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Summary and audio linked here.
Chicago’s political leadership is floating a pension buyout program as evidence it is seriously addressing the city’s thirty-six-billion-dollar unfunded pension liability, but Mark Glennon, founder of the Illinois policy research organization Wirepoints, said that the proposal moves debt from one column to another rather than reducing it, and that the broader fiscal picture facing the city continues to deteriorate across every measurable dimension. Audio here.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
Full interview and summary linked here.
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Vacancy is only going higher. There is a large wall of lease renewals in the large Class A CBD (central business district aka LOOP) Class A Office market coming this March and June of 2023. Large tenants already indicating they will be giving back space or leaving. The next step is the building owner then default on the mortgage which has a CPI tied rent escalation clause built in and has to hand the keys in. At the same time those lenders will now have to pay the taxes that they usually pass on to tenants. Not even Zell The… Read more »
Vacancy rate will be 50+% in short order as leases roll off and are not renewed. Worst investor to be would be an urban core office space owner. They will be left holding the bag and foreclosures will spread like a wild fire. It will take decades for Chicago to recover if ever from the Lightfoot administration.
Pre-pandemic – 12k+ sq ft of Class B space in River North with all employees coming in about every day.
Post-pandemic – exited River North summer of 2020 for 5k sq ft sublease in prime space near sears tower along the river (needed to exit river north cesspool). $30/sq ft.
Now on 2-yr direct lease with management company in the same space for $35/sq ft all in after concessions. allowed employees to live/work from anywhere with mgr approval so new space is maybe 10-15% utilized on any given day in a given week.
It’s not coming back.
Expect it to slowly get worse. We’re trying to downsize and it’s not that easy. If you’re occupying 10,000 sq/ft and you want to downsize to 6,000 sq/ft that’s a pretty narrow parameter. You’re only going to find a few offices of that size. There’s plenty of full floors available but if you’re looking for a specific square footage it’s tough. If you look at subleasing then there’s a few more but you may only have a few years of sublease available and when it expires you have to negotiate a new lease. Owners aren’t cutting rents either, they’d like… Read more »
10,000 sq feet to 6,000 sq feet is a tiny lease by Class A downtown standards, maybe you can find something like that in some lower Tier Class C building or something.
I am back and forth between two buildings in the Loop and am seeing the same dynamics you describe. While there are some deals to be had if you want to sublease, potential tenants no longer see any value in being in the Loop at the current price point offerings (plus having to factor in crime). Thus, open vacancies will remain unoccupied and other tenants will simply not renew. And “the leadership” at all levels of government are in complete denial, they really believe that “The Loop will come back” or my favorite and I quote, “data centers will fill… Read more »
Pretty funny about the data centers. As if the central core of the Loop is conducive to data centers. There’s a reason they’re in Elk Grove Village. I think of the 135 S. LaSalle building I used to work in, and I wonder what its future is, and that of other buildings like it. It is a beautiful building with a beautiful lobby, but in reality it’s an old tired building. My office was on a supposedly remodeled floor, but the bathrooms were the originals from the 1930’s. The floor plans are for smaller offices, but many small businesses would… Read more »
Tenement housing for sanctuary residents!
The days of standing on a train platform in the freezing rain, blazing heat or -13F January mornings are quickly becoming a fading memory for most residents of the Chicagoland area. I have zero desire to replicate that lifestyle of going to a huge downtown office building again.
Tenements moves to #1 on the list of solutions!
Ataraxis—all good comments. Yes, any retrofitting is prohibitively expensive, especially when you factor in materials and labor. With data centers or server centers the costs are even higher because of the requirements related to ensuring physical safety and security of the centers. And, yea, all the talk about old office building conversions to residential is completely gone. As to what happens next, I assume that many of the old buildings (and some not so old) will eventually be demolished. There are rumors of the federal courts and other fed agencies taking over office space but even if that is true,… Read more »
Chicago architecture in the last few decades has been so bad that it’s going to be a tragedy to lose some of these stately old buildings. But when you’re the next Detroit, what can you expect? If the crime hadn’t exploded there was a chance for condo or apartment conversions. That ship has sailed, the thugs are in control, and no one in their right mind will invest in the Loop for decades.
We’re not quite Detroit yet but there warning signs. The real linchpins, so to speak, of downtown are the professional jobs: accountants, lawyers, insurance, advertisers, consultants, sales, banking, trading, architects, some tech, and other niche professional areas like interior design, logistics, etc. When we start losing those jobs, or if these professions decide that Rosemont, Schaumburg, I-88 are better than downtown, it’s over. But suburban vacancy rates are really high too. Which got me thinking recently as I attended a local 4th festival in my town – it was stroller city, with new families and people everywhere. We are in… Read more »
As the suburbs become more vibrant they become more attractive. I lived in downtown Downers Grove for a few years, and it was a great, vibrant place to live.
