The Closing: Mike Reschke

Mayor Brandon Johnson does not hype every Chicago developer, but he appeared to be a fan of Mike Reschke when the two appeared together at an early-May groundbreaking at the Thompson Center. There, in the middle of the Loop, the developer joined Google leadership and the state’s most powerful officials to celebrate the tech giant’s $300 million plan to redevelop the 1.2 million-square-foot property into its new flagship Chicago offices. Reschke’s Prime Group and its partner Quintin Primo are leading the charge. 

Not only did they recruit one of the world’s most famous companies as the taker for the dilapidated former state government building at perhaps the most precarious, distressing time for Chicago’s office market in history, but Reschke is also leading more conversions of major office buildings into hotels and apartments than just about anyone, anywhere.

He currently has $2 billion worth of development projects in progress within a six-block radius in Chicago.

It took some pains to reach this point. Reschke ran into $25 million in cost overruns on his first office-to-hotel conversion, when he turned 12 floors of 208 South LaSalle Street into the 610-room JW Marriott, which opened in 2010 — an expensive education.

“I paid $25 million for my Ph.D. in historic office renovations,” he said. That’s partly why he’s kept at it: he wants to “amortize the cost over another 20 hotels.”

At the LaSalle hotel, which occupies several floors above the Marriott, the developer sat down with The Real Deal over martinis named after Herb Kolben — the Union Labor Life Insurance executive who helped Reschke land a loan for 208 South LaSalle — to discuss haggling with lenders, gambling on the golf course, the tricks to converting office buildings to other uses and why he voted in favor of Johnson’s real estate transfer tax that ultimately didn’t pass.

This conversation has been condensed and edited for clarity.

Born: November 29, 1955
Hometown: Arlington Heights, IL
Lives: Chicago
Family: Married, 3 children, 2 stepchildren, 6 grandchildren

What were you like as a kid?

I was the son of a construction worker. My dad was a tile setter, a member of the union. He hurt his back when he was in his 40s, so he started a small contracting business. I worked with him since I was old enough to carry a bucket of concrete. I worked the tools, became a union member at a very young age, in the tile setting and marble business.

On the union pay scale in the 1970s, as an 18-year-old kid graduating high school, I was making more or less $35,000 a year. I went to law school and interviewed with many firms. The starting pay back then for the top graduates in law was $22,500, so seven years later, I was still making a lot less money than I was making as a tradesman working the tools. I think that’s a lesson for everybody to learn, because being a skilled tradesman is not such a bad life.

Prime got its start building single-family, senior housing and then office towers in the early 1980s. You were the chair of five public companies at one time in the late 1990s and early 2000s. What was that like?

With Prime Retail, we were one of the founders of the factory outlet mall industry in the 1980s. We did some of the earliest big successful outlet centers around the United States. The outlet business really took off and now is the darling of real estate.

What’s different about how you run your business today now that it’s privately held?

We’ve been more focused on Chicago. I hate traveling. It’s a pleasure to get up in the morning and just go to the office and literally walk to all of your job sites.

“I hate traveling. It’s a pleasure to get up in the morning and just go to the office and literally walk to all of your job sites.”

A lot of your focus these days is on the hospitality business. What do you like about it?

At least a hotel can bounce back [from disaster] without a huge reinvestment. Office buildings can’t bounce back like that, because you have to spend $300 per square foot.

You’re talking about the costs of upgrading amenities, giving tenants their interior improvement allowances and concessions.

The return on that money is horrible. That’s why guys are giving the keys back to lenders.

What makes office-to-hotel conversions easier than office-to-apartments?

Office owners see a need to amenitize their buildings for their tenants right now. A lot of office owners lately have been saying, “We need to build a health club, a meeting and conference center.” What better way to amenitize your office building than to put in a five-star hotel? All you need is 200 rooms, and a nice ballroom of 6,000 to 10,000 square feet. The most daunting task in an office-to-hotel conversion is figuring out where to build the ballroom, and how to build it. 

Why is that?

You need a clear span and column-free ceiling height. We’ve been able to figure it out in most situations, whether it involves removing a floor or part of a floor out of a building to create a two-story space, and then having to move some columns with some transfer beams to carry the load above. And then you take all the amenities the office landlord had and convert them to become part of the hotel. We’re taking nonrevenue space in the office building and turning it into revenue space.

You’ve had to come up with more than $50 million since 2023 to hold onto properties, including a block of five floors at 208 South LaSalle and your Residence Inn, when their loans came due. What’s the process like to refinance right now?

The market goes up and down. Sometimes you get caught at the bad end of a cycle. Hotels used to be able to always refinance at 10 times your EBITDA. Today, you can maybe do seven to eight times. But that’s only today. I think that number will come back up as the capital markets get more comfortable with the performance of hospitality.

