One might ask us why in the world we're building office buildings today.
By John Salustri|June 29, 2005 at 02:26 PM
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For such a soft-spoken man, John A. Buck certainly has made his share of headlines. The Chicago-based development firm that bears his name has made its mark on the Windy City skyline over the 25 years it has been in operation, but the chairman and CEO himself began putting his imprint on the town in his first real estate gig–as fledgling broker for Cushman & Wakefield and self-professed “water boy” for the Sears Tower lease-up.
Since then, Buck has been responsible for some of the city’s brick-and-mortar mainstays, including 200 and 111 S. Wacker, 90 S LaSalle, 35 W. Wacker, 515 N. State and 1 N. Wacker. He talked about some of those projects recently during Real Estate Media’s RealShare Chicago. The subject of the event’s Inside the Real Estate Mind conversation, the Texas native shared with editor in chief Michael G. Desiato his reflections on presiding over a 400-member, employee-owned organization. And he reflected on the progress he has seen in the Chicago market over the past quarter century, as well as his thoughts on its current doldrums.
Desiato: What led you to a career in real estate?
Buck: Formal education was paramount in our family. I went to Notre Dame and then to law school in Texas. Taking the property-law courses turned my head. I went onto Wharton and decided real estate would be an interesting field for a small company where you could get a shot at doing some big things as opposed to working for a large corporation where politics come into play.
Desiato: One of your first jobs was leasing Sears Tower when it was still a hole in the ground. Tell us about that.
Buck: We didn’t start leasing space until 1974. Chicago was very provincial then and C&W, being from New York, was perceived as a foreign company. Once the development progressed to where the building could be seen, the market warmed up to it.
Desiato: How did you go from being a broker to a developer?
Buck: Our first opportunity came when a developer in Northbrook approached us about investing in and leasing his project. In those days at C&W one could invest in a project, provided you had board approval and offered them a 50% pari passu position, and we got involved in the process. Our real start was 200 S. Wacker, across from Sears Tower. It had been optioned in 1978 for a 40-story building but the owner couldn’t get it preleased, so he aborted it. The ownership of the land, Continental Insurance, was in a C&W building, so I used C&W’s Downtown office to get a meeting with the chairman. The first time I was thrown out of the office, but the second time, six months later, I got an option on the property for two years and assembled a team to design the building. Eight months after that I met again with the chairman and convinced him to move his Chicago offices into S. Wacker and I would buy his excess property on Jackson and Wacker. I had very little capital at the time, so I raised $257,000 through friends to get this initiated. When I agreed to buy the property I was able to negotiate a sales transaction that would only close two years hence, when Continental moved into the building. That got us started.
Desiato: A lot of developers have sat in that chair, and maybe half of them have completed a formal education. What traits and strengths are necessary to the career?
Buck: The developers who’ve had difficulty only look at the upside and the positive. Law school trains you to be negative in your thinking, so I have the ability to look at the downside. But in general, common sense is a necessary trait. If you have common sense and you’re honest and work hard, you can figure out the development process. It’s the same for a three-flat as it is for a 50-story building. All the ingredients are present. You have to do such things as watch your leverage. It can do magic in good times, and it can kill you quickly in bad times, particularly in a large project. So a formal education isn’t necessary, but it’s not going to hurt you.
Desiato: Looking back over your career, what would you have done differently?
Buck: In ’92, I decided to go to Asia, at a time when everyone was going to South America. We had started offices in Maylasia, Hong Kong and Seoul. But we realized that to succeed, we needed a 10- or 15-year horizon and the capital and people to support that. So I closed those offices and went to India for three years. Had I been smarter I would have come to the same conclusions but rather than taking four years it would have taken four months.
Desiato: What leadership traits do you have?
Buck: I try to treat people on a par basis because we’re partners. I’ve also always tried to hire people who are smarter than me or better equipped in their areas. We’ve had hiccups where people haven’t shared that philosophy when they’ve hired “under” them. That just doesn’t work in our firm.
Desiato: You all vote on deal decisions. Do you ever lose?
Buck: Yes. We have an investment committee, and one of the best deals we made was for a small suburban office building, and I was the only one who voted against it. It was a risky deal but we did extremely well with a 72% IRR.
Desiato: Why did you determine to become employee-owned?
Buck: It gives our folks the opportunity to invest along side of us. It’s better for the company and for me and it’s a better way to keep good people. It has worked out.
Desiato: Chicago is suffering with a 17% vacancy. What’s your take on its current problems?
Buck: It’s the softest market I’ve seen since 1971, and it’s due in part to overbuilding but primarily to consolidation and to the ongoing recession and acquisitions. Amoco used to occupy 1.5 million sf. Now it’s less than 20,000. It’s also a continuation of urban sprawl. We’ve built more office space in suburbia since I’ve moved here than in Downtown. Put all of those factors together, and we have a terrible market here. One might ask why in the world we’re building office buildings today. First, we’re not building that many buildings, and those that we do have such distinguishing factors that they can lease up at appropriate rates–even in the face of a terrible market.
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