Development's New Day in the Sun

CHICAGO-The Alter Group, one of the two entities that announced plans in 2010 to build a new office building downtown here, is looking instead this year to medical office and industrial markets as development targets. As tenants such as Aon Corp. tour large block available downtown, Alter is biding its time to gain a tenant to the proposed $150 million, 20-story tower at 625 W. Adams.

Richard Gatto, EVP with Alter, tells GlobeSt.com that the company has two medical office projects in Philadelphia and Florida to work on this year, and the firm is also getting ready to jump more into industrial development. “We’re starting to look at Inland Empire, CA again, the ports are having big volume surges, especially in Long Beach. We’re tying up some land and looking at doing warehouses around 750,000 square feet,” he says.

He says as Internet sales increase, fulfillment to support the product will also increase. “Companies such as Walmart and Amazon are now looking for one-million-square-foot distribution centers in the five major markets,” Gatto says. “We’ve tied up a piece of property in Atlanta with a two-year option for a million square feet BTS.”

As for office, he says leasing just isn’t there yet to start anything with the Adams building. “We’re not going to start without being preleased. We’re talking to those companies that are out there, like Aon and Fifth Third Bank,” Gatto says. “We’ll get interest…I just can’t see these companies wanting to take large leases in older buildings, many of them not ready for modern technology needs.”

He says there’s going to be growth in the downtowns across the country, as offices move away from the suburbs in response to employee preference. “I don’t think the 22-35-year-old employee wants to be in the suburbs anymore, these kids of Google and Groupon want to be in the urban core. They’re getting married and having kids later, they want to be downtown first,” Gatto says.

These factors, the workers wanting to be downtown and the need for new, modern class A space will likely encourage tenants to agree to new buildings by the end of 2012, he says. Alter was preceded in its announcement last year by a joint venture of Trammel Crow and Insite for a one-million-square-foot office tower at 301 S. Wacker. There’s no news of tenants for this proposal, either.

Now may be the best time to start building, Gatto says, as construction costs are way down; though it could also be the worst time as well, as permanent mortgage lending is almost impossible to get, he says.