESIDENT OF SALES & MW CONFERENCE SERIES MANAGER

Ernie Abood eabood@rejournals.com

VICE PRESIDENT OF SALES Frank E. Biondo frank.biondo@rejournals.com

CLASSIFIED DIRECTOR Susan Mickey smickey@rejournals.com

SUPPORT SPECIALIST, MEDIA & EVENTS Hayley Myers hayley.myers@rejournals.com

1010 Lake St. #210 Oak Park, IL 60301 (708) 622-0074 Website: www.rejournals.com

EDITORIAL ADVISORY BOARD

ALISSA ADLER Colliers

TODD ANDRLIK Skender Construction

GEORGE KOHL Savills

JERRY KRUSINSKI

Krusinski Construction Co.

RONALD C. LUNT Hamilton Partners

JOHN M. MOYSEY

Avison Young

NANCY A. PACHER CBRE

JONATHAN STEIN

Inland Real Estate Group

GREGORY T. WARSEK

Associated Bank

CHRIS WOOD Cushman & Wakefield

With construction cost increases in Chicago among the highest in the nation, many office building owners and companies are feeling the pinch during a time of already heightened uncertainty. Yes, it’s possible to complete projects on time and on budget—with a communication-first approach to project management and execution. In the face of headwinds in the market, our firm sees reasons for optimism in the New Year—the supply chain delays are easing, companies are taking steps now for their future office needs, and Chicago is attracting new, experiential retail formats that will revitalize downtown and neighborhood destinations.

Long Lead Times Will Finally Level Off

Supply chain challenges exacerbated by the pandemic, the Suez Canal obstruction, and port congestion have profoundly affected manufacturing and consumer goods over the past 2.5 years. In construction, we’ve had to contend with record lead times for building materials and price volatility. During this time, we’ve had to counsel clients on alternative materials and proactive scheduling to keep projects on track.

The good news is, many indicators show that the supply chain woes are lessening. According to an expert from Turner & Townsend, a U.K.-based global real estate and infrastructure consultancy, “Many of the core constraints in manufacturing and transportation are slowly improving and this will cause lead times to settle.”

Getting HVAC, appliances, tile, flooring, cabinetry, and other interior finishes faster will help contractors schedule with more certainty and allow projects to be completed sooner so owners can realize revenue.

Offices Aren’t Obsolete—They’re Just in Transition

Many companies have accepted work from home and hybrid workforces over the past few years. Yet some have realized what’s

missing when they don’t have employees together in person regularly—collaboration, employee development and personal connection. There’s a shift back toward in-person work at least some of the time, including the big technology firms that tend to lead the trend for other industries. While there’s no doubt the office sector will take some time to recover, our recent office build-outs show the innovative approaches and investments companies are making for the office of the future.

For Kraft-Heinz, which occupies Floors 72 to 76 of Chicago’s Aon Center, we assisted with a successful return to work program. The project encompassed renovating open seating, adding more than 10 different styles of conference or collaboration zones, and a demonstration test kitchen.

Another recent client, market research company Ipsos, bucked the trend of downsizing and moved its Chicago office from 222 Riverside to the 11th floor of 222 W. Adams St. for more space. Our work included the addition of a User Experience (UX) facility, collaboration spaces, offices and open seating. Features also include a cabana and game room with neon signage, two “gathering stairs” as huddle areas and multiple preserved moss living wall installations.

New Spaces to Gather People

In addition to companies bringing back people to offices, cities will need new dining, entertainment and cultural experiences to rejuvenate downtowns and neighborhoods. In Chicago we are lucky to have abundant and vibrant offerings, with new openings to be excited about.

In 2022, we completed the interior buildout for immersive art museum Color Factory in the iconic Willis Tower. The 24,000-foot space is Color Factory’s largest venue and flagship location. In an ambitious 16-week timeframe, we brought to life the Color Factory’s mission to celebrate the “joy of color” through interactive installations and curated exhibits inspired by the city of Chicago. The Color Factory joins WNDR Museum, The Museum of Ice Cream, and other pop-up and permanent immersive experiences in the city.

We’ve Hit Some Stumbling Blocks, but Steadier Paths Are Ahead

Commercial construction has had a tumultuous few years, but despite the challenges of rising costs, global disruption and evolving work cultures, we’ve been able to guide clients to successful outcomes by being proactive, flexible and communicating at every step. Now we have some reasons to look toward 2023 with a more hopeful gaze.

John Angelovich

Steve Boulukos Joe Maguire

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Don Koliboski

Vice President of Economic Development dkoliboski@LCEA.us

Anna Mihajlovic

Marketing & Special Projects Coordinator anna.m@LCEA.us

Growth and Northwest Indiana go hand in hand, but the region is just getting started

By Mia Goulart, Senior Staff Writer

Northwest Indiana has made a name as one of the most sought-after regions to do business, and the reasons speak for themselves. Illinois Real Estate Journal recently spoke with Jeff Bennett, Managing Partner at McColly Bennett Commercial Advantage, a full-service, geographically-based commercial real estate firm, to discuss why the broader community has been a go-to.

