Patrick Kearney wants to shine some light on Chicago’s Loop.
Kearney, a 14-year veteran of Tishman Speyer, is taking over management of AmTrust Real Estate’s Chicago assets as head of development, acquisition and operations.
He wants AmTrust’s improvements – lounges, coffee shops and fitness centers on high floors – to be seen. So the racquetball courts on a top floor of the two-tower Illinois Center at 111 East Wacker Drive might soon be replaced by a panorama of windows offering skyline views. And getting retailers into lobbies, adding deposition rooms in buildings with lots of attorneys and finding ways to create outdoor hangouts are likely on tap for the rest of AmTrust’s portfolio, which also includes 33 West Monroe Street, 30 North LaSalle Street and One East Wacker.
As Chicago landlords compete for tenants amid the return to offices, new hires like Kearney are the foot soldiers in the amenities war and they are spending serious money. The AmTrust properties include five in the Loop where the landlord is planning to invest $100 million in renovations, and it is not alone in making new hires or plans to get in position for downtown Chicago’s post-pandemic bounce back.
Murphy Real Estate Services, a Chicago-based firm that owns multiple residential and hotel properties downtown, including in the Loop, just brought on Bill Rogalla as chief investment officer, with plans to pursue more multifamily development in the River North and near-west side areas of the city, trusting the city’s reputation as an employment base will draw more residents. And Vancouver-based Onni Group is planning $1 billion of investment in downtown Chicago, including a revamp of a 31-story Loop office building at 225 West Randolph Street.
“Tenant rep brokers understand what we are doing and communicate that to their clients and got excited about our plans,” Kearney said.
While putting amenities into the loftiest parts of buildings might take away floor area that landlords previously rented to office tenants at premium rates, AmTrust is betting such moves will pay off by attracting more tenants as the Loop awakes from the pandemic.
“We’re bringing those amenities into better parts of the building, where light penetrates, that were typically reserved for the higher paying office tenants,” Kearney, who left Tishman in 2019, said. “Even tenants that are taking lower space in the building on more economical deals can still experience the top of the building, experience a first-class fitness center, experience a great lounge where they can get coffee or a cocktail if they want it in the afternoon.”
Murphy held onto its hotel assets in the crowded downtown market even as two other lodging investors recently exited Chicago and a list of the most distressed commercial mortgage-backed security loans in the city is dominated by hotels, according to Trepp.
“It’s safe to say there are abundant equity sources available for real estate in Chicago, it’s just a matter of matching up the right project and location,” Rogalla said. “We’re still bullish on Chicago in the right locations from a multifamily perspective.”
While Murphy’s moves forward with its $1 billion multi-phase project in Harrison Square in the Illinois Medical District and AmTrust’s commitment of $100 million are both big bets on Chicago as a workplace, both appear to be cautiously optimistic.
AmTrust skipped putting any money into 135 South LaSalle Street, where former tenant Bank of America leased about 830,000 square feet before leaving for its new namesake tower on Wacker completed in 2020. And Murphy has no immediate plans for moving forward with any new office projects, despite proposing twin 49-story office towers at 301 and 321 South Wacker several years ago and not yet breaking ground.
“Nothing on the office front at this point, although we would be open to new construction of office with a substantial anchor tenant,” Rogalla said, speaking generally and not just about Murphy’s potential Wacker Drive project.
AmTrust is betting that its planned renovations will help the Loop contend for tenants with the hot West Loop, and emerge from the pandemic as a destination for Chicago office tenants. While both recent hires said some conversions of Loop properties to housing or lodging from offices will be necessary for the area to again prosper, AmTrust’s properties were not candidates for such projects, Kearney said. All of them are still more than 50 percent leased.
The aim is to vie with Fulton Market, which was the city’s only area to defy the health crisis and its assault on occupancy, gaining new tenants during the crisis.
“The Loop can continue to compete effectively with Fulton Market, which gets a lot of headlines,” Kearney said. “At the end of the day, you have 150 million square feet in the Loop and less than 10 million in Fulton Market. The Loop will continue to be the center of gravity for a variety of employers that want to be in these very large amenitized buildings near the train stations.”
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