Midwest Fortunes Looking Up

GlobeSt.com’s 10-year anniversary is a special date for me, since I was one of the first reporters for the site at its launch. I covered Detroit for the fledgling start-up, at a time when the Web was new frontier to commercial real estate firms. Only the large companies had a basic Web presence. I remember many conversations instructing people in the industry how to type in a Web page address and advising them that email would be much preferred to faxed information—a very counter-intuitive concept in 2000.

Just a two years before GlobeSt.com was formed, while at another publication, I had interviewed LoopNet founder Dennis DeAndre when he was pushing his fledgling site at a real estate conference. We talked glowingly about how the Internet would change real estate forever. Little did we know that, while technology has made a large impact on the industry, the combined knock-out punch of the Sept. 11, 2001 terrorist attacks and the later crash of the unchecked mortgage industry would be much more important over the decade.

The bellwether Midwest event for commercial real estate, it can be agreed, was Chicago-based Sam Zell’s $36-billion exit and sale of Equity Office Properties to New York City-based Blackstone. (This was proven out by our 10^th Anniversary Reader Survey in which you voted that deal as the biggest of the decade.) In early 2007, the sale raised eyebrows for its size, but most thought it was a sign of the continued success of the commercial real estate market. Few realized it was one smart man’s exit before the fall; Zell saw the cycle’s turn, and soon the plethora of cranes building new offices would vanish as lost jobs and consolidations dried up cubicle demand.

Cranes were also up in Midwest cities for the latest craze, condominium tower consutrction, as some cities used public-private-funded projects such as Chicago’s Millennium Park opening near the Loop in 2004, at a cost of $475 million. Housing was king, and we saw property values rising steadily in most areas since the Great Depression, and formerly planned apartment projects morphed into condo towers.

Downtowns were benefitting from this boom. Midwest cities from St. Louis to Cincinnati were extolling new downtown redevelopments that would coincide with new condo projects. Retail was following, and finally, a group of developers that included the Mills Corp. had moved to redevelop 108 N. State St. in Chicago, the notorious Block 37. In Detroit, while a hoped-for three-casino complex plan along the Detroit River fell apart, General Motors, though already suffering from bloat, came in and bought the 5.5-million-square-foot Renaissance Center. The car company turned the Motor City icon into its global headquarters, moving from the Detroit suburb of Warren and undertaking millions of dollars of renovations.

Unfortunately, some of these projects were deep in the planning stages, or even under construction, when the housing market collapsed. Suddenly, capital dried up, investors and owners backed out or went bankrupt and job losses hit the hundreds of thousands. In two short years, the progress of the first seven years of the decade was virtually wiped out. The most common phrase uttered by those remaining Midwest commercial real estate professionals still is, “In my XX years in the industry, I’ve never seen it that bad.”

Today, being in the Midwest is a mixed-blessing. While the most activity is happening again in the core markets of New York City and Washington DC, Midwest cities are, for the most part, not as hard hit by the recession as cities in Florida, Nevada or Arizona. It’s true that the largest real estate bankruptcy so far is the General Growth case in Chicago, but as the ship has been righted, and leasing (very) slowly picks up across all sectors, the frenzied bidding war for GGP showed that there’s still life left in the industry. Last week, GGP came out of bankruptcy not beaten, but proud and hopeful.  It’s a sentiment shared by all Midwest and--I  would suggest--all industry professionals today.