From Bourbonnais, Illinois, to Michigan City, Indiana, across all sectors, McColly’s portfolio is broad. With 50% of business in Illinois and the other 50% in Northwest Indiana, McColly offers a unique and valuable perspective in that there’s plenty of success to go around. Some companies are relocating to the region, but McColly doesn’t seek to take business away from Chicagoland. The goal, instead, is to add to Northwest Indiana in the form of business expansion, and Bennett said he’s seeing more and more of it.

Cities like Michigan City and those along Route 80 along I-65 have bloomed into frontiers of development. New construction is taking place in all sectors, more specifically, projects driven by e-commerce,

as seen so prevalently around Chicagoland. Companies across the U.S. continue to seek future opportunities here because of its availability of land—and labor—to build and operate manufacturing/warehouse buildings.

In addition, Bennett said there’s also been an uptick in the reconstruction of outdated buildings into new manufacturing/warehouse buildings.

It’s a chain reaction of explosive growth, and many sectors are riding the upward curve. New manufacturing buildings result in a need for more multifamily units, more multifamily units result in a need for retail/ entertainment, and so on.

“There’s increased demand in Cedar Lake, St. John and Schererville as a result of new spendable income, spurring the need for new retail centers.”

The Hard Rock Casino located along the South Shore of Lake Michigan is a specific example of a project that kickstarted others around it. The top-earning casino in Indiana, following its opening in May 2021, has resulted in neighboring restaurants, hotels—even office buildings—to satisfy demand.

“These projects are new, and they give us momentum going into 2023,” Bennett said. “Last year was the best year to date for our company, and we think this year will be even better.”

Land and labor aside, there are other factors at the root of outsiders’ interest, including the region’s renewable fuels, infrastructure and location in the center of the U.S. McColly reported in 2022 that the region was awarded $51 million to enhance infrastructure, and progress is still being

made on the South Shore Commuter Rail, running from Chicago to South Bend.

But this much growth does make some wonder whether or not the challenges being faced in Chicago, like the lack of land and labor, will eventually bleed into Northwest Indiana. Bennett doesn’t think so and said the region’s proximity will

“These projects are new, and they give us momentum going into 2023. Last year was the best year to date for our company, and we think this year will be even better.”

only continue to be beneficial. Simply put, Northwest Indiana is unique for a reason, and it’s just getting started.

“[The success of] McColly is a good pulse of growth,” Bennett said, “and we’re in a prime area doing business in Northwest Indiana.”

Don Koliboski, Vice President of Economic Development for Lake County Economic Alliance (LCEA), agreed.

Koliboski said Crow Holdings Industrial (CHI) recently broke ground in Merrillville for the area’s newest 195-acre Class A Business Industrial Park, the Silos at Sanders Farm in Lake County’s central sector. CHI will invest close to $250 million and build more than two million square feet under roof along Mississippi Street and I-65 with initial space delivery anticipated in early 2023.

CHI brought Big Lots distribution just across I-65 at AmeriPlex at the Crossroads (Merrillville), which includes the Purdue Technology Center, a home for burgeoning tech and tech related companies. The Missner Group, another national developer, is joining them in bringing approximately 80+ acre development for advanced light manufacturing, food production,

distribution, or e-commerce among other target industries.

These developers and companies like Domino’s Dough Production, Amazon, Dawn Foods, and many others now know firsthand the competitive advantages of their new locations and positioned for prosperity in Lake County, Indiana.

“While manufacturing is still the county’s number one target industry, we continue to

diversify from our legacy steel and refining operations to agri-business, advanced manufacturing, logistics and warehousing, e-commerce fulfillment, and call/data centers,” said Koliboski. “With health care/medical, office, retail and hospitality complimenting residential development, Lake County is in a position to grow and pivot to accommodate consumer demand and delivery expectations.”

“The lower cost of doing business has always been a major draw for investors and companies looking to serve their bottom line while catering to employees and clients. Not only is Lake County, Indiana, a great area to locate and expand business operations, it is ripe for investment,” said Anna Mihajlovic, Marketing and Special Projects Coordinator for LCEA.

The McColly Bennett Commercial Advantage Team

McColly Bennet Commercial

Advantage advertises the planned construction for lease of a 90,000- to 200,000-square foot industrial build-tosuit in LaPorte, IN. The site has easy access to I-94 and I-80/90 toll road and is located within a TIF District making it eligible for tax abatement and other incentives.

Renovation nation: why multifamily rehabs can resist economic turmoil

By Justin Wood, Motus Construction

Though demand among apartment renters remains steady, economic headwinds and weakening multifamily fundamentals are having an effect. Given this situation, the stage is set for more apartment owners to undertake renovations in order to stand out. However, this strategy is not without its challenges.

According to a Q4 2022 Growth Report compiled by Apartments.com, multifamily fundamentals weakened at the end of last year with supply-demand imbalance, higher vacancy rates and marginal absorption. The report showed that the vacancy rate rose from 5.7% in the third quarter to 6.2% in the fourth quarter, due in part to 96,000 new rental units coming online. As a result, national asking rents fell to 3.7%, a 740-basis-point decline from one year prior.

