Among the hottest commercial real estate projects being developed in central business districts (CBDs) across the Midwest are mixed-use and multifamily projects. In most cases, empty nesters are driving this trend by selling their large homes in the suburbs — opting instead for low-maintenance apartments or condominiums in the city. In some cities, such as Milwaukee, retail and office developments are on the rise to meet the demands of residents moving into the CBD. Developers are also tending toward redevelopment projects, especially of historic properties. Heartland Real Estate Business has provided an overview of various projects in four cities to show a sampling of the hot developments currently underway or recently completed in the CBDs.

Chicago

The Lakeshore East Development Group, a partnership between Magellan Development Group and Near North Properties, is developing The Lancaster, a 29-story condominium tower at Lakeshore East in Chicago.

In Chicago, Lakeshore East Development Group (LEDG) — a joint venture between local firms Magellan Development Group (MDG) and Near North Properties — is developing Lakeshore East, a mixed-use project located in the heart of the Windy City’s CBD. “The site is special because it is approximately 28 acres of land located right where the Chicago River meets Lake Michigan,” says Joel Carlins, president of MDG.

The site is part of the Illinois Center Development (ICD), an 83-acre, mixed-use urban development project that was started in the early 1960s. The ICD is one of the largest urban mixed-use developments in the country, and it includes projects such as the AON Center and the Illinois Center. The Lakeshore East site, which was originally planned to be an extension of the ICD project, remained undeveloped and instead consisted of a par three golf course and a driving range.

The land remained undeveloped because the previous landowners, Metropolitan Structures and The Whitman Corporation, did not want to divide up the land. “They had a number of developers who wanted to buy one or two parcels, but they wanted to keep the property intact,” Carlins notes.

Carlins and Jim Loewenberg, president of Near North Properties, approached the landowners about purchasing the site 5 years ago. “We closed on the land in June of 2002 — after working with the city for about 2 and a half years through the zoning process,” Carlins says.

LEDG hired Skidmore, Owings & Merrill to develop a land plan for the project, which has been approved by the city. The approximately $2.5 billion project has been zoned and approved for 9.7 million square feet of floor-to-area ratio. Of that total space, the site is zoned for 4,950 residential units (either rental or for-sale), 2,000 hotel rooms, 2.4 million square feet of office space and 250,000 square feet of retail space. The plan also features a number of what Carlins calls parkhomes, which are residential units similar to stacked duplexes and triplexes; a 6-acre park, called Harbor Park; and an elementary school that will accommodate 400 children — the city’s first public school to be located in the CBD.

“Right now, it is the largest urban, residential project in a major city in the United States,” Carlins explains. “In addition, 45 percent of our total plan is open space, and we have positioned the parcels to take advantage of the various views of the river, the lake, Grant Park and the city off in the distance.”

LEDG is developing the entire project, except for a parcel of land that will be developed into multifamily units by Archstone Smith & Company. LEDG also is co-developing a luxury high-rise condominium building on one parcel with LR Development.

“[LEDG] will build Harbor Park, and then we will dedicate it to the city,” Carlins explains. “We are donating money and the land for the school, but the Board of Education will develop the drawings for the school and have the right to develop the school.”

During the first phase of Lakeshore East, LEDG plans to build the park, the infrastructure (utilities, sewage and roads), the elementary school, a retail center, the first rental project, two condominium buildings and the first 30 parkhomes surrounding Harbor Park. “We want people to feel like they are living in a completed project and, then, whatever we would build would be like somebody building down the street,” Carlins says.

Carlins’ concept for the project is to build a village that features a variety of architectural influences. For example, Loewenberg, who is also an architect, is designing two of the residential communities. LEDG has also hired KMD & Associates to create a Tuscan-like retail center, which will be approximately 75,000 square feet. “We wanted the retail to be very innovative and to have [a European] feeling because it is built into the side of a hill,” Carlins says. “It has the opportunity to have several restaurants with terraces overlooking the park.”

The entire project, which is scheduled for completion in 12 to 13 years, should attract plenty of new development to the area. “I think the suburbs have gone as far as they can go,” Carlins notes. “There is a reverse trend for people to come back into the city, and overall, I think the CBD is faring much better than the suburbs.”

Kansas City

MC Lioness recently completed the first phase of Cathedral Square, a 130,000-square-foot office building and 880 parking spaces, in Kansas City, Missouri.

Kansas City, both on the Missouri and Kansas sides, is a growing metropolitan area that spans more than 144 municipalities in 11 counties. Even in today’s limited office market, office growth is taking place in the CBDs, says John Yacos, vice president of development and governmental affairs for Kansas City, Missouri-based MC Lioness Realty Group. The company is jointly owned by DST Systems, Financial Holding Corporation and Kansas City Life Insurance.

