CHICAGO-Either they are crazy, or the first shot of the new office cycle downtown has been fired. Dallas-based Trammell Crow Co. is joining with Oak Brook, IL-based Insite Real Estate LLC to build a one-million-square-foot office tower at 301 S. Wacker. Though there’s interest, there has been no tenant signed for the $350 million project, according to the venture.
More than a few Chicago office experts have predicted no new development even being announced until at least 2011 or 2012. However, Shaun Frankfort, senior managing director and head of Trammell’s Chicago business unit, says the building will be ready for a bloom in 2014 office demand. “When you build a new building in downtown, it’s more than just flipping on a light switch, it takes years of planning and construction and meetings. Our underwriting is based on three years, when we believe there will be demand,” he tells GlobeSt.com.
He says there’s several reasons to the venture’s bet that there will be tenants willing to move to a new class A building by 2014, and lenders willing to take that risk regardless of preleasing. “We haven’t seen the last building in downtown Chicago. It’s not like they’re getting rid of the city Planning Department,” Frankfort says. “If we had approached financing 12 months ago, it would be very different, people would not be mentally in position to have this conversation. But we think now, everyone who is a candidate to participate in this project is sophisticated enough to understand the future market demand.”
For one, this is the first large building proposed for the downtown since the recession, Frankfurt says. Also, long-term capital is interested in high-class buildings with good fundamentals, he says, pointing to Newport Beach, CA-based KBS REIT II’s purchase of the new 60-story 300 N. LaSalle building for $655 million, a record $504 per square foot buy in the downtown.
Finally, Frankfurt says there’s been a lot of potential tenants requesting proposals. “Companies that are expanding or need to relocate in the next few years, they see that our market doesn’t offer many choices for available class A space. Even now, vacancy rates are much lower for class A space than class B or C space, and there’s not a lot of contiguous office blocks available,” he says.
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