However, the quarterly snapshot of these figures doesn’t align with a long-term trend. A recent U.S. multifamily capital markets report put together by Newmark found that new housing completions –

which includes both single-family and multifamily properties – have not kept up with household formation since 2018, resulting in a 400,000-unit shortfall in 2021. Meanwhile, mortgage applications fell by more than 65% in third-quarter 2022 compared to one year prior. This was due in no small part to an astonishing 122.6% year-over-year increase in the average 30-year fixed rate.

A Dodge Data & Analytics report showed that year-over-year multifamily construction starts grew by only 1% in November. While this is far better than the 9% decrease in single-family construction in that time period, it shows that, in the coming years, supply will not keep pace with demand.

This is a sentiment shared by builders. In a recent outlook survey conducted by The Associated General Contractors of America, contractors provided their expectations for project value growth across multiple sectors in 2023, compared to last year. The share of respondents who anticipate the multifamily sector to expand

edged out those who foresee contraction by only 1%. This is a precipitous, 31 percentage-point drop from the 2022 survey.

The Apartment.com report forecasts 2023 will see the highest new supply totals since the 1980s as projects that were underway catch up to market conditions. However, the majority of these will be luxury units. This fact, combined with higher interest rates pricing would-be buyers out of homeownership, and an eventual tapering off of new construction starts means that demand for many renters is not going away.

Many commercial property owners are seizing the opportunity to renovate their buildings and tap into this demand, updating units and common areas to enhance marketability and, ultimately, profitability. One issue, however, is that materials remain not only more expensive but also harder to obtain due to ongoing supply chain issues. While this has created challenges for apartment owners looking to modernize their buildings, smart pro-

curement decisions can keep a project on target without significant cost overruns.

Knowledgeable contractors collaborating closely with ownership are able to find the right balance between scope and budget. This includes advising on what alternative materials can be substituted without compromising quality and which projects should be prioritized to maximize ROI.

My firm, Motus Construction, recently completed renovation work on a six-unit apartment building in Forest Park, Ill. The building needed extensive repairs to the existing hot water boiler, plumbing and electric system. While these capital expenditures came at considerable cost, we were able to identify ways to make the client’s desired aesthetic changes to all units while staying under budget.

For example, we selected high-quality vinyl plank flooring for the project, which comes at about half the cost of newly installed hardwood. Not only is it cheaper, but vinyl flooring now comes in a wider

range of finish options, has better durability and is often easier to source.

Another strategy we employed at the Forest Park project was painting the impression of a black wainscotting on the white walls in all common areas. This required no additional materials; with a simple paint selection and application, we were able to give the entry and laundry spaces an elevated, contemporary feel that appears to be more expensive than it really is.

The best way to save on material costs is to find ways to use what’s already in place. For example, if existing cabinetry or doors are outdated but otherwise in good shape, paint or refinishing can give them a new life, especially combined with updated hardware. Similarly, leaving exterior brickwork or ceiling spaces exposed can give a space a modern, industrial aesthetic, all without the need to buy drywall and framing. This only works on certain projects, however, so it’s best to assess on a case-by-case basis.

Even in the face of higher construction costs, longer lead times, rising interest rates and tightening lending standards, apartment owners can still maximize the value of their properties through thoughtful renovations. Those who rely on the expertise of skilled contractors are best positioned to maximize their return on such investments at a time when every dollar counts.

About the Author

Justin Wood serves as Senior Project Manager of Motus Construction. Founded in 2009, Motus Construction has executed more than 500 multifamily rehab projects, with a combined budget spend of approximately $300 million. From small-scale remodels to gut rehabs, threeflats to 100-unit buildings, the company has focused solely on multifamily and has amassed years of experience.

for Scope 3. And while the goals seem lofty, Kinjal Patel, General Manager, Construction, Chicago, said there are already tangible results.

The Reed at Southbank, for example, is a 41-story, 440-unit community in the South Loop, for which Lendlease utilized a proprietary green concrete mix that reduces carbon emissions by replacing up to 60% of the portland cement with slag, as opposed to a traditional mix concrete. As a result, The Reed has achieved the strength required, and the product longevity is expected to exceed traditional mix by up to 30 years while reducing energy and carbon emissions by 30%. Patel said the goal for all projects is to exceed code minimums by at least 10%.

Though this switch alone not enough to achieve both the 2025 and 2040 goals, Lendlease is also working on other solutions, like making the switch from diesel-powered to electric equipment.

“We’re in the process of working with manufacturers,” Patel said, “and I hope we’re piloting all-electric equipment on the front end of our projects within the next few years.”

Sustainability is desired by many but considered by less for one reason: cost, especially in today’s economy. But Patel said this is a misplaced notion. Being on the front end has allowed the company to pilot new methods and materials and determine early what does and does not work so by the time it’s ready to be presented, there’s not a large premium.

“The first design of the new slag mix that we piloted on our first building came at a small premium,” Patel admitted. “But because the infrastructure was already in place at the batch plant where we were sourcing the material, we were able to apply that meth-

odology to the next building for a smaller premium than the first.”

Eventually the premium will fall even with the cost of traditional concrete, and the trial and error on the front end allows the product to enter the market at a more reasonable premium, or no premium, resulting in a savings on the back end of a project, like within operations and facility management.

Yet sustainability is just one emerging trend; another is the increased use of technology.

