Episode Transcript
[00:00:00] Speaker A: Foreign.
Welcome to another episode of the real estate Chicago style podcast. I'm your host, Joe Smazel, multifamily broker at Entero Realty, focused on selling midsize apartment buildings in the city. Also own and operate some small buildings on the north side.
Business is called Smiles Apartments with my wife Kate.
Today, I'm excited to welcome Cody Hunter, Mark and Tom Sitz, executive directors from Cushman Wakefield, to the show. Fellas, thanks for making the time.
[00:00:34] Speaker B: Thanks for having us, Joe. Absolutely.
[00:00:38] Speaker A: I like, I like the.
I like the tone of like the. The 90s sitcom. Yeah, totally. Because it's going to be fitting here in a minute.
Tom and Cody have sold office assets covering over 60 million square feet and total value of over $10 billion.
Cody, we grew up in Iowa. I don't think there was 60 million. 60 million square feet of office in the state.
[00:01:01] Speaker B: No, probably not.
[00:01:04] Speaker A: Outrageous stats for relatively young guys with a lot of Runway in their career. So awesome.
Expertise ranges from trophy high rise towers, boutique, creative office, suburban and secondary office markets, industrial life, science land, and more.
And seems like you guys have a really commanding market share in selling office around Chicagoland. What did I miss about the intro?
[00:01:31] Speaker C: I think that's a good intro. We appreciate it. Happy to be on the pod today. Thanks for inviting us and happy to share what. What we're seeing live.
[00:01:40] Speaker A: I also like that you called it a pod. Veteran podcast guy calling it a pod. So this is the first time I've had two guests on the show.
[00:01:50] Speaker B: Gotta make sure I. Yeah, we're gonna figure out. We're gonna figure out them.
[00:01:54] Speaker A: The mic.
[00:01:54] Speaker B: The mic.
[00:01:55] Speaker A: Let's see what the synergy is between the partnership with the mic handoff. We're also going to try a little bit of a different. I usually start with like some rapid fire questions, but we're gonna do it kind of like a 90s dating show where we're gonna see how well you guys know your business partners.
[00:02:10] Speaker B: I'm gonna let you. I'm gonna let you get away with this.
We've known each other since college, so.
[00:02:16] Speaker A: The way we're doing it is I'm gonna. We're gonna answer. We're gonna answer the first four questions.
Cody, you're gonna answer with what you think Tom will answer for himself. Tom, you write down your own answer and then we'll switch and we'll ask four questions and we'll see. We'll compare the tally at the end. So we ready here? No. No peeking. This is a realist. Real estate is based on integrity Trust.
[00:02:39] Speaker C: Game on.
[00:02:40] Speaker B: Amen.
[00:02:40] Speaker A: Are we good? Okay, so we're answering for Tom Cody.
[00:02:44] Speaker C: Yep.
[00:02:44] Speaker A: Favorite intersection or corridor in the city.
Write it down. Or Tom, I guess you're the only one needs to write down in my answer. Hang on. He's got a right finish all at.
[00:02:53] Speaker B: The end or are we gonna go through them all after?
[00:02:55] Speaker A: Are you ready?
[00:02:56] Speaker C: Ready.
[00:02:58] Speaker B: I'm gonna go with.
I'm gonna go with Whacker Drive as an office guy.
[00:03:03] Speaker C: Okay, answer Armisage corridor.
[00:03:08] Speaker A: Not even close.
[00:03:09] Speaker C: Long time.
[00:03:10] Speaker A: Oh, for one big best lunch spot near your office. And bonus points will double it if you can guess his go to order.
[00:03:21] Speaker B: I'm gonna go Monk's Pub. And I'm gonna go chicken avocado wrap.
[00:03:28] Speaker C: Ding, ding.
[00:03:29] Speaker A: Okay, he's on the board.
[00:03:31] Speaker B: We go twice a week.
[00:03:33] Speaker A: There we go.
Throw the peanuts on the ground still.
All right, Favorite closed deal that your team has worked on.
Let them write it down first.
[00:03:48] Speaker B: That's a really good one.
I'm gonna go Google transaction in Fulton Market a few years ago. 210 North Carpenter.
[00:03:55] Speaker A: Just Google.
[00:03:56] Speaker B: Google was the.
[00:03:57] Speaker A: Have you heard of that? Yeah. Okay.
[00:03:59] Speaker B: Just an exciting sort of record setting deal that was just, you know, one of those perhaps once in a career type executions.
[00:04:07] Speaker C: Correct.
[00:04:08] Speaker A: Okay, so. Wow. I guess by way of the bonus point, we're three for three. So you. I mean, this is pretty impressive.
The last one. What is one word that colleagues would use to describe Tom?
Obviously you are his colleague, so.
[00:04:30] Speaker B: I'm gonna say this is me saying what he thinks people would say about himself.
[00:04:37] Speaker A: That's right.
[00:04:37] Speaker B: All right, I gotta get the round rules, right?
[00:04:39] Speaker A: Yeah. I'm a rookie podcast.
[00:04:42] Speaker B: We're so many layers.
[00:04:43] Speaker A: Okay. It's like an onion.
[00:04:45] Speaker B: I'm gonna say relia. No, I'm gonna say consistent.
[00:04:48] Speaker A: Okay.
[00:04:50] Speaker C: Consistent.
[00:04:52] Speaker B: No way. You got to show us.
[00:04:53] Speaker C: Is that why I said even keel or consistent?
[00:04:56] Speaker A: That's.
[00:04:56] Speaker B: Those are synonyms.
