COVER STORY, JANUARY 2007

REDEVELOPMENT RUNDOWN
Developers are finding that repositioning older buildings can breathe new life into a redevelopment.
Kevin Jeselnik

For older buildings in competitive urban office markets, retaining and attracting tenants is often a demanding task. With a constant flow of newer space, typically laden with modern amenities, coming online, owners of existing facilities have to constantly fight to update their properties and deliver high-quality space to tenants. When some older buildings become obsolete or lose a majority of their tenants, the best option is to redevelop or extensively renovate the facility. The redevelopment process can revitalize a static environment and open up new possibilities for the property.

One new trend being embraced in major commercial markets, and specifically in Chicago, is the repositioning of existing office buildings. Owners are finding that, in order to generate interest from an array of prospective tenants, it is beneficial to maximize the potential of their property by offering a variety of uses and amenities. “Owners of older buildings are figuring out ways to reinvent themselves, and position the buildings in a way that attracts not only office users, but retail and even residential users,” says Rick DuPraw, senior vice president of the interiors group for Hoffman Estates, Illinois-based Leopardo Construction Group. “They are exploring a multitude of possibilities to bring in a variety of tenants across different sectors.”

A repositioning may only entail new paint and flooring to make a facility more attractive, or an owner may choose to completely gut and renovate the interior. To remain competitive in the current market, though, most efforts must include modernizing a building’s technology and data infrastructure, as well as upgrading all safety and security systems. Right now in Chicago, there are a number of significant properties being repositioned as a means of remaining viable and building for the future.

Sullivan Office Center and One South State

The intricate ironwork of Architect Louis Sullivan’s signature Carson Pirie Scott building in Chicago is one of many historically significant exterior components that owner Joseph Freed & Associates is restoring or reconstructing during the building’s redevelopment into a $1 million-square-foot mixed-use center.

In 2001, Joseph Freed & Associates acquired the Louis Sullivan-designed Carson Pirie Scott building, a landmark historical property completed in 1903 and located at 33 S. State Street at the corner of State and Wabash Avenue, from retailer Carson Pirie Scott. The seller leased back a large portion of the building, at which it has operated a flagship department store for decades, while Freed began planning extensive redevelopment efforts for the available space within the 1 million-square-foot property.

The first phase of the redevelopment process was completed late in the summer of last year with the opening of The School of the Art Institute of Chicago’s space on the 12th floor. The school leased 58,000 square feet for administrative offices and to house its architectural school of design. The major user that took occupancy in the first phase of the office component was the Illinois Department of Employment Services, which moved into the building in 2004. Also finished this past summer was the major exterior renovation work, which included the complete restoration of the terra cotta facades and the reinstallation of the ornate cornice that wraps around the 12th floor of the building at the corner of State and Madison. The original cornice work was removed and destroyed in the 1940s, so Freed and its design and construction partners completely recreated the cornice from scratch, says Norris Eber, a senior vice president with Freed and a senior project manager for the redevelopment. “We have worked closely with Carson and the city of Chicago on rejuvenating and restoring the building’s historically significant exterior,” he says.

Inside the building, the developer completely gutted the office space, which covered the eighth through the 12th floors, with Carson’s department store still occupying the first through seventh floors, as well as a lower level. “We removed all the old systems —mechanical, sprinkler, electric — and all of the partition walls; everything in the building is brand new, whether it’s the heating and cooling system, the lighting or the bathrooms,” Eber says. “We like to say that the interior is Class A and the exterior is Class A vintage.”

The second phase of the project is taking shape now and will incorporate the recapturing of approximately 400,000 square feet of office space and a 250,000-square-foot retail complex. Once the redevelopment is complete, the project will comprise two distinct components: the 750,000-square-foot Sullivan Office Center and One South State, the 250,000-square-foot retail space.

Carson Pirie Scott is closing down its operations within the building as it focuses on expansion into other Chicago and Midwest areas. After it vacates its space in or around March, Freed will begin its major renovation of the remainder of the space.

“We are sad to see Carson leave,” Eber says. “However, we are working very closely with the city regarding our efforts to reposition the buildings to support State Street, which is a very important commercial boulevard for Chicago.”

The third through seventh floors of the department store will be converted to Class A office space, with completely new systems and amenities similar to those put in to the space now occupied by the Art Institute and the state. Freed has been working with Chicago-based HSA Commercial Real Estate on the leasing of the office space since the project’s inception. Dan Miranda, president of HSA, is more than a little energized by the Sullivan Center’s prospects for attracting more office users.

“We are excited to be recapturing approximately 400,000 square feet for office use,” he says. “We have a good base tenancy in place now and good momentum, and now we have more space to bring to the market to satisfy some larger and mid-size users.”

Part of the repositioning process involves identifying a unique mix of tenants to which one can market the property. The leasing team has already had great success with institutional and civic tenants, and sees the new space attracting more of the same, as well as architectural, engineering and financial companies.

“The building has very large floorplates that offer us a little marketing advantage in the downtown area,” Eber notes.

“[The large floorplates] allow tenants the ability to incorporate multiple uses in one space,” Miranda adds. “Increasingly, you are seeing blended tenancies, where users have varied operations occurring under one roof.”