Patel said it’s important for construction managers to be sophisticated in how they’re

setting up their virtual design professional group. Architects and designers design mostly in 3D, and a forward-thinking contractor is hiring people that can take electronic models and manipulate them for use for a variety of different steps in the process. Lendlease has a VDC group that does just this, which is what allows them to pilot many things. For The Reed, Lendlease utilized this technology to build a secondary screen wall for façade instillation, or a “cocoon of protective cocoons” outside the face of the building, from which they can install the façade of the building inside.

“When you look at any high-rise under construction, you’ll often see a cocoon at the top, which is where the concrete or steel installation is occurring,” Patel said. “This screen wall is for protection of both the structure building activities and workers from the elements such as excess wind, as well as protecting the public from debris. In collaboration with our virtual design group, we were able to apply that engineering for the façade, which is lower in the building and is traditionally done outdoors.”

By applying that cocoon to other stages of the build, Lendlease was able to increase efficiency of the crew, eliminate risk, increase safety and reduce schedule pushbacks caused by weather. Other advancements on the horizon include reducing on-site labor

CONSTRUCTION (continued from page 1)

Lendlease is serving as general contractor for CMK Companies’ 299-unit apartment tower in the South Loop. The building is scheduled for completion this year. Rendering by Pappageorge Haymes.

Lendlease is serving as general contractor for Greystar’s 21-story, 224-unit apartment tower in the Fulton Market District. All work is expected to wrap up during the second quarter of 2023.

“There’s a microecosystem of life science projects that are coming to fruition, slightly propped up by the tech sector also emerging in these areas.”

by way of high-rise drones and robotics for assistance in material storage and delivery around site.

Reducing on-site labor has many advantages including increased safety and efficiency at a lower cost, causing more and more companies to slowly transition, like Rosemont-based Principle Construction. Chief Operating Officer Mark Augustyn said Google Earth and Bluebeam have been especially useful programs, among others.

“Using these two programs, Principle can determine if the site is feasible to go forward with layout and construction, ultimately saving us time and a physical site visit,” Augustyn said.

As for the sectors/property types expected to drive construction activity the most in 2023, Lendlease continues to see a strength in multifamily. Patel said rental rates are high, and landlords no longer have to offer concessions for new renters. In addition to developing and building The Reed, Lendlease is also the GC for two other multifamily projects that will open this year: Greystar’s One Six Six (166 N. Aberdeen) in the Fulton Market District and CMK Companies’ 1400 S. Wabash in the South Loop. Lendlease is also the GC for The Saint Grand, a new mixed-use project in Streeterville from Maverik Development, GW Properties, Luxury Living Chicago Realty and Double Eagle Development.

Breaking ground next month, the 21-story building will include 248 rental units and 40,000 square feet of office space, along with ground-floor retail.

Life science is another blooming sector, and companies like Lendlease are working to lure businesses to Chicago.

“Fulton Market and other urban hubs such as Lincoln Yards [Sterling Bay] and The 78 [Related Midwest] have plans for life science buildings in addition to the buildings already complete,” Patel said. “There’s a microecosystem of life science projects that are coming to fruition, slightly propped up by the tech sector also emerging in these areas.”

And of course, when talking about construction activity, industrial cannot be left out. Industrial property construction exceed 38 million square feet, increasing almost 16% in Q4 2022, and Augustyn has already seen a significant amount of this construction this month alone, including warehouses and repair facilities, as well as any project(s) related to trucking or truck/trailer storage. Principle has a project in West Dundee for a truck/trailer storage yard and truck maintenance operations facility, as well as several reconstruction/renovation projects, which continues to be a trend across all sectors.

In Bloomington, Illinois, Principle will be replacing an old retail facility with a new restaurant, as entertainment/dining experiences continue to do well. Additionally, Augustyn said they recently demolished and are in the process of repurposing an underutilized building on Morgan Street in Chicago into a spec office warehouse for USPS.

Lendlease is serving as general contractor for this mixed-use office and residential tower in Streeterville. Developed by a joint venture of Mavrek Development, GW Properties, Luxury Living Chicago Realty and Double Eagle Development, the 21-story building will include 248 rental units and 40,000-square-feet of office space, along with ground-floor retail.

Past

Before joining Marquette Bank 40 years ago, Tuohy managed interest rate and equity risk for Merrill Lynch, after which he decided to hone in on middle-class business. Why? It’s these markets that are poised to weather economic downturns and they’ve done so, Tuohy said, since 1982.

To save money in the event of an economic downturn, Class A renters tend to move to Class B and Class B renters move to Class C, and so on. The opposite happens when it turns back around: Class D moves to Class C, Class C moves to Class B and Class B moves to Class A, exemplifying an unwavering demand for middle-market buildings.

Yet COVID-19 affected all sectors, not just multifamily, and it was hotels, restaurants and entertainment venues that were most directly impacted. To assist the owner/operator during this period, Marquette Bank gave the option of interest-only loans, which turned out to be very successful, meaning no defaults, and business were

able to get back on their feet as the world transformed into our new normal. At the same time, $4 trillion was printed and spread around the U.S. in an effort to keep the economy from crashing.

