Chicago Retail Roundtable Highlights New Activity
Michigan Avenue, Downtown and the suburbs highlight this year’s discussion.
Moderated by Jerrold France, Randall Shearin and Kevin Jeselnik

In conjunction with the ICSC Chicago Dealmaking event this month, Shopping Center Business and Heartland Real Estate Business recently held their annual Chicago Retail Roundtable in downtown Chicago. The roundtable was hosted by law firm Levenfeld Pearlstein at its offices. Representatives from more than 20 Chicago-area development, brokerage, financial and legal firms came to discuss the exciting state of retail real estate in the Chicago area.

Attendees this year were Sy Taxman, The Taxman Corporation; Marc Joseph of Levenfeld Pearlstein; Stuart Lenhoff, Horizon Realty Services; Lee Wolfson, S.F. Solutions; Peter Eisenberg, Clark Street Development; Bruce Harris, Marcus & Millichap; Tim Thanasouras, OPUS Corporation; Randy Danielson, Ryan Companies; Dan Slack, Calamos Real Estate; Terry McCollom, McCollom Realty; Shawn Adams, Ardmin Properties; Jim Klutznick, Klutznick Fisher Development; Norris Eber, Joseph Freed & Associates; Michael Jaffe, The Jaffe Companies; James Schutter, M&J Wilkow Co.; Fran Spencer, City of Chicago, retail; Camille Julmy, U.S. Equities Realty; Dave Bossy, Mid-America Development Partners; James Turner, LaSalle Bank; Bruce Kaplan, Northern Realty; George Redfearn, Tucker Development Corporation; Jeff Howard, Inland Real Estate Corporation; Todd Caruso, CB Richard Ellis; and Ed Zifkin, Zifkin Realty & Development.

Fran Spencer and Bruce Kaplan

SCB: Fran [Spencer], would you give us an update on the city of Chicago and what changes in the city are impacting retail?

Fran Spencer: I think one of the biggest things indirectly affecting the market is the fact that in our last election we selected 11 new aldermen. The new officials are located in wards that have not received a lot of attention in recent years from retailers. So, we have a renewed emphasis from these 11 aldermen in retail. Perhaps the biggest push we’ve had in Chicago is a very unsexy one, and that’s from grocery retailers. We absolutely need more grocery stores in the city, and with having the two parent companies of our two larger stores not doing that much, we’re seeing an awful lot of independent grocers like Caputo’s Fresh Market and Pete’s Fresh Market looking into some of the different areas and doing very well in the areas into which they expand.

Also, we’re also seeing a lot of smaller developers, because of the high cost of land, putting together mixed-use projects on sites where they couldn’t develop a strip center because it didn’t pay out for them. Instead, they are developing mixed-use projects with condos and rental apartments. We’re seeing a lot more of that and a lot more minority participation in those projects.

SCB: Bruce [Kaplan], what are you seeing along Michigan Avenue?

Bruce Kaplan: Michigan Avenue is kind of at a crossroads at the moment. We’re seeing an evolution, almost revolutionary change in the street. Lots of moderate tenants are flocking to the street. I think the first such retail breakthrough was Filene’s Basement, and then there was Virgin Megastore, which has come and gone, now to be replaced with Forever XXI. We’re seeing a lot of these electronics stores like Nokia and Garmin; it has a lot of [high-end] retailers lamenting the good old days.

So, we have a disparate situation. There is still a lot of demand for small store space — it is tantamount to striking a vein of gold when a retailer finds a little space at street level. But now, more and more, the street has gone moderate. It’s going to be very interesting to see what happens over the next 5 to 10 years as we see more people going in that direction.

There’s also the wild card, the 700 N. Michigan Avenue development, which has been in a state of limbo. There has been persistent, well-founded rumor that a large electronics retailer was going to go there. I think a lot of people that have made big commitments to the street, high-end merchants like Louis Vuitton, Van Cleef & Arpels and Cartier, were probably, at that point, having coronaries. We have some large blocks of space that can accommodate some big-box users. And candidly, I’m a little concerned that the character of the street is going to change and it’s going to be like maybe any other street, just a big regional mall with high-end tenants on it.

Camille Julmy: Certainly, some of the points Bruce is making are right. We are seeing some of those lower priced tenants coming in but, at the same time, you still have a lot of the high-end tenants, such as Tiffany & Co. and Ralph Lauren and Giorgio Armani. They are still there, and they’re doing a tremendous amount of business. Some of them have just amazing numbers; I know that because I have seen them — but I can’t disclose them. The high-end retailers are very successful. When you have 3.3 million square feet of retail space spanning in less than a mile, you cannot have all high-end stores. So what’s happening is that you have a mix of high-end, and a mix of the low- to medium-priced offerings. That’s a good thing to support Michigan Avenue, because if we wanted it to be only high-end, we would not be able to have 3.3 million square feet of space. You’re going to see some changes; I agree with you, Bruce. There’s a game of musical chairs going with American Girl moving to the Lord & Taylor space, but there is quite a bit interest for those big blocks of vacant space.

