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Jun 26 2012

A Policy Assessment for Commercial Office Development in Evanston, Illinois

Students in Professor Therese McGuire’s Real Estate Lab advise Evanston city officials on potential policy actions to encourage use of undeveloped and underdeveloped land

By Daryl Quick '13

On March 14, 2012, Kellogg students Kevin Bell, Kevin Heckman, Marcio Silva, and Ben Wilmoth addressed Evanston city officials with their policy findings on the encouragement of local office development in a study sponsored by Evanston Inventure, a non-profit economic development organization dedicated to the long-term economic health of Evanston. The study’s purpose was to assess the viability of further office development in Evanston and how the city might encourage that development in order to increase the property tax base and economic activity.

The students noted several features of Evanston that might attract commercial office tenants, including Metra and CTA access, vibrant local commercial activity, high quality of life, convenience to the North Shore communities, hospital proximity, and young professional talent from Northwestern. They also noted perceived drawbacks to office location in Evanston, including difficult access (with poor east-west traffic arterials), limited high-cost parking, and higher taxes and occupancy costs than other suburban communities in the Chicago area. To illustrate the accessibility and cost issues, a comparison was made to the West Loop, where office space can be rented at a similar price point, but which has immediate expressway access.

Market conditions in Evanston point to reasonable development potential. The 10 largest office buildings in Evanston have approximately 90% occupancy, are predominantly locally owned, and tend to have 1-2 primary tenants. What is lacking is the presence of national and regional firms. Of the tenants in those buildings, 70% occupy less than 2500 SF, and 85% occupy less than 10,000 SF. The problem that this signals, explained the students, is that the highly aggregated tenant mix makes it difficult to meet preleasing requirements for development financing.

The students identified six underdeveloped lots which they believed were ripe for new or re-development. They tended to be sites with somewhat smaller footprints that would be ideal for a smaller office building without an anchor tenant.

For attraction of tenants, the student recommendations focused on strategic segmentation, marketing, grassroots demand generation, and simple but proactive regulatory measures to streamline the development process.

The students recommended targeting tenants that would covet Evanston’s attractive features, but not be concerned with the city’s access issues. Potential tenant targets include locally founded companies with local management and companies which depend on a workforce of recent college graduates. Similarly, they recommended that startup companies make sense because they would presumably be founded and run by local residents.

The students recommended that the communities that have been most successful at attracting young companies have the best marketing strategies, built on clear messages; regular real estate industry outreach, proactive broker relationships, and comprehensive use of digital and social media, both for advertising and elsewhere.

Cited marketing success stories in similar university-anchored communities included Ann Arbor’s MichAgain relocation campaign and Cambridge’s “Toward a Sustainable Future” market positioning. Both communities proactively solicit potential tenants with community facts and features as well as instruction on how to open a local business through mailing programs, websites, and social media.

The generation of grassroots demand, the students recommended, might focus on new incubators, but might also include offering training on how to take full advantage of existing local and state tax incentives for small businesses or how to develop strong relationships with local venture capital providers. It was also noted that the city needed programs or facilities for young firms which have recently outgrown their incubator stage.

Finally, the students turned to ways that the city can incentivize the developers themselves. Rather than focusing on tax and monetary incentives, the students spoke of the proverbial “lower hanging fruit” available. They suggested working with local building owners in examining prospective sites or partnering with the university in an incubator facility. They recommended streamlining approval processes for proposed development to minimize front-end costs and delays, as well as preemptively conducting planning analysis and putting pre-approvals in place for high potential sites.

The presentation was followed by a short question and answer session, and was well-received by the audience in attendance.

About the Author

This article was written by Daryl Quick '13.