[00:04:58] Speaker A: I mean, that's pretty.
[00:04:59] Speaker B: He says one word, he answer with two words.
[00:05:01] Speaker A: No.
Tom. A lot of pressure now because Cody establishes. That was four out of four by way of the bonus point. But. All right, so we're answering for Cody. Now you're driving to a big pitch.
What genre of music is on in the car? And bonus point for the song or artist?
I mean, I could guess the genre.
[00:05:25] Speaker C: I'm. I'm going to go with some recency bias here, which is recency sl. Always.
[00:05:29] Speaker A: Hang on, hang on.
[00:05:32] Speaker C: All right, ready?
[00:05:33] Speaker A: Y.
[00:05:34] Speaker C: Country Red clay strays.
[00:05:38] Speaker B: Ooh. I went with Luke Combs, but that's a Good guess.
[00:05:41] Speaker C: There we go.
[00:05:42] Speaker B: That's a good guess.
[00:05:42] Speaker A: We're still on the board.
Best steakhouse in the city. For a closing dinner. Let him write it first.
[00:05:49] Speaker B: Oh.
[00:05:52] Speaker A: All right.
[00:05:53] Speaker C: Got it, Bavettes.
[00:05:57] Speaker A: Yeah. Oh, yeah. We're two for two. You guys are just absolutely. Just dialed corner from your office. BTES is awesome. Nobody's going to argue Bats.
[00:06:07] Speaker B: I just like it to be known I'm also not getting paid for that BTES advertising.
[00:06:11] Speaker A: We could. We would definitely accept, you know, anybody from Hog Salt that wants to like to show us a little love, I.
[00:06:18] Speaker C: Don'T think they need it.
[00:06:19] Speaker A: This is less about Cody, more about just seeing if you guys have the same answer to the question. What product type. I guess you can answer that in different ways. Is the most in demand for your investor base today.
Hang on.
Cody's just an Iowa guy. He thinks and writes a little slow. I can say that as an Iowa guy.
[00:06:39] Speaker B: Also from a small town.
[00:06:42] Speaker A: Go ahead, Tom.
[00:06:44] Speaker C: I'm gonna say multi family.
[00:06:48] Speaker B: A little miscommunication.
[00:06:49] Speaker A: Yeah, I think. I think I asked a shitty question. I meant some type. I meant. Okay. With an office. With an office?
[00:06:56] Speaker C: Yeah, with an office.
I. It's. It's class A, newer, vintage, fully amenitized.
It's the flight to quality.
[00:07:09] Speaker A: Yeah, couldn't agree more. Yeah, that's what I'm envisioning.
We'll take. I'll take the heat for the miscommunication there.
[00:07:18] Speaker B: I think he was just trying to be nice to you by saying multi family.
[00:07:21] Speaker A: I'll take it.
All right, last question for Cody. What was his college jersey number during his football playing days at Iowa?
This is probably an easy question because I'm sure he wears his jersey to the office before game day still, but.
[00:07:37] Speaker C: Really put me on the spot here. We've. We've brought up the picture of Cody as a freshman in his IO uniform.
Couldn't even count how many times with the. The pyramid neck playing at £300.
I gotta be honest, I. I don't know the number. I'm gonna go ahead and throw it out there at 73.
[00:08:00] Speaker B: 64.
[00:08:02] Speaker A: That's a Midwestern number.
[00:08:03] Speaker B: I had a coach one time.
[00:08:04] Speaker A: Tell me here, go to. We go to the mic.
[00:08:06] Speaker B: I had a. I had a coach one time tell me that. He's like, 64 is perfect for you. It's just a Midwestern fat guy number. And I said, oh, thanks, coach.
[00:08:15] Speaker A: You guys did great. Apparently, you know, you know each other pretty well as longtime business partners, so why don't you start by Telling us a little bit about how you came to be partners.
[00:08:24] Speaker B: I'll kick off.
So interestingly enough, my father in law happened to know Tom well, got connected to him when we were still in college. I did a couple of stops prior to my brokerage career.
First stop was at Prudential here in Chicago, underwriting mortgage debt as an analyst.
I did that for about two years, 2011, 12ish. Then went to Glennstar, which an office focused operating company at that time. They do some more different things now, but at the time. Really office focused? Yeah, Kind of learned the office business, especially with a local focus, and then joined Paul Lonstead, Dan Deuter and Tom sits at CBRE in 2000, maybe 13 and have been partners ever since. So going on 13 years.
[00:09:15] Speaker A: Cool. How. What was your kind of path? Path to getting to that point. Getting. Getting to the point where. Meeting Cody at cbre.
[00:09:21] Speaker C: Yeah. So I have been, I guess out of School for 16 years. Fifteen of those on the brokerage side.
[00:09:27] Speaker A: Yeah.
[00:09:28] Speaker C: And continuity with the team across those 15 years. So I joined Paul at Grub and Ellis, now Newmark. We moved to CBRE where Cody joined us and then moved over to Cushman Wakefield approaching seven years ago. Yeah, it's been a good run.
Always based in Chicago, always focused on the broader Midwest. So the client base and what we focused on has evolved a little bit over that time with an intention to continue that track record.
[00:09:56] Speaker A: Cool.
How do you guys kind of manage your responsibilities in your team and your partnership? Is it that one of you does more of a particular thing or is it more of just a combination of both of you doing a lot of business development? It's like kind of one plus one equals, you know, three or more over.
