When CBRE recently hired Paul Lundstedt to be its executive vice president, capital markets, it was a coup for the firm, according to Chris Connelly, CBRE’s executive managing director, particularly because there is a dearth of talent in the suburban office market.

Connelly recently spoke with IREJ about the impact Lundstedt’s hiring will have on the firm and how the company plans to approach a challenging office investment environment in 2012.

Q. What is CBRE doing to improve its office investment business?

The first thing we’re doing is recruiting and obviously Paul is representative of that. We’ve fallen off for a number of reasons over the last few years in the office business, particularly in the suburbs. It’s something we’ve been very focused on. The talent is not super deep, so it’s hard to find a lot of quality folks. It’s kind of a different business. You’ve got a few top-tier people. It’s not that there are bad people, there just aren’t many people in that business. We were chasing Paul for quite some time, and he’s going to fill a huge void for us out in the suburbs, and ultimately he’ll work on downtown as well and we’ll grow both of those businesses going forward under his leadership.

Q. Why is the office investment business so challenging right now?

Over the last three years, we’ve had some personnel changes here and we haven’t been able to find the exact right fit. Paul obviously solved that immediately. We just haven’t had the right folks in the space, particularly out in the suburbs. In terms of the market, if you’ve got really good core product, it can trade, but if there are any issues with the asset in terms of vacancy, etc., it’s difficult. It’s such a challenging environment particularly in suburban Chicago. This a completely different buyer mix that’s starting to emerge in the suburbs, and Paul is way out in front of that trend, which is great. He’s got great relationships with all of these new players. Making an investor comfortable with the story in Chicago is challenging, but if you understand the story, there is one to be had, and Paul is just great at telling it.

Q. What other markets or submarkets does the firm plan on focusing?

In Chicago, it’s suburban and downtown, and Paul is going to be spanning both of those markets. He also had the practice that extends outside of Chicago into some of the other Midwest markets, so we’ll be doing business in places like St. Louis, Detroit, Kansas City, etc. Paul had developed more of a regional practice in the last few years, so he’s going to focus on that as well.

Q. What have been some of CBRE’s most recent successes?

The most recent success we had actually is downtown. We had sold 250 S. Wacker, which was a great story, and that just closed before the end of the year. And in the first quarter, Paul is going to be coming out with a few packages out in the suburbs. So we’re looking forward to transacting those assets as well.

Q. What do you foresee for the Chicago market in 2012?

I think you’ll see that core product that comes to the marketplace will trade. There are a few buildings that have come out in the suburbs here in the first quarter, and there are a few more coming out. I think the investment community will watch what happens with those trades and what kind of appetite they garner, and then I think you’ll see a reaction accordingly. We’re going to watch that pretty closely. In downtown, I think there is a really good story developing in terms of low vacancies in that class A market and I think that will attract some attention from institutional investors downtown in 2012. I think it’s a pretty positive story that’s shaping. There’s still some uncertainty, but if you’ve got a good core of assets, there’s a good story to tell.

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Blake Krueger, chief executive officer of Grand Rapids, Mich.-based Wolverine World Wide, will serve as the keynote speaker at the 10th Annual International Council of Shopping Centers West Michigan Alliance on March 6. The event, held at 1 p.m. at DeVos Place in downtown Grand Rapids, is co-hosted by the Michigan Downtowns Association.

When asked about Krueger’s Keynote Address, Alliance co-chair Anne Marie Bessette of the City of Grand Rapids DDA commented said, “We are just thrilled that a Regional Leader of Mr. Krueger’s stature would agree to participate in our event.  We have a great day planned, but he alone is worth the price of admission.”

Founded in 1957, ICSC is the global trade association for the shopping center industry with more than 60,000 members in the United States, Canada and 80 other countries. Membership is made up of real estate developers, mall managers, public officials, economic developers, brokers, investors, consultants, planners, attorneys and others.

The West Michigan Alliance routinely attracts 200 or more of West Michigan’s leading deal makers, and is one of the only forums that blends the public and private sector to collaborate, network and share best practices for mutually desirable retail projects.

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HFF has announced today that it has been named to market for sale Avalon Lombard, a 256-unit multi-housing community in Lombard.