When you’re making the choice of whether to hang onto a property or not when its debt is coming due and you can’t refinance with a bigger loan than what’s owed, what guides your decision?

Sometimes you get stuck in a triage situation. I’ve gotten stuck holding too much land. Decades ago, I owned some of the best development sites when they were still vacant, like 300 North LaSalle and 150 North Riverside Plaza and a corner of Wacker and Monroe.

Hines, John O’Donnell and the Pritzker family have all since built skyscrapers on those sites.

I didn’t want to sell. John got a very good price, I sold it way too cheap. But again, I had a loan coming due, and we had hit a recession and needed cash. You just have to make decisions.

You wish you could build them all, right?

Well, of course, but nobody has a bottomless gravel pit of cash, other than the federal government.

You golf?

I was the first member at Rich Harvest Farms [near Sugar Grove] and still play. LIV has had two of their tournaments out there.

Do you gamble when you golf?

I won’t play unless we gamble. We always have 20 bets on every hole. It’s one of the most fun ways to gamble, because you can control your outcome. It’s all the variables I love in life: skill — you have to execute — the gamble, the proposition, the oddsmaking and then the investment. All those are wrapped up 18 times in a round.

What’s the biggest bet you’ve won on the course?

I won’t say. But it’s my passion and the one thing that I enjoy the most. 

I never let an investor or lender lose. Most of my bankers don’t even like to play for big money so it’s usually like a $20 game, not like a $2,000 game. Never mix golf, gambling and business. That’s a recipe for disaster. Only mix gambling and golf with true friends that don’t mind losing. When you’re doing business golf, I love to gamble, but I love to have a fair game and keep the stakes low.

Are you religious?

Religion is one of the greatest inventions for society. Because it gives a second code of ethics. It makes being a parent a little bit easier. I went to Catholic grade school and followed the rules of the Catholic Church and also rules of society. It gives you that stronger, more controlled upbringing, so I opted to raise my kids Catholic too. It’s an aid to a parent.

What do you think about Mayor Brandon Johnson so far?

I’m liking what I see.

Would you be saying the same thing if his transfer tax to support homeless services had passed?

I don’t care about the transfer tax. I told the mayor to raise it.

Your partner Quintin Primo said the same thing.

First off, I’m not a seller. You only pay transfer tax when you sell. I’m in Chicago for life, I’ve been here for life, I want my kids and my family to be here for life. These are multigenerational investments that I’m doing and setting up. I hope in the future my family is a major Chicago property owner and contributor to society and our culture and our civic leadership. Institutions that wanted to kill the tax were those that wanted to sell and get out of Chicago. This is my city, this is where I invest, where I have all my money. If someone wants to sell and the government wants to charge an extra 2 percent to the buyer when you sell, what’s the big deal? What is a big deal is homeless people sitting outside my hotel.

Do you feel like the real estate industry has judged Johnson too quickly?

The industry didn’t prejudge him. He had a bad start, in my opinion. I think he’s getting his legs. I said this for Lori Lightfoot: They don’t teach you how to be mayor of Chicago at Harvard Business School, USC or Wharton. It’s a tough goddamn job. You have to give Brandon time to get situated, get the right cabinet underneath him. My point is give him a chance to be a great mayor.

You think he can do that?

I think Brandon Johnson could be a five-time mayor if he makes the right decisions. He can help balance us between inequality of low wages and the need for people to have a living wage, which I support.

“Nobody has a bottomless gravel pit of cash, other than the federal government.”

What have you learned from your two marriages?

Marriage is all about trying to find your best friend and having your partner be your best friend, someone you always want to hang around with. That usually requires compromise, which for a guy who is self-employed and has run his own business for 43 years, sometimes that’s hard. In the marriage setting you ultimately have to over-compromise to make things right. But marriage is a beautiful institution. I was married 27 or 28 years to my first wife, my high school sweetheart. I’ve been married to Nancy now for 17 years.

Do you have siblings?

I have a brother and a sister. I’m the middle child.

You’ve become a grandfather of two African-American children by helping your daughter adopt.

If you want to talk about a story about Chicago that really comes from the heart, this is one. The kids are 9 and 5 and they’re the sweetest kids in the world. When they come into my house, they run and jump into my lap. This is why Chicago is so strong forever. Because we have the strength of diversity.

What do you think of Trump?

I voted for him in 2016. I didn’t vote for anyone in 2020, and that was the first time in my life I didn’t vote since I was eligible. I decided it was too conflictive, and I didn’t want to lie to reporters for four years when they asked me who I voted for. I was born Roman Catholic; my mother taught me not to tell a lie. You go to hell if you tell a lie.

What will you do in this year’s election?

Joe Biden will definitely be better for Chicago than Trump. I will vote for the president that will protect our country best. But I will weigh that level of protection against which president would follow my ethics. There’s no doubt in my mind that Joe Biden will follow my virtues more than Trump will.