[00:10:14] Speaker B: Yeah, I think it's a little bit of both, depending on sort of the subtype within office. If you're talking about Chicago, CBD and metro office, we're almost exclusively working together. Yeah, on those. When you go around the Midwest, we have certain markets. I mean there's, there's a dozen different markets in the Midwest that we cover.
We've divided those up such that there's better continuity with the folks locally, regionally, etc. So, you know, whereas I might work on something that's in southern Ohio or Louisville or, you know, Indianapolis, Tom may work on something in Kansas City, Milwaukee, etc.
[00:10:50] Speaker A: I didn't appreciate that about your business. I thought that it was, I guess I'm here tracking the Chicago stuff by way of, you know, cranes or just, you know, seeing articles and Stuff, seeing the real deal, seeing the traded, whatever. But how much of your business is Chicago or Chicago land versus the greater Midwest?
[00:11:06] Speaker B: Historically it was almost a third that was outside of Illinois.
I'd say it's a little less now just because, you know, there hasn't, there hasn't sort of been the, the bounce that we've seen in Illinois.
[00:11:18] Speaker A: Yeah.
[00:11:18] Speaker B: And it's, it's fairly busy and major metros across the country. But you're starting to, you're starting to see it pick up in some of those other midwestern markets.
A lot of activity in Minneapolis right now, which is a market that we spend a lot of time in, traffic, traveling there, etc. But you know, a lot of these, a lot of these markets, the, the story is completely different than when you're in a major market. The story in one of those smaller markets can be driven by just a few employers, their back to office plans. And you know, some markets in the Midwest have performed exceptionally well and some have struggled.
[00:11:50] Speaker A: Yeah, cool.
So take us back to like your early earlier years as brokers. You know, now we're been doing it for, all of us, have been doing it for about 15 years. We feel like we're, you know, a little bit more on the veteran side, at least as it relates to like the brokerage, you know, kind of.
But talk to us about how you won business as newcomers when you were dealing with the type of product that you guys sell. I mean, this is high profile, very significant real estate, often institutionally owned, like when we're starting in multifamily and a lot of private capital deals. A lot of times one of your first deals is kind of like a mom and pop situation. You called somebody at the right time or, you know, you had a lot more patience and kind of uncovering the opportunity than the more established folks do. But I think about in your world, in the institutional world, that somebody breaking in would feel it to be very, very difficult thing because those, those boardroom type decisions, I assume, kind of come with the expectation for some gray hair, some pedigree. So how'd you win some of those deals when you were starting?
[00:12:51] Speaker C: Yeah, good, good question.
You're right on the last part of your question. Relative to the gray hairs, I think we, we've both benefited from working with more senior folks our entire career. Notably Paul Olmstead, who is a killer leader for our team. Really set the culture and sort of an enigma in the business in terms of being gracious with his time and certainly gracious in the way that he structured his team. So that's huge as having him as a longtime mentor. He retired at the end of 2023. We still talk to him certainly weekly. I think in most cases.
You know, the question on where did we ultimately start brokering real estate for ourselves? Sort of getting out of that analyst, junior associate role really goes back to 2013, 14, 15.
At the time you had smaller cap boutique, creative office product, brick and timber buildings, sort of those cool trendy buildings that are located in the outlying neighborhoods often, not, not all.
And at the time that was becoming more of an institutional asset class. Institutional money was following tenant demand as they often do.
And we picked up on that early on and really positioned our approach to the former owners, which overwhelmingly leaned towards, call it high net worth, local private groups. And I guess I would say put an institutional shine on it. And that seemed to resonate and it sort of fed off of itself to the point that you fast forward to today. I think over the last decade or slightly more, we've probably sold 40 to 45 of those sort of assets and have a variety of those deals in our pipeline today.
[00:14:34] Speaker B: Yeah, I think you said it well. You said the patience to uncover opportunities where they may not be obvious.
We were essentially that connecting connective tissue between private sellers and institutional buyers. And we were young enough and patient enough to, to work with, you know, folks that this wasn't their day job to get organized on how to sell an asset.
[00:14:55] Speaker A: Yeah.
[00:14:56] Speaker B: But also had had enough institutional experience to be able to present things in a way that, you know, these large funds and pension fund advisors, et cetera, could understand.
So it took. It was a really unique time where all the sellers were private and all the buyers were institutional.
[00:15:12] Speaker A: But then you're really earning your. There's a real value in what you do too because, you know, bridging that difference in perspective and difference in kind of buyer profile is a real like, kind of art, you know, like you have to, you have to understand, be empathetic to how both think and then try to solve for a middle ground. And then, you know, they might both have totally different kind of like steps to doing a deal where you have. You're really marrying two parties that have a totally different profile. Right.
[00:15:40] Speaker B: It's also the hardest you'll ever work in your career because you're still, you're still doing the underwriting and the creation of. Of stuff, marketing collateral, etc. So one of the places in that instance where you're talking about private sellers where you can really add value is perusing Sort of the, the data that you do have, figuring out what you really need and figuring out what isn't worth the, the challenge to try to go find such that you can put a package together that's well thought out. So you're doing all of that while you're also trying to market the assets. You know, I know I would venture a guess on your side of the, the industry, you probably go into the front lines of sales fairly quickly. Yeah, I think when you're on the sort of institutional quote unquote side, you have these bigger teams where you spend more time sort of in the background than on the front lines. Yeah, exactly. But when you're doing both, that's where you're starting to make that transition, is where you work harder than you ever would.