HFF is marketing the property on behalf of the seller for an undisclosed amount free and clear of debt.

Avalon Lombard is located at 2101 S. Finley Road close to the intersection of Interstates 355 and 88 about 22 miles west of downtown Chicago.  The property was partially renovated in 2009 and has one- and two-bedroom units averaging 789 square feet each.  Community amenities include a clubhouse, fitness center, WiFi lounge, game room and outdoor pool.  Avalon Lombard is 96.5 percent leased.

The HFF investment sales team representing the seller is led by Managing Director Marty O’Connell, Executive Managing Director Matthew Lawton and Managing Director Sean Fogarty.

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In a move that impacts just about every major market in the Midwest, C-III Capital Partners has completed its acquisition of NAI Global.

The NAI Global network includes NAI companies across the Midwest, including such familiar names as Chicago’s NAI Hiffman, NAI Ruhl & Ruhl Commercial Company in Iowa, NAI DESCO in St. Louis and NAI Daus in Cleveland.

Commercial real estate services company C-III specializes in primary and special loan servicing, loan origination, fund management, CDO management, principal investment, title services and multi-family property management.

Andrew Farkas, the chief executive officer who leads C-III, was also the founder and chairman and chief executive officer of Insignia Financial Group. C-III is based in Irving, Texas, with additional offices in New York; Greenville, S.C.; McLean, Va.; Chicago; Dallas; and Nashville.

The acquisition doesn’t appear likely to change the way NAI affiliates across the Midwest will operate. NAI Global will continue to operate as a separate company under its current management. C-III officials, though, did say in a press release that the company will look to grow NAI Global by exploring business opportunities in strategic locations, including New York, London, Singapore and other primary global business centers.

“The completion of this transaction represents a significant step forward in our strategy to build a fully diversified commercial real estate services company,” Farkas said in a written statement. “With the NAI Global acquisition, we are gaining the world’s leading commercial real estate network and a tremendous foundation for future growth.”

Officials with NAI Global also expressed excitement over the new arrangement.

“We are thrilled to be joining forces with C-III and excited about the opportunity to deliver an even broader range of services to our members and add greater value to our collective corporate and investment clients,” said Jeffrey Finn, president and chief executive officer of NAI Global, in a written statement. “We look forward to tapping into their extensive resources and expertise to assist all of our clients in strategically optimizing their commercial real estate assets.”

NAI Hiffman chief executive officer Dave Petersen said that he expects the benefits of the transaction will translate to new real estate assignments for the company’s local office and will create added opportunities for existing clients and shareholders.

“The best aspect of this transaction is that its greatest value will be seen at the ground level in the form of property management, leasing and investment sales opportunities,” Petersen said.

Founded in 1977 by Gerald Finn, NAI Global has grown from covering 15 countries in 1999 to a network that now boasts 350 offices in 55 countries, with more than 300 million square feet of commercial space under management.

C-III started its operations when it purchased Centerline Capital Group’s institutional real estate debt fund management and commercial mortgage loan servicing businesses in March of 2010. Since that time, C-III has launched mortgage origination, investment sales and title insurance businesses, and expanded its principal investment, loan origination, fund management and primary and special loan servicing businesses, including acquiring the special servicing and CDO management businesses of JER Partners in August of 2011.

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The marquis segment of the conference was a "fireside" chat between Sam Zell, chairman of Equity Group Investments, right, and Debra Cafaro, president and CEO of Ventas, Inc., left.

 

The 10^th Annual Commercial Real Estate Forecast Conference on Jan. 24 drew more than 1,000 attendees who gained insight into the future of the commercial real estate industry from luminaries such as Sam Zell, Debra Cafaro and nearly 50 other industry professionals taking part as speakers or moderators.

The Real Estate Publishing Group and Illinois Real Estate Journal hosted the conference.

Following a successful networking and exhibitor session, Cafaro, chief executive officer of Ventas Inc., moderated a fireside chat with Zell, chairman of Equity Group Investments. Zell began by giving a general overview of the commercial real estate industry.