I agree that the city will be hollowed out over time and the suburbs will benefit. The exodus will continue as long as there’s a lack of public safety. Everyone has their tipping point, so it will take time for people to lose hope and realize that things will not get better.
All of those beautiful Art Deco buildings on LaSalle, Board of Trade included, will have to be repurposed somehow. It’s a shame because of the history of them but the fact is they are relics now. I am not sure how it ends but I know it won’t be pretty.
Funny Board of Trade story. I knew some old traders who had an office years ago on one of the upper building setbacks, and it had a fireplace! They used to get wood delivered, and they would roast hot dogs in the fireplace when they got back from the trading floor.
There was also an Art Deco bathroom in checkerboard black and white on the second floor that had a shower.
Can these buildings be repurposed? They’re more likely to be abandoned as Chicago’s population declines and there’s no use for obsolescent 100 year old high rise office towers. Below is a link to the tallest building in East St. Louis. It’s been abandoned for decades. It’s less than two miles to the St. Louis arch.
https://goo.gl/maps/noUijsv4me5hH8L17
Four years ago, Rockford had 6,000 abandoned buildings. 6,000! Now they have 5,400. They weren’t repurposed, they were demolished. Few of them have ever been repurposed. https://www.mystateline.com/news/abandoned-rockford-city-cracks-down-on-blighted-properties/ Two years ago, Eyewitness News found that there were well over 6,000 properties that could be potentially vacant. Today, Rockford City Adminstrator Todd Cagnoni says that number has dropped to around 5,400. Homes that make the list have raised some kind of red flag that warrants further inspection. The indicators of a vacant home can include a code violation, having the water turned off, be in foreclosure, or be condemned. “Just because they’re… Read more »
That is simply staggering… I did not even know there were 6000 buildings *in* Rockford, let alone *abandoned* ones…!!!
Wow, a tragedy! It was not always this way: “In 1959, the National Civic League named East St. Louis an All-America City, honoring its culture of civic excellence and the cooperative spirit among residents, businesses, nonprofits and government. Ironically, by that time, East St. Louis was on the precipice of disaster. Industries had already begun to abandon the city for greater economic opportunities elsewhere. Between 1960 and 1970, the city lost nearly 70 percent of its businesses. Unemployment soared. Residents moved out of town. The population drain continued for years. Between 1970 and 2000, the city lost 55 percent of… Read more »
More on the tragedy of East St. Louis: https://www.builtstlouis.net/eaststlouis/intro.html “But the numbers tell only part of the story. Far more telling are the sights of the city’s streets themselves… One color dominates in East St. Louis: green… The city has acquired a notion of ultimate danger, a reputation the supreme king of Places You Shouldn’t Go. And while violent crime remains a common problem, the surprising fact is… most of the city is empty… So many lots have been vacated, so much land stands empty where once there were homes or factories, so many abandoned houses are being overtaken by… Read more »
Hopefully, not like St. Louis. This is one of my favorite “urban” websites – and also a heartbreaking one to peruse. Read and weep, for what was once a great and vibrant city! https://www.builtstlouis.net/arch.html Built St. Louis: Dedicated to the preservation of historic architecture in St. Louis, Missouri https://www.builtstlouis.net/central-corridor/index.html “St. Louis radiated out in all directions from its starting point on the riverfront, but the most coherent and focused development happened along a spine running due west from downtown… You’re looking at the heart of downtown St. Louis — the place where its ravaged urbanity survives relatively intact, the very… Read more »
Thanks for all the links. Stunning devastation.
All of the employees who were going to return to the Loop have already done so. The rest have quit, retired, or are working from home permanently. The Loop will now have a much smaller business footprint. And the Loop has become an unflushed crime toilet that businesses will avoid.
https://chicago.suntimes.com/crime/2022/5/2/23054296/downtown-shootings-homicides-violence-moulin-rouge-nederlander-river-north-streeterville-cpd-police
Downtown property taxes aren’t going down, so something’s got to give.
Ugly future ahead.
And I am assuming that these number dont reflect existing leases (rented spaces) where employees are not coming in. I have seen many offices with only a few employees present. I wonder what the future bodes for those lease renewals as companies embrace hybrid or full remote work location models.
Kastle Systems, who maintains building swipe card systems nationwide, has Chicago at only a 36.4% office occupancy. Look for more leases to not be renewed or downsized. How many years can building owners put up with this and still pay their expenses?
https://www.kastle.com/safety-wellness/getting-america-back-to-work/
Exactly right, Ataraxis. That’s the truest measure of actual occupancy that I am aware of and it’s awful. Planning to write about that soon.
Our leaders in their infinite wisdom shut down all of the high rise commercial buildings for equity. They shut down restaurants, theater, limited shopping centers, told white collar employees to stay home. And then, as other states were opening up, our downtown stayed closed far longer than most other cities and states. While I like to blame Lori and Fatty, the reality is that they were just doing what a majority of blue liberal democrats wanted, and voters would have revolted IF she didn’t shut it all down.