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Aug 22, 2019

Posted on
Dec 06 2016

On October 12, 2016, Curt Bailey, Nick Anderson and Michael Ellch of Related Midwest hosted the Kellogg Real Estate Club at their River North office. The day included an overview of the company, a discussion of the exciting projects in the works, a case study of a particularly innovative redevelopment, and a tour of one of the firm’s most successful residential buildings.

One Bennett Park
Mr. Bailey, President of Related Midwest, began the morning with an overview of One Bennett Park, a project currently under construction in Chicago’s Streeterville neighborhood that embodies the firm’s “best-in-class” mentality. The nearly 10-foot-tall illuminated model, housed in the sales office, immediately conveys the monumental scale of this luxury residential tower. Designed by “starchitect” Robert A.M. Stern, the building will set a new bar for both condo and apartment living in Chicago.

One Bennett Park employs three key initiatives, which were emphasized throughout the morning as being essential to Related’s ability to achieve some of the highest prices in the city:
  • Lifestyle Design: The building’s residences are designed for the way people actually live. Formal living and dining rooms give way to large kitchens that truly function as gathering spaces, and the adjacent park accommodates the “daily activity of urban life” and the city-dwelling couples with children who will choose to live here.
  • Differentiation and Innovation: “Everything in Chicago is the same. This building is very different,” said Bailey. Aside from a limestone façade, an asymmetric design, and other architectural differentiators, the deal’s structure is innovative: financing kicks in after selling a few units so prices can increase for the majority of units sold later, and a hybrid arrangement allows for short-term returns from the sale of condos and a long-term revenue stream from retaining ownership of apartments.
  • Execution and Track Record: Building a tower that is 850 feet tall and 75 feet wide requires a 5-story “tuned mass damper,” which is essentially a giant bath tub that keeps the tall, thin building from excessively swaying in windy Chicago. Related is well suited for this sort of project because it not only demands technical execution, but also execution in terms of efficiency and timely delivery to help absorb significant costs.

OneEleven Case Study and 500 Lake Shore Drive Site Visit
Vice President of Acquisitions and Development, Nick Anderson, followed Bailey’s presentation with a case study of OneEleven, a distressed property that was abandoned during the recession and acquired by Related in 2011. Over the course of two years, Anderson and Related transformed a 25-story concrete shell into a 60-story luxury residential tower that shattered the record for a multi-family building sale in Chicago. From the start, Related leveraged its track record of reliability and execution to acquire the building at a significant discount to other bids. Innovative financing gave creditors ownership in the project and helped resume construction. Finally, differentiated design from Handel Architects created a unique offering to the market and contributed to rents in excess of $3.50 per square foot.

Our morning concluded with a site visit to 500 Lake Shore Drive, led by Michael Ellch, Vice President of Development. Ellch elucidated the numerous details factored into the development of a Related residential building and explained why each matters. Emphasizing that every building is designed for the way people live, Ellch spoke of the building’s circulation and how blueprints were shared with property management early on to ensure that operations could be conducted efficiently without compromising the resident experience. While touring the amenities floor, Ellch led us through the Equinox fitness center, a branded amenity that differentiates Related in the Chicago rental market.

Although OneEleven has been a success by any yardstick, Ellch left us with the hindsight that, “you don’t always get everything right. You’re making so many decisions that something is inevitably missed. But you learn from each ‘mistake’ and get better and better.”

Market Trends and Advice
Throughout the morning, Kellogg students had the opportunity to ask the panel for their thoughts on the Chicago development market. Below are some insights:

  • Multifamily: Within the multifamily development cycle, there are still specific areas of opportunity. One such area is the segment to which One Bennett Park caters. “Compared to Boston, San Francisco, and New York, Chicago’s prices are very low,” noted Bailey, and he sees great potential to significantly drive prices upward by capitalizing on the changing habits of empty nesters and millennials, and delivering premium residences. Bailey explained that instead of a buyer paying $1000 per square foot, and then adding three years of stress and likely $400 per square foot renovating a condo to suit the family’s needs, a buyer can pay $1200 per square foot to live here, stress free.

  • Market Downturn: Bailey also shared that analysts love to see signs of a market downturn, but that he doesn’t see any of the same metrics as 2006. With recent acquisitions of the “Spire” site (a prime lakefront parcel home to the failed development of a Calatrava-designed, ultra-tall residential tower) and a 62-acre site south of the Loop (envisioned to be Chicago’s version of Hudson Yards), the company certainly believes in the near- and long-term future success of quality developments in Chicago.

The panel also shared their thoughts on attributes of successful developers:

  • Patience: “You need patience in this business,” said Bailey in reference to One Bennett Place, which will take three years to build and nine years to reach maturity.

  • Analytic Skills: When hiring, Related often looks to banking, which is where Anderson built his career before joining the company 10 years ago. Having the analytical abilities to understand and assess deals, especially the complex deals in which Related excels, is critically important to a successful development.

  • Networking: Establishing relationships, “especially in a city like Chicago,” is critical, said Ellch, who previously worked for a developer in Philadelphia. He noted that in New York City, once you buy a parcel, you essentially know what will be built because of the constraints of adjacent buildings; in Chicago and Philadelphia, it takes a lot of meetings and approvals to work out what can be done.

About the Author

This article was written by Raul Tamez '18.