Kaplan: But I think the question on the floor is, ‘How well can Louis Vuitton and Cartier do when they are next door to Best Buy?’ We all speak about adjacencies in our business and how important they are, and I wonder whether we’re going to see a regression to the mean here — and the mean is not terribly high.

Jim Klutznick, Ed Zifkin and Camille Julmy

Ed Zifkin: I think that there is a regression to the mean going on from the high to the medium, as well as from the low to the medium. You have stores like Payless and H&M that want to be on Michigan Avenue.

SCB: Ed, I know that you work with a lot of restaurants. How is that sector performing in and around the downtown area?

Zifkin: Restaurants are one of the hottest retail segments in Chicago. The great success that has occurred around the State and Rush street corridor has really spawned a lot of interest from other restaurateurs that have seen how successful Hugo’s Frog Bar has been, as well as Carmine’s and The Tavern on Rush. A lot of people want to be in that area. A lot of restaurants want to be in the South Loop and the area around Millennium Park. I think that you have a number of restaurants that want to be in Joseph Freed & Associates’ 108 North State Street development, which I think is going to transform the Loop, largely fulfilling a prediction that Jim Klutznick’s father made several years ago. He believed that in order to turn that area around, there would have to be a developed residential base, which we now have.

Jim Klutznick: Before we leave Michigan Avenue, I just want to say that when we developed Water Tower, we brought another mile of storefronts into that area that brought in middle-level retailers as well as high-end users. But what’s happened in the Michigan Avenue area — to address Camille and Bruce’s talk about whether or not certain types of tenancies can live next to each other — I think there has been a certain amount of segmenting in that market. Oak Street is becoming stronger; a lot of the side streets are becoming stronger. You go along Rush Street today, even stretching over to State, and you’ll see how the higher-end tenants are branching out off of Michigan. I think there is a segment facing that market but, as Ed was saying, it really reflects our lifestyle. In that whole area, you can go from very discount all the way up to the most expensive. But I think you have to look at it as the whole area, because it’s not just Michigan Avenue today. I’d say Oak Street today probably represents the highest end in the market.

SCB: Michigan Avenue is filled with hotels, which really impacts retail at all levels.

Julmy: That is exactly why the future for Michigan Avenue is still very bright. I still think it’s one of the best shopping streets in the world. It’s serving the different clientele — you may have the people that can only afford to spend $20, and maybe it’s big day. Walking right next to them, you may have the guy that is buying a $1 million piece of jewelry at Cartier or Van Cleef, and that mix is what makes Michigan Avenue very special. We’re not just high-end.

And we have the best hotels; we have 23,000 hotel rooms. This is where people want to stay when they come to Chicago, and I think we have to maintain a very special environment on the street that you will not find in the other places.

Lee Wolfson

Lee Wolfson: Regarding Michigan Avenue, I can tell you that our restaurant clients are all desperate to get into that market — and our highest priced item is $9 on the menu — because there is that mixture of the demographics. You get the millionaires next to the people that are of a very value-oriented mind. Look at volume done by Corner Bakery over by Northwestern, which is doing $100,000 a week. That is unbelievable when compared to volumes of their suburban restaurants. So I think you will see more and more of the quick-service restaurants and the fast-casual restaurants coming in, on top of the white-tablecloth guys and the steakhouses.

Zifkin: Michigan Avenue is going to remain the crown jewel. But what’s so exciting is that about Chicago is that it gets transformed; it changes. There are a couple of guys who have bought a lot of real estate on Oak Street, and on Rush Street, and they are bringing in chic hotels and retailers that are new to the market, and it’s a 21st century look. It’s a big change, and it’s just amazing.

James Schutter: I’m leasing the 180 North Michigan building, which is just north of Millennium Park but south of the river, and we had a former restaurant space become available. I had 15 to 20 restaurants interested in the space, and the rents we’re getting are probably $15 to $20 per square foot above what we saw 3 or 4 years ago for that space. So we’re even seeing that, south of the river, Michigan Avenue is strengthening up the entire market down through Millennium Park, all the way south of Roosevelt and beyond at this moment in time.

Peter Eisenberg, Norris Eber and Fran Spencer.

SCB: Norris [Eber], update us on Joseph Freed’s 108 South State Street project, formally the Block 37 development.