In downtown Kansas City, Kansas, MC Lioness recently partnered with the Unified Government of Wyandotte County/Kansas City, Kansas (UG/KCK), and the Board of Public Utilities (BPU) to create a new development on an entire city block stretching from 5th Street to 6th Street between Minnesota Avenue and State Avenue. MC Lioness served as the project manager for a group of local investors in the public/private partnership.

The project included partnering with the UG/KCK to build the 148-room Hilton Garden Inn and to renovate Reardon Civic Center. MC Lioness also partnered with the BPU to develop a new 100,000-square-foot office building to serve as the BPU’s headquarters. The UG/KCK and the BPU also were MC Lioness’ partners in the development of a 485-car parking garage to serve the hotel, the civic center and the BPU building. The $32.2 million project was completed in September 2002.

The company also has several projects underway in Kansas City, Missouri. For example, it recently completed Phase I of Cathedral Square, a project consisting of two office buildings and an underground parking garage.

During Phase I, MC Lioness developed a 130,000-square-foot office building — that was built to look like a historic train station — for Kansas City Southern (an independent transportation company that is composed of four primary railroads). MC Lioness also has completed 880 of the 1,400 spaces in the underground parking garage. Phase II of the project will involve building a 170,000-square-foot office building and completing the parking garage. “We will start work on the second phase when the office market rebounds,” Yacos notes. The construction cost for Phase I of the project was $55 million.

MC Lioness also has demolished the deteriorated former Howard Johnson hotel that was located on the northwest corner of the downtown loop. However, the company saved the 270-car parking garage that was located underneath the hotel to be used as an interim parking solution for the surrounding area. “The site is a premier location for an office building,” Yacos says. “When we come back to build a new office building on that site, also when the office market rebounds, we will demolish all of the parking and build 1,500 to 2,000 parking spaces depending on the size of the building.”

In another public/private partnership — with the Downtown Council of Kansas City, Missouri; the city of Kansas City, Missouri; the Kansas City Metropolitan Area Philanthropic Community; the Missouri Development Finance Board; and the Kansas City Public Library — MC Lioness is redeveloping the former First National Bank building into the new Kansas City Central Public Library. The historic bank building, which was built in 1904, has undergone two expansions: one in 1925 and another in 1961.

During this $40 million redevelopment, MC Lioness is adding a fifth floor to the existing 160,000-square-foot structure and building a 480-car parking garage across the street to service the library and surrounding area. The library and garage are scheduled for completion in the first quarter of 2004.

According to Yacos, there has been a renewed interest in the downtown area, not only by the city, but also by private businesses and residents. For example, several years ago, voters in Kansas and Missouri voted for a one-eighth-of-a-cent sales tax to raise $120 million of the $250 million needed for the renovation of historic Union Station. The project is now a bustling entertainment destination that offers a science center, movies, shops and restaurants.

Property owners in the CBD also recently voted in favor of a Community Improvement District that serves to improve the urban core. “We have 40 ambassadors out there cleaning the streets, giving directions and just making sure that folks are doing the right thing,” Yacos says. “Property owners have such a commitment to the urban core that they have taxed themselves to add these types of services.”

According to Yacos, the CBD is continuing its resurgence. The office market, while soft because of the economy, has been successful in retaining corporate headquarters due to its central location in the heart of the metro area. In turn, the office and civic commitment to downtown has spawned pent-up demand for residential units. “Our downtown is on its way up,” Yacos says.

Milwaukee

Downtown Milwaukee is about 1 square mile in size, and it boasts a daytime workforce of nearly 70,000 people. According to the city’s Urban Development Manager, Dan McCarthy, the CBD serves as the corporate and cultural capital for the state of Wisconsin.

However, in order for Milwaukee’s downtown to remain successful, it has to be seen as the premier business address, the premier cultural and entertainment area, and the premier residential area as well, McCarthy says. “During the last several years, we have had significant advancements and investments in all of those areas.”

For example, the development of multifamily properties (both rental and for-sale) in downtown Milwaukee has been on the rise for the past several years. Since 1997, nearly 1,520 multifamily units have been completed in and around the downtown area at a development cost of about $230 million.

“We have about another 1,300 units currently under construction at a development cost of about $203 million, and we have about another 1,000 units in the planning stages that we estimate will be another $200 million worth of investment,” McCarthy explains. “The downtown population in 1990 was somewhere around 9,000, and it has grown to about 13,500 today.”