But the future effects of this were misread, and inflation isn’t transitory as predicted. Inflation skyrocketed in 2022 as the pandemic moved toward an end, resulting in multiple 75-point basis point jumps. Rates in the last 60 days have jumped to 5.5–6% after hovering between 3.5–4% for the last decade, Tuohy said, and a big consequence, as it relates to the multifamily market, is a disconnect between the bid, the ask, the offer and the sale.

Present

Sellers are still wanting the inflated value for their building, based on a rate of 3.5–4%. A buyer, at this rate, could put 25% equity down and have adequate cash flow to operate the building plus a decent return—but this is not possible at the adjusted rate of 5.5–6% and today’s buyers must put down 30–40%, resulting in a disconnect between the buyer and seller. Because of this, the multifamily volume in Chicago and across the U.S. has decreased considerably for potential sellers, but Tuohy said there is

still a large buyer pool because the money is there, and buyers willing to shell out additional equity for the right building in the right location.

Tuohy said the same is happening within the single-tenant, triple net market, as well.

Future

No one is certain how or when this stalemate, of sorts, will go back to normal, but Tuohy said it’s only a matter of time. Sellers will have to sell at some point—for some reason—and as the economy slows and we enter a recession, rates will again reach a low- to mid-4%.

The is-it-isn’t-it recession is a topic of conversation itself, but for clarity, one must look at the fundamentals.

The U.S. is 70% consumer driven and when consumer sentiment, which is still fairly strong, starts to decline rapidly, the average consumer starts to cut back on nonessential items like electronics. When this happens, manufacturers stop buying chips, and Tuohy said it’s for this reason that the chip industry is usually the first to feel the burn in times of financial uncertainty. In a credit-driven economy, when

credit card rates exceed 20%, a consumer will think twice about putting debt on their balance sheet.

But consumer behavior is less predictable following COVID-19. People have not lessened their spending on luxuries like dining out and traveling, leading to an effect on other markets like single-family, and homes have dropped 70–80%. Like multifamily, Tuohy said with a mortgage of 3.5–4% or lower, homeowners have no incentive to sell just to buy a new home at a rate of 6%, ultimately leading to a mortgage industry layoff.

It’s a domino effect, and it starts with the housing industry, as the backbone of our economy. When people are hit pause on homebuying, they’re also slower to buy furniture, appliances, etc.—all affected by increasing rates.

“It’s a very slow process, and we’re still waiting to see,” Tuohy said. “Interest rate hikes set in motion a domino effect, but we’re only in the first stage.”

And then there’s inflation, which is affecting replacement costs for multifamily. In fact, Marquette Bank saw the cost of construction increase 20–30% for new

MULTIFAMILY (continued from page 1)

projects, impacting the underlying value of apartment stock.

The average cost to replace a single unit in Chicago is $400,000 and in Chicagoland, $250,000.

“If existing apartment stock is half of that cost,” Tuohy said, “it makes for an attractive investment long term. Buying an apartment unit for $250,000 or $300,000 in Chicago is significantly less than the cost of replacing that building when you factor in the cost of materials and labor.”

The same goes for single-family homes: Marquette Bank has 18 three-bedroom, two-bathroom townhomes under construction, for which prices recently jumped 25% on construction costs, turning $290,000 into $370,000. In turn, Marquette had to raise the price to around $490,000, yet they still sold.

That to say, everything is interconnected. Across the U.S., replacement costs of single-family has a direct effect on the rental market, and the cost of replacing or building a home affects whether people can afford to buy—and the difficulty of this transition has only solidified the multifamily market, as the vacancy rate is less than 5% in Chicago.

And while it’s true that rental rates are being increased due to renters being priced out of the housing market, Tuohy said there’s another side to the equation. Insurance costs are up 7%, utility costs are up and taxes have increased, as multifamily is looked at as a go-to sector to raise taxes because of the perception that there is more profit being made.

BUILDING COMMUNITIES

As a national contractor, we know that every community is unique. That is why we’re committed to investing in local resources and expertise. No matter where we build, our objective remains the same – to deliver residences your tenants are proud to call home.

“We have buildings that doubled in taxes this year from $40,000 to $80,000,” Tuohy said. “Because of these things, the margins have shrunk, and the owner/operators have to pass a portion of that cost onto the tenant. It’s no longer a matter of whether or not landlords want to raise rents—they have to just to break even.”

Multifamily is not a “get rich” business, Tuohy said, but a very slow and challenging ride, now more so than ever. “It works well for people long term,” he said, “but it’s not for those seeking a short-term return.”

ASSET/PROPERTY MANAGEMENT FIRMS

CENTERPOINT PROPERTIES

1808 Swift Drive

Oak Brook, IL 60523

P: 630.586.8000

Website: centerpoint.com

Key Contacts: Nate Rexroth, Executive Vice President, Asset Management; nrexroth@centerpoint.com;

Danielle Radtke, Senior Vice President, Asset Management; dradtke@centerpoint.com

Services Provided: CenterPoint Properties is an innovator in the investment, development, and management of industrial real estate and multimodal transportation infrastructure. CenterPoint acquires, develops, redevelops, manages, leases, and sells state-of-the-art warehouse, distribution, and manufacturing facilities near major transportation nodes. Our experts focus on portproximate distribution infrastructure assets near America’s major population centers.