Norris Eber: 108 North State is a new, contemporary, glass project right across from the former Marshall Fields store at State, Randolph and Washington streets. It will feature specialty stores — we feel like it’s going to include the upper end price point. One thing I have noticed is that, at 4 p.m., instead of suits walking up and down State Street — professional people — there are families coming from Millennium Park. The traffic from Millennium Park into the Central Loop is amazing. These are our new shopping bases coming to the Central Loop, from all over the Midwest, locals and tourists.

We feel that the retail potential here on State Street has dramatically increased. There are a lot of people in this room who fought for many years to improve State Street. 108 State will serve the higher-end, and the Sullivan Center will accommodate a little larger user — I don’t want to call it a big-box user — but we’ve got 20,000- to 30,000-square-foot footprint for retailers there.

The secret street that is popping up between Michigan and State is Wabash. It has the right mix of condos and retail. The city has invested a ton of money in Wabash to make it pedestrian-friendly, as they did with State Street. It’s going to be a 24-hour street. And don’t forget the college students in the area. There are 50,000 to 70,000 students between Lake and Congress, people paying between $15,000 and $25,000 per year for tuition alone. We haven’t made it down to Congress yet, but if there’s an opportunity, we’ll look at it.

Jeff Howard, Stuart Lenhoff and George Redfearn.

Stuart Lenhoff: Now that you mention Wabash, we are marketing the old Tower Records building at 214 South Wabash currently. It is a four-story, old antiquated building. We’ve had a lot of calls from restaurants; we’ve had a lot of calls regarding ground-floor retail. 

SCB: Has Millennium Park made it a real opportunity for retailers to come to south Michigan Avenue or the South Loop?

Julmy: I would say so. The limitation there is that you got the landmark designation all the way from Randolph to Roosevelt, which prevents the development of new buildings to really come up and provide new retail spaces. The challenge of Michigan Avenue right in front of the park, from a physical point of view, is that you’re going to be limited with small spaces — you’re not going to have high ceilings, you’re not going to have the best retail space that you could have.

Kaplan: Those are beautiful buildings that define Chicago’s streetwalk at that point facing the park. Unfortunately, we can’t build big boxes there, Camille.

Julmy: I’m not saying that we need to build big box; I’m not saying that at all, Bruce. What I’m saying is that the character of that street will be saved because you cannot do those big boxes.

Eber: I think that on Wabash and in some of the older buildings, there are great retail spaces. The challenge is the rehab of those. It would be heresy to say that it is easier to build new with chrome and glass today — I’m not sure anything is easy, but with the older buildings, you have to work a little harder; you’re a lot more restricted. But, the retailers are seeing it. They have to be a bit more flexible, and I think they are, regarding signage and layouts and so on. In the Sullivan Center, we’re seeing retailers sit down with us and say, ‘How do we change the new storefront and new signage package that’s not our standard suburban?’ And we’re seeing a lot of positive effort from our retail partners to try to overcome challenges with these older buildings because they see the business. The sales are there.

SCB: What other corridors are hot?

Peter Eisenberg: The Roosevelt Road corridor. Centrum Properties is developing its 1.2 million-square-foot project there, The Roosevelt Collection. You have The Home Depot and Best Buy going in. Whole Foods just opened up. This corridor is the next North and Clybourn, and is drawing from the West Loop and all the way to the University of Chicago. The Roosevelt Road corridor, until now, has been underserved.

Sy Taxman and Jim Klutznick.

Sy Taxman: What we haven’t talked about at all is the West Loop. I’ll tell you a little bit about what’s happening there. On June 28, The Taxman Corporation, with Terrapin Properties, acquired essentially the entire block bounded by Madison, Monroe, Halsted and Green streets. It’s our opinion that when you look at the West Loop — and that includes everything starting from Wacker Drive on the east to Damen, on the west to Lake Street, on the north to Van Buren — the residential growth that has occurred in that area over the last 15 years, it’s just remarkable. If you look at the demographics, they are essentially the same demographics that you find in Lincoln Park and the only retailers convenient to these residents are limited to the Dominick’s and the Walgreen’s on Halsted Street. There is really not a core concentration of retail in that area.

The Taxman Corporation, with Terrapin Properties, is developing the Halsted-Madison Center on a block in downtown Chicago bounded by Halsted, Madison, Monroe and Green streets.

We haven’t even formally presented this to the city yet, but we have a plan for about 100,000 to 120,000 square feet of retail in that location with parking for up to 700 cars and a rental apartment tower. We have a 60,000-square-foot supermarket anchor for this development. The balance of the shops will be a mix of retailers both national and local.