[00:16:35] Speaker A: Well, yeah, and in real time you probably don't fully appreciate it, but then you look back and you're like, those were fun years too. And those were really like years that kind of propelled me to the next level, I imagine. So is it, is it a similar but opposite dynamic now where a lot of the deals are going rather than going from kind of private to institutional, they're going from institutional to private? Or am I misunderstanding that as not an office guy?
[00:16:58] Speaker C: No, I think that's fairly spot on. I, I would say where we sit now is it's evolving in real time. If the market began to shift in 2022, interest rates began to rise. Most of the last three years have been tough sledding. It's not, not for lack of transactions, but it's definitely, definitely fewer and far in between.
The buyer pool today for office product, not just in Chicago, but nationally, is overwhelmingly private, high net worth capital.
We're certainly seeing that. But the evolution just within the last 6 to 12 months as institutional money is taking note of what's going on in the office sector around the country, particularly in what I'll call tier one sort of coastal gateway markets, Sunbelt markets.
And from our perspective, it's really only a matter of time until you start seeing that in a more meaningful way in Chicago. Yeah, we're already seeing that with some of our recent deals skewing towards higher quality product. To the earlier question of West Loop Class A, that's sort of the first landing zone for that capital, but that's an important part of the evolution, recovery capital coming back to the market. And we're starting to see that now.
[00:18:07] Speaker A: Well, let's put a time stamp on it. So we're talking in the middle of August 2025 and I mean, let's be honest, Cody, I asked you to do this when I first started the podcast, you know, 16. It was probably eight months ago or something like that. And it, you know, it was like, I don't want to come off as negative, you know, which I appreciate it. I didn't want, you know, and I think it's a smart decision. But obviously things have perked up enough since, so, you know, institutional buyers taking notice, private buyers, you know, finding this to be an opportunistic time to buy. What. What has driven this.
This kind of, like, boom in activity in the last six months?
[00:18:45] Speaker B: I think there are a couple things. One is, like, 20, 22, 23, we were in this real retrenching that was happening on pricing. You know, every seemingly quarter, you could almost mark assets if you had to when they were going the wrong direction. I think we hit sort of a bottom sometime middle 2024, perhaps it was third quarter, maybe it was fourth quarter. But for the better part of, you know, nine to 12 months now, we've been pretty level on pricing and how people are underwriting. So there's that belief that, okay, I can come back into the market and not lose money immediately. That's part of it. I think sellers have sort of taken note of where the market is. So you've got willing sellers, and then you've got a buyer pool that's saying, all right, it's. Things are vastly cheaper than they were, but they're now at the point where I don't think they're getting worse. And you're able. You're at the point now where you're starting to be able to underwrite some fundamentals in certain segments of the market. And for years, people, their biggest challenge was, I don't know how to underwrite the income. Like, I don't know, just simply the. Where are the tenants going to come from and how much is it going to cost to acquire them? And now tough to get past there. It's pretty fundamental to our business now. There's. Fortunately, there's a lot of data and support in certain segments of the market where you can say, I know exactly what it's going to take to lease this building. And I, you know, a couple of years ago or a year ago, when you asked me to do this, we were getting 1, 2, 3 bids on office assets. I mean, now we're getting 10 to 15 in some cases. And so certainly there's others besides us that have taken note of the positivity. And that's why I Reached out and said, hey, if you still want to do that, I think we'd be much more open to it now.
[00:20:23] Speaker A: 10 or 15 bids. So what's the type of deal that's getting 10 or 15 bids right now? I'm assuming that's not all the inventory. Maybe it is.
[00:20:31] Speaker B: No, it's definitely not.
[00:20:32] Speaker A: But so, so, so what's the type of deal that you're selling into a market where you're pretty confident in landing somewhere in that range?
[00:20:38] Speaker C: Yeah, well, it goes back to the flight to quality comment or question.
I think a lot of people, when they hear the term flight to quality, they assume new construction, shiny buildings. It's not necessarily the case. It's in our minds, it's anything that's differentiated, that's amenitized, that goes back to Real Estate 101. Good. Location, location, location, location.
And unsurprisingly, that all culminates in the buildings that are having leasing success.
So to Cody's point, you know, we've. We've seen enough buildings trade hands, reset basis, and now you can point to those buildings and say, look at all that leasing success they're having.
[00:21:16] Speaker A: Yeah.
[00:21:17] Speaker C: And it makes it a lot easier for the next group to go into their investment committee to go to their board and recommend buying an office asset where that may have been really, really tough 12 months ago.
So it sort of feeds on itself from that standpoint. We're hearing that sort of sentiment coming out of groups that are looking at office, and it's clear when we meet with our clients, particularly institutionally minded groups around the country, that you go into their office, there's direction from the top that, hey, we need to, we need to pay attention to the office sector.
Doesn't mean they're bidding today, but it's a strong indication they will be bidding soon.
[00:21:51] Speaker A: What other metrics do you guys track in addition to leasing demand?
Are there other, like, characteristics for.
At lunch, you had said something in passing. I didn't ask you about it, but like metrics for bodies coming in and out of buildings and stuff like that. Like what sort of stats or data are you guys looking at as a driver of demand at a building that you think will translate into investment demand?
[00:22:18] Speaker C: Yeah, I think post Covid with this hyper focus on bodies in office space on a daily basis, there's been this emphasis on going to a couple different data sets. One of those is Castle Systems, which does key fob swipes.
[00:22:32] Speaker A: Yeah.
[00:22:33] Speaker C: And so they have tracked stats going back to, I would guess 2020 at least. And that Allows you to measure improvement day to day, week to week, etc. There's also cell phone tracking data placer. AI is, is one data set that a lot of people focus on.