Company Profile: CenterPoint Properties continuously reimagines what’s possible by creating ingenious solutions to the most complex industrial property, logistics, and supply chain problems. With an agile team, substantial access to capital, and industry-leading expertise, we give customers a competitive edge to ensure their success — no matter how great the challenge.

CROSSROADS REAL ESTATE PARTNERS

4201 Lake Cook Road, Suite 100 Northbrook, IL 60062

P: 847.239.7519

Website: xr-partners.com

Key Contacts: Kirsten Bowersox, COO and Managing Broker, kirsten@xr-partners.com; Christine Simek, Senior Vice President Brokerage/Development, christine@xr-partners.com

O:847.239.7512 C: 630.473.5070

Services Provided: Management Services; Corporate Services; Advisory Services; Development Services; Real Estate Brokerage Services.

Company Profile: Fully integrated real estate solutions firm and can assist with every aspect ofreal estate ownership and management, including property operations and accounting, zoning and entitlements, construction management, due diligence and financial underwriting, sales and leasing and more.

Notable Transactions: SALE THAT JUST CLOSED-buyer representation deal for Frankfort Market Street on LaGrange Road , Frankfort Illinois.

New 10 year retail lease for 5,253 sf Restaurant Space at Barrington Square Mall to Kritunga Restaurant

New 7-year behavioral Health Office Lease at 4201 Lake Cook Road, Northbrook-4,300 sf New 10-year behavioral Health Office Lease at 2353 Hassell road Hoffman Estates-4,400 sf Please call for other availabilities.

FARBMAN GROUP OF CHICAGO

40 Skokie Boulevard Northbrook, IL 60062

P: 248.353.0500

Website: farbman.com

Key Contacts: Andrew Farbman, CEO, afarbman@farbman.com; Andrew Gutman, President, gutman@farbman.com; Michael Kalil, COO and Director of Brokerage, kalil@farbman.com; Chris Chesney, CFO, chesney@farbman.com; Ryan Nelson, EVP, nelson@farbman.com

Services Provided: Property Management, Leasing & Brokerage, Construction, Investment Sales, Asset Management, Site Selection Services, Acquisition & Disposition, Medical Real Estate Solutions, Move Management, Receivership Services, Facility Management, Net Lease Brokerage Services.

Company Profile: Farbman Group of Chicago, a full-service commercial real estate company, is one of the largest and most respected names in Commercial Real Estate. 1535 Lake Cook Rd, Northbrook | 2250 Point Blvd, Elgin | 280 Shuman - The Atrium, Naperville | 390 Holbrook Dr, Wheeling | 25 NW Point Blvd, Elks Grove Village | 40 Skokie Blvd, Northbrook | 1120 Lake St, Oak Park | 100 N LaSalle Dr, Chicago | 401 S State St, Chicago | 600 W Jackson Blvd, Chicago

HIFFMAN NATIONAL

One Oakbrook Terrace, Suite 400 Oakbrook Terrace, IL 60181

P: 833.HIFFMAN

Website: hiffman.com

Key Contacts: Dave Petersen, CEO, dpetersen@hiffman.com; Bob Assoian, Executive Managing Director of Management Services, bassoian@hiffman.com

Company Profile: Hiffman National is one of the US’s largest independent commercial real estate property management firms, providing institutional and private clients exceptional customized solutions for property management, project management, property accounting, lease administration, marketing, and research. The firm’s comprehensive property management platform and attentive approach to service contribute to successful life-long relationships and client satisfaction. As a nationally bestowed Top Workplace, and recognized CRE award winner, Hiffman National is headquartered in suburban Chicago, with more than 250 employees nationally and an additional six hub locations and 25 satellite offices across North America. For more information, visit hiffman.com

MID-AMERICA

One Parkview Plaza

9th Floor

Oakbrook Terrace, Illinois 60181

Key Contacts: Dan Hanson-Illinois, dhanson@midamericagrp.com

Brad Lefkowitz-Michigan, blefkowitz@midamericagrp.com

Brandon O’ Connell-Minnesota, boconnell@midamericagrp.com

Jim Vaillancourt-Wisconsin, jvaillancourt@midamericagrp.com

Services Provided: Mid-America provides strategic consulting services that maximize net operating income, net cash flow, and accelerate property appreciation. We provide property and construction management, leasing, due diligence, and market analysis. Additionally, we offer MA Building Services, a self-performing porter and maintenance company offering our clients cost savings and improved accountability for related services.

Company Profile: Mid-America Real Estate is #1 in retail real estate services in the Midwest, with full-service offices in Illinois, Michigan, Minnesota, and Wisconsin. Our exclusive focus on retail property, combined with cutting-edge technology and unsurpassed service, distinguishes Mid-America within the industry and provides clients with a competitive edge. The total consideration value of leasing and investment sales transactions facilitated in 2021 was $2.4 billion. Mid-America leases and manages more than 60 million square feet of retail space, and represents over 270 retailers and other tenants. For more information, visit www.midamericagrp. com

CONSTRUCTION COMPANIES/GENERAL CONTRACTORS

ALSTON CONSTRUCTION COMPANY

1901 Butterfield Road, Suite 1020

Downers Grove, IL 60515

P: 630.437.5810

Website: alstonco.com

Key Contact: Greg Kolinski, Director of Business Development, gkolinski@alstonco.com

Services Provided: Alston offers a diverse background of design-build experience, general contracting and construction management of industrial, commercial, healthcare, retail, and municipal projects.