SCB: The financial markets and the housing market today are really facing some downturns. James, how is that going to impact retail in Chicago, with all that’s going on in residential development?

Shawn Adams, Marc Joseph and James Turner.

James Turner: First off, I’ll answer the question on the financial markets. As I’m sure many of you knows, the last 3 weeks have been a very exciting time to be in the financial markets and the banking industry. With the issues relative to sub-prime lending, a lot of liquidity has left the market. With that liquidity, a lot of the conduit shops that were really providing a lot of the long-term lending at very low rates, exited the market, which has caused a bit of a vacuum. Typically, this vacuum is filled by insurance companies, but because of what happened in August, a lot of the insurance companies have already filled up their allocations for the year, and they’re probably cherry-picking more deals. It’s really going to be interesting to see what happens over the next 60 to 120 days, relative to this issue from a credit standpoint. It’s giving us a little bit of a boost to be able to increase pricing. And I think that a lot of people out there are probably going to have to face some increased interest-carrying as they continue to do their projects.

That being said, we’re very bullish on the retail industry here. We’re involved in the 108 North State project; we’re involved with Centrum’s project over on Roosevelt. So we find that although the residential market has gone down a bit, it’s analogous to a Ferrari that was driving at 180 miles per hour now driving at 90 miles per hour. It hasn’t stopped; it has slowed. But I don’t think it’s necessarily hurt the leasing and development of retail in the city.

SCB: Todd [Caruso], as a national brokerage firm, how does CBRE think Chicago compares to other cities on a national level?

Dave Bossy and Todd Caruso.

Todd Caruso: I couldn’t agree more with the comments on the capital markets. With the challenges in the sub-prime trickling through to the commercial mortgage markets, it’s going to make it more difficult for lenders and a lot more difficult for borrowers. It is unclear as to how that is going to shake out, but we do anticipate that it’s going to affect valuation. I don’t know if it’s going to affect valuation on the Class A retail properties that are well located, but it will certainly affect [properties] in tertiary or secondary markets. Chicago is pretty stable. I would argue that there are some corridors that are over-developed. There are some shopping centers, where several years ago you didn’t see pad buildings, that have built the pads and are dealing with vacancy in the new outlots. But Chicago doesn’t have the abuse that we’ve seen in some of the faster-growing markets.

I’m very excited about the grocery store business here in Chicago. It seemed that 3 years ago we were all panicking and thinking that Wal-Mart was going to take over the grocery world, and now the news that Jewel is expanding and Dominick’s is going to be expanding. Dominick’s is making a push from the urban markets. Aldi, Food For Less and some of the lower-price point concepts, as well as a lot of the independents, are also expanding. I think that’s a very healthy thing for Chicago — and not diminishing the impact that Wal-Mart has had in the grocery area, but I think it’s great that our homegrown groups are starting to expand.

I’m very excited about what’s happening in the urban core. I agree with both of you guys on the Loop and Michigan Avenue. Our firm is associated with the new Trump project; we’re very excited about the retail that is going to bring to the market. We are very excited about what’s happening on the south side, as well. For the past year or so, we read a lot about Chatham Marketplace, Archon Group’s project down in Chatham. There are probably 15 to 20 sites that are being scoured by people like Dave Bossy and others that are contemplating development down in that market. We’re working on a project, Metropolis with Capri Capital at the corner of 39th and State streets in Bronzeville, and I’m shocked with the level of interest from retailers that are inquiring about moving into the urban areas.

For all of Chicago, I think we’re at approximately 10 million feet of retail under construction in 2007. That is probably 15 to 20 percent higher than the past couple of years. Of that 10 million, I don’t know what’s actually going to deliver this year, but I think we’re healthy from that standpoint.

SCB: Dave [Bossy], you are involved in an array of developments throughout the market. What are your thoughts on the Chicagoland retail market?

Dave Bossy: To me, 2006, 2007, and even 2008 are a Wal-Mart story. Wal-Mart drives 20 percent of what seems to be the developed in the marketplace. Like Todd said, the development pipeline is full. Not only with the 10 million square feet that will be developed this year but also with another 10 million square feet next year. Todd indicated that this was a 15 percent jump in production — our numbers show 5 to 6 million square feet of development per year was more the norm for the past 20 years. All of sudden we are getting up into the 8 to 10 million-square-foot range every year; it’s really quite amazing.

SCB: What developments are you working on specifically?

Bossy: We have made a major move into hotels — I know this isn’t a forum for hotels — but our projects have a mix of restaurants and some retail along with the hotel. I moved into hotels originally thinking retail. The concept was to add a lot of arms, things to generate business, to bring in some branded restaurants. We looked at the marketplace and saw that nothing has been built in the last 20 years in the four-star category in the suburbs. Right now, we love the O’Hare market. We’re doing the construction of the 600-room InterContinental Hotel where we have a McCormick & Schmick’s.