“The real estate industry looks better than it is,” Zell said. “There’s a significant amount of restructuring and recapitalization that are going to have to occur in the next couple of years. I think there is an enormous amount of commercial real estate that is significantly overleveraged.”

Zell said that since July of 2007, with the exception of the apartment market, there has been little or no supply in the commercial real estate industry. Zell also emphasized that there is very little likelihood there will be any significant new supply in the next 24 to 36 months.

“I think that overall, we are still in pretty weak demand scenario, but the weak demand could be a lot worse for us if it weren’t for the fact that there’s no new supply,” he said. “We’re in a position of transition. I think the shocker of ’08 and ’09 is still having its impact and it’s all about demand.”

After Zell and Cafaro, the program shifted to a state of the market panel. Participating in the discussion were, from left to right, Len Caldeira, SIOR, moderator, Jones Lang LaSalle; Drew Nieman, Colliers International; Don Schoenheider, Liberty Property Trust; Michael Flynn, NAI Hiffman; Tom D'Arcy, Hines; and Steve Schnur, Duke Realty.

In terms of the retail sector, Zell had a very bearish outlook, adding that economic growth has not been sufficient enough to support retail. He said that while the retail business is not going away any time soon, Internet retailing presents an enormous challenge for the retail business.

“Retail, more than any other form of real estate, has a very serious obsolescence factor,” he said. “Those 300,000-square-foot enclosed malls are just disastrous. “

Adding to retail’s woes is that overall disposable income in the U.S. has modified in the last few years, Zell said.

“It’s very hard to imagine that we’re going to see a growth in retail when you’ve got this much supply out there and this much obsolescence,” he said.

When it comes to the office sector, Zell said his prognosis for the market is that it is at best even or perhaps a bit on the negative side due to a downsizing of the economy.

In terms of office space, Zell said the average number of square feet per employee in the U.S. is about 240 square feet, compared to 90 square feet in countries such as Hong Kong.

Zell added that there is an enormous potential supply that can come into the office market as people downsize to reduce their real estate costs. He also said there are many multi-national corporations in the U.S. that have more employees overseas than they do domestically.

“In the end, office space is dependent on employment and growth, and so far, we haven’t had any employment growth and we haven’t had any growth,” Zell said.

The fireside chat played to a standing room only crowd in the Grand Ballroom of the Marriott Chicago.

Cafaro next questioned Zell on the hotel sector, which Zell said has been oversupplied because “palm tree financing,” rather than economics, is driving the hotel business.

“Palm tree financing is two guys laying in the Caribbean, looking up at the sun through a palm tree and saying, ‘Wouldn’t everybody like to have a hotel here,’” Zell said.

However, Zell added that one of the growth areas in the U.S. is tourism.

“The tourism element is attractive, the dollar is relatively cheap, and the hotel business, particularly in the 24/7 cities, is going to benefit from no new supply,” he said.

When it comes to multifamily, Zell was very optimistic about the continued success of the apartment market, which he said is being impacted by a changing perception of single-family housing.

Janet Johnson, Schiff Hardin, moderated the legal issues impacting real estate panel discussion. Other participants in the panel were, from left to right, Steven Elrod, Holland & Knight; Marcia Owens, Edwards Wildman; Mark Berkoff, Neil, Gerber & Eisenberg; Michael Kurtzon, Dykema; and Paul Fisher, McGuire Woods.

“The American people have adjusted their love affair with the single-family house,” he said. “In the first seven to 10 years of this decade, you had people getting out of college and literally getting a job and buying a condo or a house the next day.

“However, if you accept the fact that there’s been a dramatic mental change, the impact on the multifamily industry is tremendous.”

Adding to the multifamily sector’s success are high occupancy rates, unlimited demand and very modest new construction, Zell said.

“I think the multifamily business, at the moment, is the best part of the real estate industry,” he said. “I think it’s likely to stay that way. We may not, in our lifetime, see housing return to its hallowed status.”

With Susanne Cannon, The Real Estate Center at DePaul University, at the helm, a financing and investing strategies panel rounded out the roster of general session panels. Participants in the panel, from left to right, were Aaron Lanski, BMO Harris Bank; John Gavin, Sterling Bay Companies; Collete English-Dixon, Prudential Real Estate Investors; Cydney White, Equity Residential; and Laura Auwerda, PNC Real Estate.