Company Profile: Alston Construction’s success begins and ends with our approach to planning, scheduling, and choosing the right team. We have been adhering to an open and collaborative approach since our founding more than 35 years ago.

Notable/Recent Projects: Project Heartland 1.5 Million SF build to suit distribution facility for Proctor & Gamble in Morris, IL. Lakeshore Manor 210 unit senior living facility in Northwest Indiana. Dynamic Foods 3PL 500,000 SF build to suit distribution and packaging facility in Wilmington, IL. Brown Deer Distribution Center 420,000SF two building speculative distribution center in Milwaukee, WI. 106,000 SF meat packaging facility in Northwest Indiana.

MCSHANE CONSTRUCTION COMPANY

9500 West Bryn Mawr Avenue Ste. 200 Rosemont, IL 60018

P: 847.292.4300 | F: 847.292.4310

Website: www.mcshaneconstruction.com

Key Contacts: Mat Dougherty, PE, President, mdougherty@mcshane.com

Services Provided: McShane Construction Company offers more than 35 years of experience providing design-build, design-assist and general construction services on a national basis The firm’s diverse expertise includes build-to-suit and speculative warehouse, distribution and manufacturing facilities, as well as multifamily, commercial and institutional developments. Company Profile: Headquartered in Rosemont, Illinois with regional offices in Auburn, Alabama, Irvine, California, Phoenix, Arizona, Madison, Wisconsin and Nashville, Tennessee, McShane Construction Company provides comprehensive construction services on a local, regional and national basis for a wide variety of market segments. The firm is recognized as one of the Chicago area’s most diversified and active contracting organizations with a reputation built on honesty, integrity and dependability.

Recent/Notable Project: Industry Center at Melrose Park – the construction of three speculative industrial buildings in Melrose Park, Illinois. The new development incorporates a total of 651,617 square feet.

MERIDIAN DESIGN BUILD

9550 W. Higgins Road, Suite 400 Rosemont, IL 60018

P: 847.374.9200 | F: 847.374.9222

Website: meridiandb.com

Key Contacts: Paul Chuma, President; Howard Green, Executive Vice President

Services Provided: Meridian Design Build provides construction and design/ build construction services on a national basis with a primary focus on industrial, office, medical office, retail and food and beverage work.

Company Profile: With a team of in-house professional project managers, Meridian has extensive experience coordinating the design and construction of new buildings, tenant improvements, and additions/ renovations from 15,000 square feet to 1,000,000+ square feet. Meridian Design Build has been a Member of the U.S. Green Building Council since 2007. Notable/Recent Projects: Clarius Park Joliet Building #2, Joliet, IL - 906,517 sf speculative industrial facility for Clarius Partners. Commerce Park Chicago Building B, Chicago, IL602,545 sf speculative multi-tenant industrial facility for NorthPoint Development. Halsted Delivery Station, Chicago, IL - 112.000 sf package delivery station on a 17-acre redevelopment site for Prologis.

SUMMIT DESIGN + BUILD, LLC

1036 W. Fulton Market, Suite 500 Chicago, IL 60607

P: 312.229.4630

Website: summitdb.com

Key Contacts: Adam Miller, President, amiller@summitdb.com; Deanna Pegoraro, Vice President, dpegoraro@summitdb.com; Jon Silvers, Business Development, jsilvers@summitdb.com

Services Provided: Summit Design + Build, LLC is a provider of full service general contracting, construction management and design/ build construction services for the commercial, industrial, multifamily residential, office/tenant interiors, hospitality and institutional markets.

Company Profile: Located in Chicago’s Fulton Market and with regional offices in Tampa, FL, Austin, TX and North Carolina, Summit Design + Build has been involved in the design and construction of over 400 buildings and spaces totaling more than 10 million square feet over the firm’s 18 year history.

Notable/Recently Completed Projects: Eli’s Cheesecake (Industrial), 2217 Loomis (Industrial), 1436 W Randolph (Adaptive Reuse Hotel), 718 Main (Multifamily), Prenuvo (Medical TI), 5691 N Ridge Ave (Multifamily).

VICTOR CONSTRUCTION

2000 Center Dr., Suite East C219

Hoffman Estates, IL 60192

P: 847.392.6900

Website: victorconstruction.com

Key Contact: Zak Schuttler, President, ZakS@victorconstruction.com

Services Provided:Victor Construction Co., Inc. manages projects from ground-up site developments to interior buildouts, specializing in retail, industrial, and commercial markets.

Company Profile: Victor Construction Co., Inc. remains a family-owned and operated General Contractor. Having been in business since 1954, our firm has extensive experience managing every aspect of interior construction for the corporate, manufacturing, industrial, and retail sectors.

Notable/Recent Projects: Owens + Minor Distribution – 600K SqFt distribution facility that involved a full LED lighting upgrade, new HVLS fans, 200K SqFt section that required new cooling for medical distribution, an office renovation of 20K SqFt, and a new exterior employee pavilion.