In line with other cities across the country, the multifamily market in Milwaukee is being fueled by empty nesters (who are moving away from the suburbs and into downtown), and by corporate executives who have relocated to the area. In addition, young professionals also are helping to provide demand for multifamily units.

In response to this growing downtown population, the city has also experienced an increase in the number of retailers locating in the CBD. For example, Borders Books & Music, Linens ‘n Things, T.J. Maxx and Starbucks Coffee are all new to the area.

The office market in the Milwaukee CBD has also started to pick up. “The downtown office market has been slow during the past several years, but we have seen a very significant turn around in that market,” McCarthy says.

For example, Joel Lee, president of Van Buren Management, is developing Cathedral Place at Jackson and Wells streets. The mixed-use development will include 200,000 square feet of office space, approximately 30 condominiums, 25,000 square feet of retail space and a 940-car structured parking facility. The $52 million project is scheduled for completion this fall.

In addition, Irgens Development is developing 875 East Wisconsin, a 200,000-square-foot office project that is scheduled for completion in December. “Roundy’s, Inc. is moving its 500 employees and its corporate headquarters from the suburbs to this building,” McCarthy notes.

The city also has made strategic investments, and those have tended to be in historically significant properties. For example, the city partnered with Milwaukee-based Ivory Tusk LLC to redevelop the ASQ Center, which was one of the original Gimbel Brothers department store buildings. The $57 million redevelopment was completed in 2001, and it now features a Borders Books & Music and Marriott Residence Inn.

McCarthy expects downtown’s newfound popularity to attract even more development to the area. “The perception of downtown is so positive now, and that type of momentum is very powerful in terms of development and redevelopment,” he says.

St. Louis

The Liggett and Myers/Rice-Stix Building in St. Louis, which was listed on the National Register of Historic Places in 1984, has been redeveloped into the Merchandise Mart Apartments. The project features 213 multifamily units.

New Orleans-based Historic Restoration, Inc. (HRI) recently redeveloped the Merchandise Mart in downtown St. Louis into a 213-unit multifamily project now known as the Merchandise Mart Apartments. Through an invitational request for proposals, HRI hired St. Louis-based Clayco to provide construction services for the project. Besides creating a heightened sense of community in downtown St. Louis, HRI and Clayco have also provided a hip place for downtown living on Washington Avenue.

The building, which was built in 1888 by Liggett and Myers Tobacco Company, was designated a city landmark in 1979 as “The Mart.” In 1984, it was listed on the National Register of Historic Places as the “Liggett and Myers/Rice-Stix Building.” Because of its historical significance, the $47 million project was partially funded by tax-exempt bonds, low-income housing credits, and federal and state historic renovation tax credits.

“When we looked at the Merchandise Mart, we wanted to find a way to turn it into multifamily housing,” says Ron Silverman, vice president and regional manager in HRI’s St. Louis office. However, the seven-story, 340,000-square-foot building presented some unique challenges. For example, it had an abundance of elevator shafts and an open floor plan with minimal partitions.

To make the building acceptable for multifamily units, Clayco removed a core section of the building and built an indoor atrium from the ground floor to the roof. The company also removed the existing elevator shafts and built new shafts in a central area of the building. “Now, there is a ring of apartments that face the interior atrium and a ring of apartments that face the exterior of the building,” Silverman explains.

Clayco also constructed an amenities level on the roof of the building, which features an open skylight that shines down through the atrium, a large patio with a water feature, an entertainment room, a bar room and exercise facilities. The redevelopment also included the construction of an 83-car, underground parking garage.

According to Frank Cipolla, project director for Clayco, the building had a lot of potential. “The building structure itself was very stable and very intact for its age,” he says.

The design for the redevelopment takes into account the original design of the building. For example, the brick archways, and original supports and window casings have all been left intact. The building also features high ceilings, hardwood floors, exposed brick and expansive windows. There are even 37 different floor plans to make the best use of the available space.

In addition to the multifamily units, the Merchandise Mart Apartments features 10,000 square feet of retail space on the ground level. “We have a restaurant called Kitchen-K that is operated by a local restaurateur,” Silverman says. “The other retail space is a high-end men and women’s clothing store that also features a martini bar. It is an unusual concept for the Midwest, but we are very excited about it.” Also, as part of its goal to create a sense of community, HRI recently developed a Renaissance hotel and conference center across the street from the Merchandise Mart Apartments.

Many cities are seeing increased development activity in their downtowns to support the number of people moving from the suburbs into the city. While new multifamily, office and retail projects are popping up in these CBDs, historic rehabilitations are also gaining favor among developers and residents. As a result, downtowns are once again becoming vibrant places to live, work and shop.

©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.