I don't think any of these are perfect, but if you look across them and sort of look for the common denominator, what it does show is strong, gradual, ongoing movement back to the office, which aligns with a lot of the headlines you see from big companies and small.
In addition to the fact that we can just feel the vibrancy being out in the market.
[00:23:09] Speaker A: I feel it. I mean, I'm not in and out of a bunch of different office buildings like you guys are, but we're in kind of the southern part, the of. Of river north. And it feels like when you go out to lunch, I mean, Tuesday, Wednesday, Thursday strikes me as like back to what it was kind of before COVID And then Monday and Friday, it feels like maybe there's a little bit of like tourism offset kind of for the folks that are working from home. How do, how do the stats compare with.
I don't know, either compare them to before COVID if that's, if you have a baseline for that, or compare them to, you know, shortly after to show the improvements.
[00:23:43] Speaker C: Since it's very micro location based, I think you use cell phone tracking data in particular and individual buildings. And there are certain buildings that are at or above pre Covid numbers. But if you look market wide, most markets in the country aren't back to those pre Covid numbers, but they are inching towards it more and more.
So it's positive momentum.
You know, unsurprisingly, a lot of the strong activity for buildings centers around those higher quality, better located assets.
But this is all the info that, you know, goes into an offering memorandum, goes into providing somebody conviction that hey, we're seeing gradual improvement. It's a good time to look at the office sector. And it's all backed up by leasing activity too.
[00:24:26] Speaker A: Go ahead.
[00:24:26] Speaker B: I was, I was just going to add one of the sort of elementary stats that people ask us about when we're marketing something is what percentage of this round roll made the decision to be here post Covid.
[00:24:37] Speaker A: Yeah.
[00:24:37] Speaker B: And we're getting to the point now, five and a half years after the start of 2020, that you know, we often have more in a rent roll that's signed recently than it is before.
[00:24:48] Speaker A: Yeah.
[00:24:49] Speaker B: And that's what we've seen in the leasing statistics. You've started to see this leveling off. I mean, we had huge amounts of negative absorption for a few years.
[00:24:56] Speaker A: Yeah.
[00:24:56] Speaker B: When you had all these contractions happening. Now you look at like Cushman Wakefield tracks every tenant in the market and there's 100 plus tenants on that list. And it's, you know, 5 or 6 million square feet. When you total it up, when you look at it overall, it's a very small contraction over all of those tenants. When you looked at it three years ago, it was a 30% contraction. Meaning here's what they have now, here's what they're looking for in the future. Sure. And that's pretty much the simplest way to track demand because you can't start growing until you stop shrinking.
[00:25:26] Speaker A: Seems reasonable. Yeah.
[00:25:28] Speaker B: Those are the kind of simple insights you get.
[00:25:30] Speaker A: You know, he's talking to apartment guy, also an Iowa guy. He needs to keep it real simple. So when you guys think about this period of time, do you think of it as a generational time to buy, buy office assets?
[00:25:43] Speaker B: I don't think there's any question.
I think, you know, I would hate to, to suggest a guess, but I truly think it was 70 or 80% of people in the industry or wrote off the sector a couple of years ago as I don't know if that will ever come back. And now you've seen demand concentrate in certain nodes. You see buildings that are, that are starting to do. I mean, you look at the trophy office just as an example, a trophy office space which is largely in the west loop, that's got a handful of points of vacancy total and rents are, you know, 20 or 30% above where they've ever been before, pre Covid or otherwise. I mean, there's parts of the sector that are undoubtedly going to exist for a long time. Then there's parts of it that are certainly going to exist. You're just not sure exactly in what fashion. Then there's a part of it where there is uncertainty and there's been really good research data put out around that. You know, there's certain assets that are in tougher locations, older buildings, inefficient floor plates, whatever the case may be, where there's just a sort of ongoing debate what the future looks like for those. But is that 20% of the market? Is that you know, 25% of the market?
[00:26:50] Speaker A: Yeah.
[00:26:51] Speaker B: There's still the vast majority of office assets that need to exist based on the demand that's here.
[00:26:57] Speaker A: You agree that it's, it's going to be looked at as a generational time to buy office?
[00:27:02] Speaker C: Absolutely. It goes back to the theme of you have to be very selective today. And if you're focused on good product and good locations.
Back to Real Estate 101.
Absolutely generational. The, the fear and the redlining in the office sector is so significant that there's many much smarter folks than all of us that have said before.
You know, where you see fear, find opportunity.
[00:27:26] Speaker A: Yeah. So what about talk about the stuff that Cody just referenced a little bit of in his answer is like the well located but tired office. You know, I think that gets a lot of talk around the broader real estate community in Chicago and other metro areas. Like where does the. I don't really know how to class office, but the way I think about is probably like C class or like B minus class office that's pretty well located. You know, there's been a lot of people talk about conversion, adaptive reuse, conversion to residential as an option, but only so many of them have the, the building characteristics and the floor plates and such that are conducive to that. And there's just not enough of the audience. It's probably going to do it to, to eat up that 20 or so percent of the market that you referenced. It might represent.
What's your best guess on where that stuff ends up fitting into the market? Is this gonna be a value play once everything else settles in or.
[00:28:19] Speaker B: Yeah, I think what you've seen, take parts of the Loop for example, is a mix of public and private investment to help sort of stimulate some of these redevelopment projects. Sal Street TIFF program is gonna create, hopefully create thousands of apartment units out of millions of square feet of office.
That's sort of the easy one. But it's, it's certainly going to take, it's going to take more of that.