Following the fireside chat, attendees of the forecast conference heard three general session panels on the state of the commercial market in Chicago; legal issues impacting real estate; and real estate financing and investment trends.

Len Caldeira faced a tough challenge: He hit the stage right after Zell and Cafaro left it.

But Caldeira, managing director of Jones Lang LaSalle’s industrial services team in Chicago, more than held his own. Caldeira was the moderator for The Big Picture seminar, a discussion among top Chicago-area commercial professionals on the state of commercial real estate in Illinois and across the Midwest. This discussion, too, was a highlight of the forecast, an event held each year by the Real Estate Publishing Group and Illinois Real Estate Journal.

Caldeira, though, is no fool. He recognizes the draw that is Sam Zell. It’s why when Caldeira hit the stage, he stated: “I’m in a very unenviable position here … You never follow dog acts or Sam Zell.”

And later when the lights in the meeting room went out, Caldeira was ready with another quip: “Hey, we’re not that bad,” he said before the lights turned back on.

David Liebman, SIOR, speaks with Joanne Works, SIOR Chicago administrator. SIOR has been a host level sponsor of the forecast event since 2003.

The discussion between the Chicago real estate pros in the room, though, more than met expectations. The pros here — Tom D’Arcy, senior vice president of the Midwest regional office of Hines; Steve Schnur, senior vice president of Duke Realty’s Chicago office; Drew Nieman, principal in Colliers International’s Chicago office; Michael Flynn, executive vice president and managing director with Chicago’s NAI Hiffman; and Don Schoenheider, vice president and city manager for Liberty Property Trust’s Chicago region — agreed that while the local commercial real estate market was showing signs of improvement, the industry is still hurting.

The talk eventually turned to the cooperation between Illinois, Indiana, Michigan and Wisconsin. Or, to put it more accurately, the lack of cooperation.

Schnur from Duke stated that these four states need to work more as a single regional power. Instead, they spend too much time fighting for companies, each state trying to steal established businesses from the other.

Industry veterans Jim Dieter, CBRE, and Steve Schnur, Duke Realty, listen intently to what Zell and Cafaro had to say ahead of their panels.

These border wars, of course, are nothing new. Look at Illinois; the tax structure here isn’t all that favorable to corporations. This is a fact that neighboring states Indiana and Wisconsin are not above exploiting in their drive to bring companies, and their tax dollars, to their states.

This isn’t surprising. But, like Schnur says, just think of what the states of Michigan, Wisconsin, Indiana and Illinois could accomplish if they would work together more often than they fought against each other.

Those U.S. consumers from the ages of 25 to 34 — the Echo Boomers — received more than their share of attention during the Financing and Investing panel of the conference.

And little wonder: As Cydney White, first vice president of investments for Chicago’s Equity Residential, said, these younger adults are actually faring better in today’s economy than are most others. The unemployment rate for the Echo Boomers actually stands at a low 4.4 percent. These Echo Boomers, then, have enjoyed the benefits of most of the jobs created in 2011 and early 2012.

Michael Millar, Real Estate Communications Group, the event organizer, with Sam Zell and Debra Cafaro.

Because of this, these consumers are driving many commercial real estate trends today, including the solid performance of the Midwest’s multi-family market. The Echo Boomers are in their household formation years. But instead of buying single-family homes, a large number of these consumers are choosing to rent.

“The Echo Boomers are delaying marriage. They are more interested in renting. They want to be more flexible,” White said during the panel discussion.

In fact, White said, many of the Echo Boomers are putting off buying their first homes until they hit 30 or beyond.

The message for commercial developers is clear: Multi-family will remain hot well beyond 2012. And when it comes to financing, multi-family projects will be some of the most attractive to commercial lenders.

Following the panel discussions, breakout sessions also took place during the conference on the suburban and downtown office, industrial, investment, retail and multi-family markets.

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New York’s Brixmor Property Group recently announced the openings of five Weight Watchers storefront locations across the country. These openings include locations in Wisconsin and Illinois.