Back to retail, we’re doing an 800,000- to 900,000-square-foot project, Kendall Marketplace, with Harlem Irving, something that we’re calling a regional all, instead of mall. If you look at the Oswego market, there is 2.5 million to 3 million square feet of retail that’s just been developed, so we felt that we could go west of the river and have a captive market all to ourselves. Instead of three to five shopping centers, we thought, ‘Why don’t we create a situation where everything can come together?’ including multiple phases with The Home Depot and a town center. We’re very excited about what the growth of what that project can be.

SCB: Mike [Jaffe], tell us about your project?

Michael Jaffe and Dave Bossy.

Michael Jaffe: We’re really excited about The Arboretum [of South Barrington]. We closed our construction loan recently. It was quite a ride, to be reading five or six articles a day about the credit meltdown and all the rest. Hypo is the lender and it honored its terms, but it’s not as though we didn’t wonder, because we were hearing about deals falling out left and right,

But we’re well underway now, with fantastic momentum. The location is South Barrington, across the street from the Sears headquarters in Hoffman Estates off of Interstate 90. I will say in 25 years I’ve never had a project that was this hard to give birth to, and I think that the challenge came not from the fundamentals of the deal, but the question of the retailers. I think retailers are moving extremely cautiously — I can’t really speak for the city because I don’t work in the city — but they’re very cautious in the suburbs. Every tenant wants to be part of a winner; nobody wants to be part of anything but a winner. And until that prove-up occurs for a project, everybody just wants to sit and wait.

It is located in a very high-income area. There is a lot of momentum in the area, with Cabela’s opening up across the street from the Sears Centre, the new 11,000-seat arena in Hoffman Estates. The Midwest’s largest water park is going up across the street with a 14-story hotel. That is a $120 million development.

Tenants signed include Chico’s, White House|Black Market, Victoria’s Secret, Ann Taylor Loft and Coldwater Creek. Ruth’s Chris Steakhouse is opening its first deal in the area. We have a movie theater that’s signed called Gold Class Cinemas, which is extremely high-end, serving drinks and food at your seats. It very much caters to the grown-up crowd. It hasn’t set the ticket price but it’s going to be around $20 to get in the door. There won’t be a popcorn counter; it’s going to be more of a lounge.

We also are going to announce the first L.L Bean store away from the East Coast. That is definitely going to draw from all over the place.

We are off and running on this, but it was really tough. As we look at the capital markets, I think that it is important that we at first put up a tremendous amount of equity. I think there are going to be a lot of projects that are not in the Chicago major metro market, and that aren’t right on a great corner or right off a highway with a great team that has a lot of equity, that aren’t going to happen.  

SCB: Tim [Thanasouras], what is Opus working on and how do you perceive the Chicago market?

Tim Thanasouras: My focus has been primarily to work on our Burr Ridge Village Center project, which is a 200,000-square-foot lifestyle center, but it’s really a mixed-use project because it has the residential component, as well as the office building. We’ve just gotten our mix of lifestyle tenants; we don’t have an anchor, per se, but we have a Lifetime Fitness that acts as the primary draw to that market. We’ve been very fortunate to accumulate the right group of fashion retailers; we have our restaurant deals in place. We just signed a deal with Kohler to put in a 13,000-square-foot water spa, similar to what they have up in Wisconsin. There is one other location in St. Andrews, Scotland. This will be Kohler’s third spa. That has actually helped us get some of the other retailers, like Ann Taylor, which brought Ann Taylor Loft and an Ann Taylor store.

My experience with this project has shown that the retailers that are coming in are waiting on the sidelines until they know you have the critical mass of retailers necessary. There are not a lot of traditional malls being built; the lifestyle centers that we are building are the way for these retailers to grow. We’re also a conduit for the villages that need these projects and retailers. The real problem we have is every village wants [a lifestyle project] and they are not all going to get one. So, we’re trying to figure out which towns we can develop in and which retailers need to be there.

SCB: Randy [Danielson], as a contractor, you usually see things happen before everybody. What retailers or projects do you see coming? What are you working on that’s perhaps new to the city of Chicago or the surrounding area?

Randy Danielson and Tim Thanasouras.