It's going to take flexibility on, on zoning and requirements for, you know, affordability, etc. Because a lot of these buildings just don't lay out well. I do think you'll see some data points at prices levels that allow you a lot of flexibility. Yeah, you know, one of the things that we often struggle with in the sector is we're still largely taxed as if it's 2019, you know, as a sector, as a whole in Chicago. And there's been improvements incrementally in spots. But you know, a lot of times you take three steps forward and then two and a half steps back the next year when you get your assessment.
I think that's something that just the city as a whole is going to have to look at. We're spending a lot of time talking to prospective owners and existing owners about the way they're getting taxed because in some cases it'll be, you know, assess values that are multiples. I mean, six, eight, ten times what they paid for a building.
And I don't think that's sustainable because it also just harms your ability to reinvest, which is what the city needs.
[00:29:43] Speaker A: Yeah. And it's. They're not, it's not just, you know, the, the stereotype, which I think is an incorrect one of the, you know, the rich office owner, you know, the, the landlord sitting there. And you know, it's. It's not like that. It also affects the small businesses that are going into these office buildings. It's not just that, you know, you can look at that as a vacuum is impacting the owner of the real estate. It's the tendency of it too.
[00:30:07] Speaker B: I mean, a lot of. There's a lot of tenants out there that are sort of tenants for class B, quote unquote type office simply from a. That's what it makes sense to pay in our business.
[00:30:17] Speaker A: Yeah.
[00:30:17] Speaker B: And if the only office assets that get significant reinvestment are kind of a minus, trying to be a or a trying to be a plus, then you've just foregone that entire sort of affordable component of the sector. And the real problem is the rents you have to charge to justify some of the costs of doing any sort of construction are such that running those buildings is really tricky. And taxes pay a play a real part of that. They're probably the biggest single part of that.
[00:30:45] Speaker A: Anything to add, Tom? And like, where you see that type of the product fitting in long term, some public private partnership resi stuff, some value shopping and you know, the office world from the tenant demand standpoint.
[00:30:56] Speaker C: Yeah. I think that pricing on some of these assets, particularly the tougher assets and tougher locations, has adjusted so dramatically that it unlocks an ability to really apply creativity and really look at an asset blank slate. Say, what should this be in the future? Now, admittedly, it's tougher to convert assets in the urban core than it is in the suburban market, where you've already seen a significant amount of conversions and redevelopments. Part of that simply, you know, you're not as prone to the NIMBY effect which some of those communities are dealing with, but it's generally more permissible and easier to get some of these redevelopments done downtown. You've got a real ability to unlock creativity.
And we've worked on 10 or 12 deals over the last couple years that had conversion Opportunity, many to multi. That's what's happening. Discuss most often. Yeah, but it's not just multi. You know, we marketed an asset in the West Loop smaller boutique called 170,000ft. We probably saw 10 distinct business plans come through that asset.
100, 100% vacant, sort of a blank slate. Could be self storage, could be experiential retail, could be a hotel, could be multifamily.
It could be scraped for a ground up development. So we're starting to see more of that activity. But I think for assets that aren't viable for conversion, there is going to need to be some level of public support, whether that's what you're seeing with the LaSalle Reimagined program or even continued progress towards more aggressive tax abatement to really incentivize money to come back in and pursue redevelopments for those deals.
[00:32:41] Speaker A: What, in addition to kind of pivoting the, you know, the product type and the use of the real estate in those instances, are there examples of creativity for the office buyer pool and staying office that, that you think are kind of leading the market or, or ideas that are novel today versus, you know, what you saw a handful of years ago when things were, I want to call them easier. But when things where I imagine there was probably more parity from, you know, from one buyer to the next in terms of what their business plan was, I imagine you see a variety. Now there are any examples of just like creativity in office where you're like, damn, that's a good idea.
[00:33:17] Speaker B: Yeah. I think I'll let Tom talk about, you know, some of the amenities and physical improvements that we're seeing. But one of the things that I've been impressed by is how many landlords out there, whether they've reset basis or they've, you know, are working with a lender, etc. Are showing far more flexibility than they used to. If you think about it, when cap rates were super low and not that much different than multifamily cap rates, you wanted every dollar of rent you could possibly get, sort of irregardless of how much in concession it cost you, such that you could create that multiple effect on income. I think now with cap rates in a different spot, you have less of a multiple. What you're seeing is people saying, look, I maybe can't do that in ti, but if we put rents at this level it starts to make sense. And we've seen some folks a bit more collaboration. Yeah, a little bit of, you know, not every tenant wants to pay or in Some cases you have really good existing conditions in buildings. And so some of that concession package was just because that's the market, not necessarily that that was needed. And so, you know, things we've never seen before are, are in great buildings. You know, rents continuing to set new highs in some of the more sort of creative office, lofty style stuff. People saying, hey, I don't need to push rent to this level, I can keep it here, but I need to sort of minimize out of pocket concessions.
And there's tenants for that because those buildings are still in great locations and that's a way that you've been able to serve what I was talking about before, which is that sort of value focused tenant.
[00:34:46] Speaker A: Yeah, nice.
[00:34:47] Speaker C: And I think on the amenity piece, a lot of people spend a lot of time in office buildings and have a sense there's definitely been an amenities arms race in office that far precedes Covid.
But probably the more salient point there, it's not just five or ten year old buildings that are performing well. You do have 70s, 80s, 90s, vintage office buildings that can compete today.
They typically benefit from a really good location. Maybe it's a B building in an A location.
