Heartland Real Estate Business

FEB 2018

Heartland Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Midwest.

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S uburban office properties are often viewed as the most vul- nerable real estate asset class, especially as a growing number of millennials and baby boomers con- tinue to move downtown. At the close of 2017, the national suburban office vacancy rate stood at 16.4 percent compared with the CBD (central business district) vacancy rate of 12.4 percent, according to JLL. "There's no denying the fact that this migration to the city has had an impact on the suburbs," says Adam Tarantur, principal at Des Plaines, Illi- nois-based Podolsky Circle CORFAC International. "But I do feel like some- times it's unfairly reported in a nega- tive light. I think you have to look at it on a market-by-market basis." In order to stay competitive, sub- urban office owners and developers have been implementing more urban concepts and amenities that today's tenants desire. From fitness centers to public transportation options, here's www.REBusinessOnline.com February 2018 • Volume 16, Issue 6 WOOING OFFICE TENANTS Suburban landlords amp up amenity packages and renovations to stay relevant. By Kristin Hiller THREE REASONS FOR MORTGAGE BANKERS' BRIGHT OUTLOOK Favorable market conditions, a sweeping tax reform package and disciplined lending practices combine to buoy intermediaries' confidence. By Joe Gose H eading into 2018, the commer- cial real estate lending market looks a lot like a NASCAR race: Drivers can only get so much juice out of their engines before restrictor plates kick in to moderate speed. By all accounts, debt capital inun- dates the market, but most lenders are controlling originations by cap- ping loan-to-value ratios at 75 percent and ensuring that cash flows can hold up under stress. That's a far cry from the last cycle, when commercial mort- gage-backed securities (CMBS) lend- ers shoveled out highly leveraged and lightly underwritten loans. The disciplined lending combined with other factors — low interest rates, signs that annual GDP growth may surpass 3 percent, and an occa- sionally erratic but business-friendly administration that is slashing taxes and regulations — is fostering expec- tations that 2018 will be another busy year. "From the most left wing to the most right wing, every developer and owner I talk to is very bullish," says Tucker Knight, a senior managing di- rector in the Houston office of Berka- dia. "One of my clients from the West Coast — he's not a giant [Donald] Trump supporter, I can tell you — is super pumped about this tax reform." Provisions in the recently enacted Tax Cuts and Jobs Act include a cor- porate tax rate cut of 14 percentage points to 21 percent, reductions in individual tax rates, and favorable treatment of business income earned through a pass-through entity, a struc- ture used extensively by real estate investors. Such optimism was somewhat un- expected. Many commercial real estate professionals figured that the growth cycle would have ended months ago. Indeed, the economic expansion is a few months away from matching the second-longest expansion since World War II — 106 months in the 1960s. Window for Hotel Developers Hasn't Shut Despite Surge in New Supply page 20 Downtown Milwaukee Is Experiencing Booming Development Across Sectors page 14 see OFFICE page 27 see BANKERS page 24 How to Find the Formula for Success in Chicago's Retail Market page 13 NorthMarq Capital arranged a $93 mil- lion Fannie Mae loan to refinance the 533-unit Columbus Plaza apartment building in Chicago. Farpoint Development and Greco/DeRosa Investments are redeveloping a 135,000-square-foot loft office building in Rosemont, Illinois. The property will feature a fully renovated lobby, tenant lounge, fitness center, yoga room and zen garden.

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