LAW FIRMS

GOULD & RATNER

222 N. LaSalle St., Ste. 300 Chicago, IL 60601

P: 312.236.3003 | F: 312.236.3241

Website: gouldratner.com

Key Contact: Linsey Cohen, Chair, Real Estate Practice, lcohen@gouldratner.com

Services Provided: Counsel on nearly all real estate transactions, including purchase, sale and financing of office, industrial, hotel/hospitality and residential/multifamily development, as well as commercial and retail leasing, multiparcel assemblage, tax-deferred exchanges, management agreements, construction financing, litigation and environmental issues.

Company Profile: Gould & Ratner lawyers translate legal knowledge and business acumen into practical solutions that work for our clients, who include entrepreneurs, family businesses, and middle-market and Fortune 500 companies in real estate and many other industries in Chicago and nationwide.

MELTZER, PURTILL & STELLE LLC

1515 Woodfield Road, Ste. 250

Schaumburg, IL 60173

P: 847.330.2400 | F: 847.330.1231

125 S. Wacker Drive, Suite 2900

Chicago, Illinois 60606

P: 312.987.9900 | F: 312.987.9854

Website: mpslaw.com

Key Contact: William J. Mitchell, Managing Partner, wmitchell@mpslaw.com.

Firm Profile: Meltzer, Purtill & Stelle LLC is a business-to-business law firm with exceptionally strong capabilities in all areas of real estate law. The firm provides a full range of transaction and litigation services to real estate developers, financial institutions, and businesses engaged in corporate, industrial, and retail development as well as financing, leasing, andinvestment.

Services Provided: The firm provides an exceptionally wide range of real estate-related services, including commercial real estate and leasing; land use, zoning, and entitlement; construction and finance- including TIF and other development incentives and commercial litigation.

O’KEEFE

LYONS & HYNES, LLC

30 N. LaSalle St., Ste. 4100 Chicago, IL 60602

P: 312.621.0400 | F: 312.621.0297

Website: okeefe-law.com

Key Contacts: Elizabeth Gracie, Partner, elizabethgracie@okeefe-law.com; Brian Forde, Partner, brianforde@okeefe-law.com

Services Provided: The firm’s partners have been on the forefront of understanding, shaping, challenging, and sometimes writing, Illinois property tax laws. Many of the partners honed their skills overseeing taxation matters for Illinois public taxing agencies. Our firm leverages this expertise, along with a proprietary technology database, to create innovative tax and litigation strategies that lead to successful outcomes for our clients.

Company Profile: O’Keefe Lyons & Hynes, LLC has an 85-year track record of supporting commercial real estate interests in property tax matters. We work with corporate, institutional private and not-for-profit entities across the office, multifamily, industrial, retail and hospitality sectors.

TAFT LAW

111 East Wacker, Suite 2800 Chicago, IL 60601

P: 312.527.4000

Taft attorneys serve individuals and businesses throughout the Midwest with offices in Illinois, Indiana, Michigan, Minnesota, and Ohio. For a full list of our locations, visit www.taftlaw.com/about/offices.

Website: taftlaw.com

Key Contacts:

Kathryn Kovitz Arnold, Co-Chair, Real Estate Practice Group, karnold@taftlaw.com

Mark D. Rubenfire, Co-Chair, Real Estate Practice Group, mrubenfire@taftlaw.com

Services Provided: Enlightened legal counsel is a critical component of commercial real estate transactions. Taft’s 140+ real estate attorneys deliver timely, thoughtful counsel to navigate the complexities brought upon by the fluidity of current conditions.

Company Profile: At Taft, delivering outstanding legal performance to help clients succeed is what drives and motivates our 800 attorneys every day. Taft has offices in Chicago, Ill.; Cincinnati, Cleveland, Columbus, Dayton and Delaware, Ohio; Detroit, Mich.; Indianapolis, Ind.; Minneapolis, Minn.; Denver, Col.; Covington, Ky., Southfield, Mich., and Washington, DC. The firm practices across a wide range of industries, in virtually every area of law, including Bankruptcy and Restructuring; Business; Finance; Employment and Labor Relations; Energy; Environmental; Intellectual Property; Health and Life Sciences; Litigation; Paytech and Payment Systems; Private Client Services; Public Affairs; Real Estate, and Tax. With a proven track record of experience since 1885, the firm offers breadth and depth of legal expertise coupled with a trusted business perspective to help our clients reach their goals.

MULTIFAMILY FINANCE FIRMS

MARQUETTE BANK

1628 W. Irving Park Road, Unit 1D Chicago, IL 60613

P: 708.873.8639

Website: emarquettebank.com

Key Contacts: Bill Hinsberger, Executive Vice President, bhinsberger@emarquettebank.com; Patrick Tuohy, Senior Vice President, ptuohy@emarquettebank.com

Services Provided: Multifamily/apartment building lending for all Chicagoland. Fast, local decision making. Dedicated local servicing staff. Simple, no-hassle paperwork. Quick close. Flexible terms. All clients enjoy ZRent – an automated, hassle-free, no-cost way to collect monthly payments from tenants.

Company Profile: Marquette Bank has 20 branches, 2 loan offices and $2 billion in assets. Independently owned/operated since 1945. Offering clients full-service, banking, financing, insurance, trust and wealth management services.