And there's also investment thesis or business plans around that say, hey, I'm going to buy this B building, I'm going to take it to B plus, I'm going to add amenities, I'm going to offer a level of value. To Cody's earlier point, and we are already seeing buildings like that be successful.
So I think there is a level of needing to dispel the notion that it just needs to be shiny and new for it to compete.
And that even extends down to think about 100-year-old creative office buildings, brick and timber assets, where tenants really want the location. The location is the amenity and they want the authenticity of those buildings, which you can't easily replicate with new construction.
[00:35:56] Speaker A: Yeah, I see R2 doing a cool job with that, like leaning into the history of the building, leading into the vintage details and then, you know, kind of embracing that as part of the start the story to the deal.
[00:36:06] Speaker C: Right.
[00:36:07] Speaker A: And it feels like the market gets behind that. I mean I'm not, you know, I'm just kind of on the periphery of that type of market. But I still look at that and it's. There's a cool factor to it that I think probably magnetic. What other, you know, you're talking about kind of the misconception of the shiny new being like the only, the only in vogue type of product right now. What other misconceptions? Whether it's about, you know, the office market and investment sale market specifically, or just about Chicago in general. What.
What are you guys regularly having to debunk?
It's a good one.
[00:36:46] Speaker B: I think the misconception that the. The fundamentals aren't great anyway, like, oh, the fundamentals are tough. It's the Midwest fundamentals are tough. And we have. We talk to our colleagues around the country, you know, on a weekly basis, and when we talk about some of the leasing dynamics that are in play in the West Loop, for example, particularly around the two commuter trains, I think they're. They're shocked at the amount of tenants. I mean, what did we track the other day? 21 tenants in the market over 100,000ft, and 16 of them want to be in the West Loop. I mean, if you have space to lease, that's good quality space, that's a lot of it. Bats almost as many as you'll get anywhere in the country.
So I think that shocks people. And then when you look at pricing, that's retrenched by, you know, 60, 70% off of historic highs, but you've seen demand perhaps 20% lower in those submarkets. It starts to feel like a little bit of an arbitrage opportunity.
[00:37:39] Speaker A: Yeah.
[00:37:40] Speaker B: And so that's a story that the institutional folks that are coming back are thinking about the relative value.
You know, obviously, if you want to. If you want to go for the ultimate safe and secure play, you could either buy trophy office. You can also buy multifamily and industrial. Most people wanting to buy at that sort of.
Most people wanting to buy office are contrarians in nature and saying, yeah, I don't want to produce core, like, returns. I want to get a premium for being one of the first players back in the game.
[00:38:09] Speaker A: But you can still buy really sexy real.
[00:38:12] Speaker B: Yeah, that's. I mean, in. In your sector, in order to get yield premium, you have to go pretty far down the step ladder of quality and location. In our sector, you can buy, you know, maybe not the top 5% of the market, but you can buy that next 10%. So you're talking about, like, the best 15% of the market you can buy.
[00:38:31] Speaker A: Don't talk all my clients away from multifamily. Dude, I need an audience.
[00:38:36] Speaker B: You got plenty.
[00:38:38] Speaker A: Anything for you, Tom. In terms of, like, things that you think about as a misconception about office.
[00:38:43] Speaker C: Or about Chicago, I think it's the fundamentals. I don't mean to be repetitive, but so much of the thought process around investing can be driven by industry, press and what you see out there.
And fortunately, that's what we've seen shift over the last six to 12 months is track articles that were out there 12 to 24 months ago. They were overwhelmingly negative, Talking about tenants downsizing, vacating, putting their space on the market for sublease. That has shifted to a decidedly more positive tone. And I think there's more to that story that needs to be told.
So we're doing our best in our pursuits of new business as well as marketing existing business on really arming ourselves with the data. Everybody's hungry for data. They want to know, where's the leasing happening? How is it happening? What's driving it? And so I would say of my 15 or 16 years in this business, we're far more detailed and data driven than we've ever been.
And the good news is that body of data continues to grow, which just helps provide an investor who might be on the fence about dipping their toe into the sector with a little bit more conviction.
[00:39:50] Speaker B: Well, this is one sort of for you and us, but I think for a while there was the narrative that all kids getting out of school wanted to go back to, you know, Cedar Rapids or Bettendorf or wherever you're from. And look, I think that there's incredible quality of life in some of those places, But I think that there's also a unique offering that you have in any major city.
And I think that's just elevated when you get to the true major cities of this country. And I don't think you have to go back that long ago to where people were really questioning the future of just sort of urban environments in general. Like, oh, would you really graduate from XYZ big ten school and move back to Chicago Post Covid?
[00:40:27] Speaker A: Yeah.
[00:40:28] Speaker B: I mean, that was a real conversation piece. And now if you challenge yourself, you're like, well, whoever thought that, right? I mean, the vacancy levels in apartments are, are at historically tight levels.