Randy Danielson: We’re typically focused in the suburbs, for the most part, and we’re continuing our retail development. The Sears Centre is one of our developments that we’re doing in cooperation with Sears and the village of Hoffman Estates. That has proven to be a successful project for us. We’ve got a few kinks to work out in the operation side of things, but we’re starting to get some good bookings, as far as acts coming to the arena. And with all the activity that’s going on in the area with Cabela’s, The Jaffe Group’s new lifestyle center and Archon Group’s project, the Hoffman Estates/South Barrington market is a good, vibrant area.

We are still viewing Chicago as a great retail market, one that is continuing to grow. But, as many have mentioned this morning, unless you’re at Main and Main in some areas with some good densities and good incomes, projects will struggle. As you get out on the fringe, you don’t have the housing starts you need, you don’t have the densities. And the retailers are shying away from that because they’re tougher deals to do. Retailers are looking at deals a lot more critically to make sure that they are getting the highest sales volume that they can. So, a developer may have a good site location, but the retailer may choose to go somewhere else in another state because they get more sales revenue generated there. There is a lot of competition on a national scale for Chicago.

SCB: Shawn [Adams], tell us about your project in the Joliet area.

Shawn Adams: We’re developing Bronk’s Corner, which is out in the Joliet area, south of Plainfield on the Route 59 corridor. There has just been an explosion of retail in that entire corridor; you can go all the way up to West Chicago and all the way back down to Interstate 55 and see a lot of retail development. To echo some of previous comments, the retailers that we’ve seen, they’re all waiting to make sure there’s that critical mass around a project. I think the other trend that we’ve seen is growth in restaurants just exploding. But it is important to get [prospective tenants] out into the outlying markets to see that.

One challenge that we are facing is the infrastructure, which really needs to be improved. A lot of retailers continue to look at that with a bit of a jaundiced eye, because they see the traffic, but they also see a two-lane road and they’re very concerned about access to and from the site.

We did take an option on another 40 acres, to push our site from 40 to 80 acres, but we actually walked away from the deal because we’re seeing people gouging land prices and we really couldn’t come to terms.

SCB: Marc, your law firm is obviously representing quite a number of people — what do you see in the market? Are the deals getting tougher to complete?

Marc Joseph: Well, obviously the financing issues that have come up in the past 3 weeks or so have caused a lot of problems. I’ve gotten a lot of calls from clients that are about to sell something asking, ‘Is the due diligence really done? Is the money hard? I’m afraid the buyer may not get his financing. What are we going to do to protect against that?’ You may have to extend some closing dates in order to accommodate buyers, because you probably want to finish the deal you’ve started and not just take the in-earnest money and have a loss of owner or something like that.

I had a meeting with a client today about a very large portfolio that they want to put on the marketplace, over 100 properties. They said, ‘We’re going to go ahead and put the book together but we may not put it on the marketplace yet, because we don’t know what the financial markets are going to do.’

I’ve seen a trend with joint-venture transactions, people doing deals with other groups that may have the land, that may have the expertise, that may have the money, in order to get things done. We have a lot of clients that are doing joint venture deals as a way to facilitate their deal flow, because it is hard to generate deal flow. You need to have partners sometimes to get a deal accomplished.

SCB: Bruce [Harris], Marcus & Millichap is a national company and is actively involved in selling properties — what is the investment climate here and around the Chicago area, from your perspective?

Bruce Harris: The debt markets have made life fairly interesting the past few weeks. A good portion of my day has been spent on the phone with various lenders of the various deals in my own pipeline, trying to figure out what’s deliverable to a buyer and whether we really have a quality buyer.

As far as Chicago is concerned, I think if the housing market continues in its slump, in a way relative to the rest of the country, Chicago will be seen as a flight to safety, because cap rates on the East Coast and West Coast typically trade 75 to 100 basis points lower than they do in Chicago. Chicago has always been seen as a good value; it has an incredibly diverse, resilient economy. And the other product sectors are going to help retail carry forward. The office market is coming back; the industrial market is up — it’s one of the best industrial markets in the country. And rents are rising in the apartment business. But the lending issue is a challenge right now. Not every deal is falling apart, but it can be difficult. If you go in looking for a quote, it will last you 24 to 48 hours. The only way you know what kind of financing you are going to get is to walk into the lender’s office with a check, and usually it’s a point to lock your rate. And even then, lenders have their outs.

But sellers are realistic and want to get their product sold; they are making some adjustments. I think that overall, right now, we’re in the midst of a cap rate adjustment. I think, long-term, this will pass; the market will stabilize. As you get out to the suburbs, I’d say you could expect a 50-basis point adjustment.

SCB: Jim, you’ve done a lot of work in Evanston, and in the North Shore — what are you working on now, and is your perception of the other areas of the North Shore?