The project is well underway and several prospects are in discussion for the office space, while Freed is targeting two or three large format retailers to anchor One South State, which will cover the first and second floors, as well as the building’s lower level. “There are certain challenges, because of the historical nature of the building, with retail signage,” Eber says.

Challenges aside, this landmark building is being positioned for a strong future. Retail tenancy is expected in 2008, though Eber says there is hope that a portion may be ready by this Christmas; the new office space will be ready for occupancy by mid-2008.

CNA Center

The John Buck Company, Leopardo Construction and Powell/Kleinschmidt Architects are tackling the $60 million repositioning of the CNA Center in Chicago. Many owners of older office properties are repositioning their buildings for multiple tenants or mixed uses to attract new occupants.

DuPraw, with his firm Leopardo, is currently working on the repositioning of another prominent piece of the Windy City skyline, the CNA Center on South Wabash Avenue and East Van Buren Street. The striking red tower has been home only to business insurer CNA Insurance since it was built in 1972, but the company has streamlined its operations and no longer takes up the entire building. To continue residing in its namesake property in an economically feasible manner, CNA enlisted The John Buck Company, Leopardo and Powell/Kleinschmidt Architects to handle a $60 million repositioning of the 44-story, 1.3 million-square-foot tower into a multi-tenant property with more than 250,000 square feet available to new tenants on 15 floors.

Leopardo first converted the buildings lobby to one that is suited for multiple companies, pushing an existing glass curtain wall back approximately 50 feet, and putting in all new marble and stone pieces. The building also had all-new mechanical and engineering systems installed, as well as new escalators, a health club and a conference center. Almost immediately after beginning the renovation, CNA picked up a six-floor tenant when the Chicago Housing Authority decided to consolidate its operations into the tower.

“I think you are going to see this more frequently now in older buildings,” says DuPraw. “The same type of repositioning may occur in the future at the 52-story IBM Plaza at 330 North Wabash Avenue.” With law firm Jenners & Block moving from the building into a new tower, IBM will have a major block of space coming online. The owners have already begun some work on the building and may enact many changes similar to those at CNA Center, including a health club and a conference center. Some older buildings have even looked into converting vacant office space into residential units as a means of drawing revenue and occupants.

The Brewery Stirs Up Milwaukee Real Estate Community A conceptual rendering of a plan for the creative use of one of The Brewery’s buildings formerly used as a brewing/tank facility The historic Pabst Brewery in Milwaukee, which was built originally as the Jacob Best Brewery in 1844, has been waiting to be redeveloped since its doors closed in 1996. WISPARK, a subsidiary of Wisconsin Energy Corp., sold the 20-acre site to local developer Joe Zilber of Zilber Ltd. in August after its proposal for a $40 million tax increment financing district was denied. In December, the common council voted unanimously to award Zilber approximately $29 million in city financing for his development plan. The first phase should begin in January and will include some demolition, environmental cleanup, construction of new streets and other public improvements. Zilber’s plan calls for an expansive mixed-use neighborhood called The Brewery, which will incorporate significant residential, retail and office components within the property’s 1.6 million square feet existing buildings. According to Mike Mervis of Zilber Ltd., the unique nature of the facilities offers great creative freedom to any developer that chooses to purchase any of the buildings. “I can say this with absolute certainty: there are no two buildings that are even close to being the same,” he says. The site is located in the northwest corner of downtown Milwaukee at the intersection of Interstate 43 and McKinley Boulevard, covering 6 square blocks. Approximately 90 percent of the 26 buildings are designated as historic. In the first phase of development, four of those buildings will be demolished, as will an assortment of storage sheds, crosswalks and other structures. The buildings will be sold to individual developers to construct and finish the end product. Gorman and Company of Madison, Wisconsin, plans to develop a 90-unit, loft-style residential complex within the former Pabst keg house overlooking McKinley. Other uses being discussed by potential buyers include office space with a bent towards creative tenants such as advertising agencies, and retail and entertainment destinations. There are major discussions underway to put a restaurant and lounge at the top of the site’s grain elevator, the highest point in downtown Milwaukee. The buildings will be offered to end-buyers free of any environmental issues. WISPARK completed an extensive environmental analysis of the property and Zilber plans to complete all remediation in the first two phases of development. The project is also aiming at a remarkable level of sustainability, as it is attempting to participate in the U.S. Green Building Council’s LEED ND pilot project, which is for neighborhood design and sustainability. “We are working on very advanced sustainability components, including some sophisticated groundwater management techniques,” Mervis says. “Joe [Zilber] wants this project to be his legacy,” he adds. “His desire has always been to save as many buildings as possible.” As the team has begun to market the property, it has found that interest is greatest in some of the buildings that will need the most work, the brewing facilities featuring tanks. Potential buyers that have historical renovation experience can take on these high-risk projects and severely reduce cost and risk through their experience and expertise. Many of the buildings with tanks don’t have traditional floors, but steel structures used to elevate and support the tank systems. There are many unique concepts being propose that will utilize this as an advantage instead of balking at the challenge. The project promises to provide Milwaukee with a collection of one-of-a-kind concepts. The construction and redevelopment of buildings is scheduled to start mid-year, with sell-out in 3 to 5 years and completion of The Brewery tentatively set to occur in 4 to 6 years. “The key to historic renovation is knowing how to handle delicate and fragile material as you go about the restoration,” Mervis says. — Kevin Jeselnik