[00:40:40] Speaker A: I, I just think that also just the, the livability of the city in general and, you know, the safety of the city in general, I think played a part in that conversation is people saying, you know, they didn't appreciate living in an urban environment. They weren't, they weren't appreciating going to concerts, taking public transportation, going to a busy bar, going to a, you know, a home game of a professional sports team when you don't appreciate those things. You know, there weren't as many restaurant openings, bar openings. You don't appreciate Those things, you're not going to appreciate the city in general as much. So then there was more similar. You know, there was. They were saying, I could go to these secondary markets. I don't know if they were saying, you know, decide to go to Bettendor over the cross cities or, you know, that. Because that's kind of different. That's like, that people like to live there for different reasons and stuff, which I appreciate and I love it. But, you know, like, there was just. Chicago didn't have as much of a leg up against some of the other secondary Midwestern markets. And now those things, I think we're reappreciating. And I think that the safety, living in the city, raising my kids in the city, it has improved. And it's also, you know, we're not putting a magnifying glass on every single thing that happens. You know, of course, if you have a Slack channel and find out that every tiny thing that happens in your neighborhood, every package that was stolen, it feels like death by a thousand paper cuts, you know, but then if you're not as, you know, like, sensitive, if you're, you know, not measuring every tiny little thing, then you appreciate all the good. Like, look at all these. You know, there's also a lot of people in the city. Things happen. So anyway, do you think so to.
[00:42:14] Speaker B: Me, we have a lot of.
My concern is we have a lot of things that continue to push the city forward.
And whether it's, you know, the culture, the sports teams, the restaurants. I mean, you mentioned the whole list. And then you can add to that list public transportation, the ability to get to work without having to sit in traffic, diversity. There's a ton of things that drive Chicago. What I hope, though, is that we don't take those things for granted. And it gives you license to sort of take your eye off the ball of giving people that quality of life.
Because I think that there, there are things that still feel a little bit different when people visit Chicago versus maybe the way it felt in 2017, 18, 19. Yeah, so that would be the kind of sort of counter to that, is it's working well, but that doesn't mean you can take it for granted. You still have to work on it.
[00:43:01] Speaker A: I agree, and I think it's well said. And I. Tom, I got my eye on the clock. I know you got a call in a few minutes. We're going to wrap in a second. But on that point I agree. But. But I feel like a little bit of a shift in the.
I don't Want to say political. I don't think it's translated yet into who's in our elected offices around the city.
But I just think that there's a desire to kind of moderate and an appreciation that. To do some of the goodwill, kind of like philanthropic type initiatives that we want to promote. And it's part of living in a city and it's part of having diversity, which, you know, you can't do that without having a vibrant economy. You can't do that without having a really balanced business community with all these different industries that we've taken for. We've taken for granted. I mean, Chicago has probably the most balanced economy in the country in terms of like different. Different industries that are here with a significant presence.
But we can't do the things that, you know, give back without having a bread bat, you know, without having an economy, without having money.
So can't drive away the citadels of the world, you know. So I'm hopeful as well that there's a shift in the sentiment that we're not adversaries with folks that have kind of a far less far left agenda. It's like we can, you know, we can do some of those things. Those things are good for the betterment of the city, but it's going to take money and you get money. You can't tell everybody to f off. That's making money. It's not the way it works.
[00:44:29] Speaker B: So it's sort of the human experience. Experience in a nutshell.
[00:44:31] Speaker A: Yes.
[00:44:32] Speaker B: Here's all the things that we want to do and here's the realities of how we pay for it and that balance. You have to have equilibrium.
[00:44:38] Speaker A: It's like it's your life too. You gotta make some money, have some fun. So we'll wrap with. We just kind of talked about why we love Chicago.
Why don't we wrap with a piece of advice that you guys, I mean, I think a lot of folks correctly, would see you guys kind of sitting at the top of the brokerage world selling some of the coolest real estate in one of the biggest cities of the country.
Billions of dollars of volume. So what's a piece of advice you'd give somebody starting in real estate to get started or to propel their career to the next level?
[00:45:12] Speaker C: Go ahead, I'll kick it off. And I think it's tried and true advice. I'm not going to claim this as anything overly innovative because we referred to it earlier, both of us, and I'll speak for myself, really came down to having a mentor that, that Cared about where you were at In a year, five years, 10 years.
[00:45:29] Speaker A: Yeah.
[00:45:30] Speaker C: And then it's really just investing yourself in this business.
This business, more than most, is exceptionally social, if you want it to be.
It's exceptionally diverse. There are a ton of resources. One of the things I enjoy about being at a large brokerage company is you can find expertise and data for just about anything under the sun. You just need to know where to go to look. So, you know, I would broadly define that as being resourceful. And I think that plays in this. This industry.
[00:45:59] Speaker A: Yeah, I like that.
[00:46:01] Speaker B: I would say, and I just wrote down a couple notes, but primarily, just be yourself. You know, I think there's a lot of ways to work in this industry, but I think that trying to conform to the way that others do it, everybody does it a little differently. You know, Tom and I had the great fortune of watching a guy named Jack McKinney come to the office every day until he was in his 80s or almost 80. And Jack wore a suit and tie, looked fantastic every day. A lot of times you'll find Tom and I in golf shirts, you know.
[00:46:33] Speaker A: But this is video.
[00:46:37] Speaker B: But just be yourself and embrace who you are, and then I think, you know, know what your strengths are. In football, we called it self scouting. You know, you'd kind of watch your own tape to understand how others would attack you. Well, self scout yourself as a real estate professional. Figure out what you're good at and figure out where you need work, and then surround yourself with people that are good where you aren't. Which I think is the nice thing about Tom and I's partnership. Tom's incredibly detail oriented, and I try to be detail oriented.
[00:47:05] Speaker A: That's awesome, man. I love that.
We're gonna wrap Big Time Brokers. They've got a call, obviously. So thanks for making the time to do it, fellas.
I think people probably gained a lot of know about what's happening actually, in the office world, as opposed to, you know, what? They read about a Wall Street Journal headline one time or something six months ago. So thanks for. Thanks for taking the time.
[00:47:27] Speaker B: Absolutely. Thanks, Joe.