Klutznick: We’re finding that Evanston is really coming on as a downtown. It’s the most urban core suburb in the market. It’s a transportation-oriented city. It’s an edge city. It’s a university town. It has a lakefront. It’s a main street redevelopment town. The merchandising in Evanston has become lifestyle-type merchandising. There is a Borders Books & Music and a Barnes & Noble. It has a major cinema complex that is one of the best in the city of Chicago. We’re seeing a real major change in Evanston.

SCB: Dan [Slack], what is your firm doing in Chicago?

Dan Slack: We are starting CityGate Centre, a project in Naperville. We’re trying to create an urban node out in the suburbs. It is a mixed-use development that consists of office, retail and hotel components, and a performing arts center. What we’re really trying to do is create an entertainment destination in the evening and a real strong corporate address during the day. The idea is to create a daytime population with restaurants and retailers that consumers don’t experience in some of the other lifestyle centers. What we’re trying to do is create the best of both worlds — create a nice daytime population by having 5,000 to 6,000 people for those restaurateurs and retailers to draw upon when fully built out. It’s a very unique project; it’s something the Chicago market hasn’t seen.

One of the things I find interesting — the elephant in the room that no one’s really talking about — is from a commercial and an institutional standpoint, I think this credit crunch is going to be a thing that will pass in the next 60 to 90 days. But it’s really the American consumer and the resets on the adjustable mortgages that people are just starting to talk about like it’s some kind of revelation. What is that going to do to our business, when people can’t make their mortgage payment? When they have no more disposable income? I think there’s a big problem that we may face if something doesn’t happen there. I mean, the Federal Reserve has increased interest rates 400 basis points over the last 2.5 years; a lot of those mortgages are indexed off of treasuries, and there’s going to be a tremendous issue there. It’s going to affect our industry. Retail is where all that disposable income goes, guys.

I’m hoping that the federal government steps in and provides some relief, because I do think it can affect our business. It is not going to affect the high end of the business, but it’s clearly going to affect a lot of the plans that we have underway for the suburban markets. Some of these lifestyle centers are not going to get off the ground, they’re not going to have tenants, because these retailers are going to understand and see what’s going on with the shoppers.

Taxman: I think Dan’s point is one that this roundtable hasn’t spent enough time on. This is a very serious credit problem. Over the 37 years that I’ve seen crunches come and go, this one is, by far, much broader based. Loans that were made years ago, were made by savings and loans or a bank, and were hands-on loans. Today, the loan is nothing more than a piece of collateral that is syndicated out to the world, whether that is a hedge fund, or investors all over the world.

We talk about whether or not this will impact retail — I think it’s going to have a serious impact on it, and I hope you were right about it only lasting 60 to 90 days. I think if you look at the situation realistically, there are billions of dollars in adjustable rate mortgages that are going to reset.  On the North Shore of Chicago, there were a record number of foreclosures and pre-foreclosures for properties in excess of $1 million.  This is not just a local middle-income/lower-income problem. People are trying to deal with adjustable rate mortgages, gasoline prices that are spiking at the same time as well as utilities prices that have spiked dramatically. All of this is basically draining consumer dollars that could otherwise be spent at the movie theaters, restaurants, and shops. I think we need to be very cautious.

Jerry, I think you remember many years ago at one of these roundtables, there was a word that became a dirty word. It was equity. Unfortunately, equity is going to come to the forefront again when deciding whether or not developments are maintainable and sustainable. Of the 10 million square feet being developed this coming year, we are going to see a lot of projects that were supposed to break ground that are going to stall with no funding. Actually, that would be the best thing that could happen. The worst thing that could happen is that these projects get funded initially, and the developer breaks ground and is not able to finish. We will be much better off if we are sitting there with vacant land and wait until this thing finally resolves itself.

James Turner, Tim Thanasouras and James Schutter.

Schutter: On another issue, really quick, it’s not easy to enter this market. Grand Mart, a supermarket chain that I’ve had some involvement with, entered Chicago to take over eight Cub Foods’ stores and they have already closed a couple of them. This is a very competitive grocery market. As Fran mentioned earlier, we have seen a lot of local grocers that understand the market doing some expansion. Super H Mart has done a great job — from what I understand, it has several deals going on. But it’s not an easy market to enter from that standpoint.

SCB: Peter, do you want to expand on the grocery trends?

Peter Eisenberg: The other player we haven’t mentioned that has been announced is Roundy’s coming into the North and Clybourn intersection, at Structured Development’s project at the YMCA site. Trader Joe’s is expanding. Whole Foods has opened up in the South Loop; they’re also opening up a new 80,000-foot store at North and Clybourn. They just opened up a new store on Halsted in Wrigleyville. The grocers are definitely active in the city.

