Let’s start with a bit of good news — given that 2020 didn’t provide Chicago’s real estate market with much of it.
The industrial sector withstood a bruising year far better than most others, sustained in large part by Amazon. As e-commerce orders soared during the pandemic, the Jeff Bezos behemoth went on a warehouse-leasing binge in Chicago.
But other asset classes in the city have spent the last nine-plus months on a skyscraper elevator in freefall. The ride has left much of the industry queasy and stumbling as it heads into 2021.
During the early months of Covid, as Chicago retailers were still grappling with lost revenue, protests over the police killing of George Floyd led to widespread store looting and vandalism across downtown and other neighborhoods. Then it happened again in the summer. Pandemic-related closures and restrictions have devastated those business owners and landlords, with many now barely hanging on.
The local hotel industry also remains among the most hobbled in the U.S., while Chicago’s office market, once a turbocharged engine, has sputtered. Companies have shed downtown space at alarming rates, with a growing number looking to sublease and some ditching their leases entirely.
But Chicago’s housing market may be one other silver lining. Sales have picked up in recent months, especially in the suburbs, after having stalled out earlier in the year.
Amazon went on a warehouse shopping spree. From March through July, the e-commerce giant inked lease deals for 11 million square feet of distribution centers in the Chicago area alone. Amazon accounted for over 50 percent of new leasing volume during the second quarter in Chicago, according to Colliers International, though the total fell in Q3. Still, investors have taken notice. Last week, investment firm GCP paid $42 million for a 316,000-square-foot Amazon-leased warehouse on the Southwest Side, among the priciest deals in the city this year on a per-square-foot basis.
Room at the inns
With Chicago’s hotel occupancy among the lowest nationwide, loan defaults have piled up. Recent appraisals have slashed property values, including at the Palmer House Hilton and the 610-room JW Marriott. And, as of September, the pandemic had cost the city about 12,000 hospitality jobs.
By October, numerous hotels in Cook County had skipped their latest property tax payments, adding up to nearly $500 million. Even the Hilton Chicago O’Hare Airport, owned by the city of Chicago and operated by Hilton, was late in paying its taxes.
But some investors also went bargain-hunting. In November, billionaire entrepreneur Joe Mansueto agreed to buy the Waldorf Astoria Chicago for $54 million, a year after its lender seized control of the Gold Coast hotel in foreclosure proceedings. And a select few firms eyed new construction. Developer Marc Realty Capital wants to build a 296-key hotel in Fulton Market. It would be the second hotel project the company is slating for the trendy neighborhood. Marc Realty and investor Relu Stan filed plans for the 14-story hotel at 311 North Sangamon Street last month.
The hits kept coming for Chicago’s retail industry. On top of dealing with the pandemic, many Magnificent Mile and Downtown stores sustained damage from looting and vandalism in late May and again in August, when some protests over police brutality turned violent.
More than 2,500 businesses hurt by Covid-19 and the lootings did get a boost in August, receiving a total of $46 million in grants. But many others said they still hadn’t received payouts after filing business interruption claims, despite Gov. J.B. Pritzker telling insurers to “do the right thing and do it fast.”
Adding to the problems, the restaurant industry received mixed messages about Covid restrictions from the state’s two most powerful elected officials.
In late October, Pritzker said he was imposing new restrictions on indoor dining in Chicago, while Mayor Lori Lightfoot began trying to change his mind over concerns about the fragile state of the economy. But with Covid cases continuing to rise, a stay-at-home order was imposed; indoor dining remains suspended and nonessential businesses must close from 11 p.m. to 6 a.m.
Malls get mauled
More mall owners around the Chicago area sought to give up on their struggling retail properties, which have been squeezed by capacity limits and Covid closures. Among them is Starwood Retail Partners, which in late October decided to hand over the keys to its nearly 1 million-square-foot Louis Joliet Mall, about 40 miles southwest of Chicago. Starwood had last made a payment on its $85 million CMBS loan in March.
Less than a month before that, BlitzLake Partners and GW Properties relinquished their Orland Park mall after skipping more than 90 days of loan payments. The duo is now facing a multimillion-dollar lender foreclosure lawsuit tied to the 164,000-square-foot shopping center.
One note of optimism: A Brookfield Property Partners venture landed a $475 million refinancing of the second-largest shopping mall in the Chicago area. In October, Morgan Stanley provided the debt on the 2.2-million-square-foot Oakbrook Center, which Brookfield owns with an affiliate of the California Public Employees’ Retirement System. The deal marked the largest refinancing of a Chicago-area commercial property since June 2018.
The fall of downtown the city’s office market, which entered 2020 riding high, was swift and sharp. By the third quarter, remote working had pushed the vacancy rate to 16.5 percent, the highest it had been in a decade. Available office sublease space, meanwhile, reached a record 4.6 million square feet in the same period, as companies — including tech firms that had recently plowed into the market — scaled back their footprints and future plans.
“They’re downsizing or rightsizing,” CBRE’s Bradley Serot told The Real Deal’s Akiko Matsuda in October. “They don’t need the space as robust and large because they’re not going to recruit as much as what they were planning.”
But not everyone is heading out. 601W Companies, which transformed the Old Post Office into a modern office building, is taking on another major redevelopment project nearby. The company will pay $180 million to overhaul a 591,000-square-foot property at 801 South Canal Street. In February, 601W paid $68 million for the vacant office building.
And this fall, Pittsburgh-based Normandy Properties dropped $412 million for the McDonald’s global HQ building in Fulton Market. The seller, a joint venture of Sterling Bay and JPMorgan Chase, developed the 575,000-square-foot building in 2018. The fast-food giant has a long-term lease and occupies about 85 percent of the nine-story building. The deal also marked Chicago’s priciest investment sale in 2020. The second spot on that list belongs to Michael Shvo, who in January paid $376 million for the nearly 50-year-old “Big Red” office tower in downtown.
Home, home again
The Chicago-area housing market evaporated in the early months of the pandemic — particularly in the city’s core. But since this summer, it has been charging back. Sales jumped in August, when more than 13,000 homes sold across the nine counties, about 20 percent over the same period the year before.
A recent weekly report from Midwest Real Estate Data showed Chicago-area home prices have maintained a double-digit increase year-over-year ever since, according to Crain’s.
As home sales picked up in the city, it surged in the suburbs with buyers prioritizing more space over proximity to Chicago’s central business district. That trend was most apparent at the top of the market. Five of the 10 most expensive homes that sold in Cook County in 2020 were in tony Winnetka. Last year, just one suburban property made the top 10 list.
And in a sign of the times, the priciest home that sold during the pandemic this year came with 9,000 square feet of private beach.