A 1,700-square-foot Weight Watchers opened at Annex of Arlington, a retail center in Arlington Heights, Ill.

Anthony Gamez of David King & Associates in Oak Park, Ill., represented Weight Watchers. Brad Ratajczak represented Brixmor.

Also in Illinois, a 1,680-square-foot Weight Watchers location opened at the High Point Centre retail center in the Chicago suburb of Lombard. Gamez again represented Weight Watchers, while Ratajczak again represented Brixmor.

A 1,280-square-foot lease was executed for a Weight Watchers at Moorland Square, a retail center located just 10 miles southwest of Milwaukee in New Berlin, Wis. Tom Kohl of The Boerke Company, Inc., represented Weight Watchers. Dana Meadowcroft represented Brixmor.

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Terry Grapenthin and Joshua Hearne of Cawley Chicago Commercial Real Estate represented KTR Capital Partners on successfully leasing a 48,101-square-foot industrial unit at 605 Territorial Drive in Bolingbrook, bringing the property to 100 percent occupancy. The space was leased to, Tobe Enterprises, which was represented by Jonathon Kohn of Colliers International. 

Grapenthin and Hearne represented KTR in their purchase of 605 Territorial Drive as a partially leased investment from another institutional owner in the spring of 2011 and in less than 10 months filled both vacancies on behalf of KTR.

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Marcus & Millichap Real Estate Investment Services has announced the sale of 1923 W. North Avenue, an 8,448-square-foot retail property located in Chicago, according to Steven Weinstock, regional manager of the firm’s Oak Brook office. The asset commanded a sales price of more than $4.2 million, equating to more than $507 per square foot.

Sean Sharko and Austin Weisenbeck, investment specialists in Marcus & Millichap’s Oak Brook office, had the exclusive listing to market the asset on behalf of the seller, a limited liability company. After an extensive marketing effort and interest by various parties, one of the tenants, Piece Brewery & Pizzeria, elected to purchase the property.

The retail property is located in the Wicker Park/Bucktown neighborhood, one of the fastest growing and vibrant neighborhoods of the Chicago area.

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Transwestern’s Suburban Chicago Agency Leasing Group represented Siete7 LLC in two transactions at 1111 E. Touhy totaling 63,381 square feet. National Insurance Crime Bureau completed a long-term renewal on a full floor lease totaling 31,572 square feet. Founders Insurance Co. completed a long-term renewal for a 14,134-square-foot lease and signed for an expansion of 17,675 square feet. The tenant now occupies a full floor at the building.

“These two major deals are strong evidence of the quality and value that 1111 Touhy offers to larger tenants,” said Fred Ishler, senior vice president with Transwestern’s agency leasing group. “The transactions also signify a noticeable upturn in activity in the O’Hare office market.”

The property is a 148,444-square-foot class B office building owned by Siete7 and located in Commerce Centre, a three-building development in the O’Hare submarket. The building offers quick access to all major expressways and is a five-minute drive to O’Hare International Airport. Amenities include on-site management, conference facilities and an on-site deli. The building is in close proximity to many restaurants, hotels and public transportation options.

Transwestern’s Fred Ishler, Joe Stevens and Zach Fox represented the landlord in both transactions. Peter Livaditis and Paul Diederich of CBRE represented National Insurance Crime Bureau and Steve Kardel of Glenlake Capital Partners represented Founders Insurance Co.

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Has Grubb & Ellis finally found the right buyer?

That’s the hope as the national commercial real estate firm, which boasts several offices in the Midwest, is in early talks with BGC Partners, LP., an affiliate of Cantor Fitzgerald.

If BGC Partners does eventually purchase Grubb & Ellis, it wouldn’t be the first time that this New York-based voice and electronic brokerage has made a splash in the commercial real estate industry. Last year, the company purchased commercial real estate firm Newmark Knight Frank for $65.6 million in cash and stock.

Grubb & Ellis has entered into an exclusivity agreement with BGC Partners, giving the company the exclusive right to to pursue debt or equity financing, a purchase or another strategic transaction with Grubb & Ellis. The exclusivity agreement went into effect Jan. 16 and will expire Jan. 31.

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