One thing that we haven’t talked about is the big-box ordinance in the city of Chicago that went away over the course of the last year. Wal-Mart and Target are now coming back into the Chicagoland market.

SCB: This week, we had an opportunity to be out in Palatine — we were absolutely amazed by what Joseph Freed & Associates did out there. And I know there’s a lot of development in Naperville and downtown Highland Park. Is there still more of that going on in the suburban downtowns?

Klutznick: The opportunities are there. A comment was made earlier that not all communities can support what they dream up for their downtowns — there are a lot of reasons that Evanston was successful. We‘re very lucky because we got in there when there wasn’t a lot of competition. A lot of the communities are finding that there is competition today. I think there’s uniqueness to downtown Evanston, where there is still room, because of the density, for additional development.

Taxman: If you went into downtown Highland Park and wanted to make a statement that downtown Highland Park needed more retail development, I think you’d get a lot of smiles from a lot of officials. The [opportunities] are site-specific, and some communities can support full-scale redevelopment, and some cannot.

Klutznick: All these towns we’re talking about, including Evanston and Naperville, are on train lines. And that’s where your main centers of concentration of valuable property and people are located.

Taxman: We have a proposal in downtown Deerfield — it is relatively small, a redevelopment. It’s a RFP that Deerfield issued, and there were 25 responses. We’re one of two remaining firms. We didn’t go in there with the thought in mind that we can now add another 40,000 to 50,000 square feet of retail. We don’t think the community will support it. This community is relatively in balance as it relates to retail supply and demand, but is significantly out of balance in terms of empty-nester housing. So, our project is skewed more toward empty-nester housing with a small amount of retail. I think it’s really just a matter of being site specific and balancing what you have available.

SCB: George [Redfearn], what is your firm developing out in the fringe markets of suburban Chicago?

George Redfearn: We are doing a project in Huntley, a big box-anchored community center called Huntley Grove. It totals approximately 300,000 square feet and will be anchored by Wal-Mart. We view that particular market as being very under-retailed. There is an outlet mall, a convenience center that’s anchored by Jewel-Osco and that is it. And you’ve had the population double in the last few years in Huntley, which is becoming as I see it, the next Randall Road. The retailers we’re talking to are going to want to be there; that’s where the next wave of retail will be. The retailers we’re finding are cautious, and we’re talking about the community centers. We’re seeing a slowdown, we’re seeing cautiousness in terms of the retail interest. We have another project in Minooka, and a project in the early stages in Lakemoor. Those are all outlying growth areas. There are a number of markets out there that we’re very bullish about. We have the right corner to be on; the infrastructure is there. The housing, if nothing else, is planned and approved, if not under construction. We just think it’s going to take a little more time now to develop out there, throughout the whole fringe west and southwest of the city.

Bossy: As you get further out from the city, we do see people cutting back and the problem, of course, is you can’t get the rents. With construction costs going up north of $100 per foot for a big box or a junior anchor, and retailers wanting to pay $10 to $12 per square foot rents, the numbers don’t work. So, it’s a real challenge today — Target is saying that if it is going to go out and develop [in fringe markets], it has to have free dirt. The only equalizer is any kind of revenue-sharing agreement you get with the village because the numbers basically don’t work.

Redfearn: Dave, I think that’s absolutely right. We’re finding the communities are already very pro-growth and opening up incentive packages. If there is any silver lining in this, it is that I think land prices might soften up a bit in these outlying areas, where the pricing has been very strong and aggressive. I think we’re going to see some easing up on that, which will help as far as continuing development goes.

CONSTRUCTION UNDERWAY ON ROOSEVELT COLLECTION The Shops at Roosevelt Collection will feature approximately 50 retailers, and will be anchored by a 16-screen theater. Construction is underway of the Roosevelt Collection, a 1.2 million-square-foot, mixed-use center located in the heart of Chicago’s South Loop. When complete, the development will consist of approximately 300 condominiums and 600,000 square feet of retail space, anchored by a 16-screen theater. The center is located in a key area of the city, with 55,000 area college students within walking distance of the Roosevelt Collection, and more than a quarter of the 700,000 people employed in Chicago’s central business district working within 1 mile of it. Roosevelt Collection is designed with a grand boulevard running down the middle of the development, with retailers and residences flanking it on each side.  The residences will feature amenities such as stainless steel appliances in the kitchens, European cabinetry and granite countertops. The retail component of the development will feature approximately 50 retailers, including a fitness center and public health club. Roosevelt Collection will also feature a 3-acre public park that will host events such as concerts, street festivals and farmers markets. The project is being developed by Centrum Properties, with RTKL Associates providing design services. Completion is scheduled for spring 2009. — Coleman Wood