CHICAGO | Post Office Redevelopment

[LouisVanDerWright]

^^^ Now the Walgreens rumors make sense, I was skeptical Davies had any firepower to get a deal like that done, but Sterling Bay has proven to be the most innovative downtown office developer in a LONG long time. This gives me hope that the Walgreen rumor was actually true. Even if Walgreen does not move down there, I can see Sterling Bay poaching other big fish from the suburbs with the Old Post Office. Now that Fulton Cold Storage is done, they need another flagship project and the Post Office makes perfect sense for them!

[wierdaaron]

Sterling Bay has been on fire lately.

[LouisVanDerWright]

Originally Posted by wierdaaron

Sterling Bay has been on fire lately.

Yeah, this announcement of their involvement is almost more exciting to me than the Walgreens rumor was. Sterling Bay is the PERFECT team for the job and I KNOW they will execute and fill this building.

[hawainpanda]

wow...500 million just to remodel the post office...I've only seen the insides from pics and from Dark Knight, but the inside looks pretty glamorous honestly. 500million sounds like they're gonna tear it a part.

[LouisVanDerWright]

Originally Posted by hawainpanda

wow...500 million just to remodel the post office...I've only seen the insides from pics and from Dark Knight, but the inside looks pretty glamorous honestly. 500million sounds like they're gonna tear it a part.

Yeah, that's a ridiculously high number, that's $185/SF which is a bunch of malarkey. They can probably get it done for less, but if they tell everyone it is costing $500,000,000 then they can go around charge new construction rents which will make Sterling Bay obscenely wealthy. The fact is that they are going to be competing with new construction buildings, so they will just under cut them by a few bucks a SF/YR, secure the tenants, and then only spend like $100/SF or something and collect the difference between a loan on $100/SF and a lease contemplating new construction which generally costs around $200/SF for Class A highrises.

This is basically the equivalent of both 444 W Lake and 150 N Riverside and then some. It's a HUGE development.

[ardecila]

How much does asbestos removal cost per/SF?

Also, if there are structural issues in the concrete like there were at Fulton Cold Storage, that could add months to the timeline and millions to the cost.

Either way, I'm really hoping this partnership means the building can be renovated without resorting to massive TIF subsidies or casino gambling. Either way is pretty sub-optimal.

[hawainpanda]

Originally Posted by LouisVanDerWright

Yeah, that's a ridiculously high number, that's $185/SF which is a bunch of malarkey. They can probably get it done for less, but if they tell everyone it is costing $500,000,000 then they can go around charge new construction rents which will make Sterling Bay obscenely wealthy. The fact is that they are going to be competing with new construction buildings, so they will just under cut them by a few bucks a SF/YR, secure the tenants, and then only spend like $100/SF or something and collect the difference between a loan on $100/SF and a lease contemplating new construction which generally costs around $200/SF for Class A highrises.

This is basically the equivalent of both 444 W Lake and 150 N Riverside and then some. It's a HUGE development.

I was also wondering, why would a company choose the old post office over a nice shiny tall tower if the rent is similar. The only benefit I know for a very large foot print building is for retail space, but the location of the post office is not as well situated as chicago's other shopping areas like mich ave which is lined with hotels and river north which has many residential towers. Further I'm not sure Chicago can support that much extra retail space.

I guess the news doesn't rule out a possible high rise dev, but it doesn't seem like that's in the more immediate plans then for the post office area?

[Buckman821]

Holy shit. This is exciting. So much confidence in Sterling Bay. Completely agreed with LVDW - this makes the Walgreens thing sound much more possible.

[untitledreality]

This is great news, Sterling Bay seems to be the perfect fit, I can't wait to see what they accomplish.

Originally Posted by hawainpanda

wow...500 million just to remodel the post office...I've only seen the insides from pics and from Dark Knight, but the inside looks pretty glamorous honestly. 500million sounds like they're gonna tear it a part.

They never said "remodel", they said "redevelop". And redevelop would likely include much more than just a upgrade of the Old Post Office building itself. It could include new construction on adjacent parcels controlled by Davies (with recent PD amendments), infrastructure work, and river walk work.

And yes, the main lobby of the building is quite nice, but the rest is just a concrete loft space.

[marothisu]

Awesome news, and yeah asbestos removal costs a lot of $$$

[LouisVanDerWright]

Originally Posted by ardecila

How much does asbestos removal cost per/SF?

Originally Posted by marothisu

Awesome news, and yeah asbestos removal costs a lot of $$$

You might be surprised. Asbestos can be expensive, but really is not that pricey when you look at it in the scheme of things. It depends a lot on how much asbestos there is and what kind it is (insulation, tile, wallboard, etc), but it's generally fairly reasonably priced for environmental remediation especially in an unoccupied structure. The real pain in the ass that makes it pricey is when you have active uses directly adjacent and have to be ten times as care about isolating it. At the Post Office they can basically just seal the whole building off and tear it all out instead of sealing one little area off at a time if there were active users in the building.

Originally Posted by hawainpanda

I was also wondering, why would a company choose the old post office over a nice shiny tall tower if the rent is similar. The only benefit I know for a very large foot print building is for retail space, but the location of the post office is not as well situated as chicago's other shopping areas like mich ave which is lined with hotels and river north which has many residential towers. Further I'm not sure Chicago can support that much extra retail space.

Actually, the large floor plates can be extremely functional for modern office layouts. The new trend is open office with almost no partitions. This means having vast, wide open spaces is the most efficient layout because you can allow the light to filter all the way into the space for everyone to enjoy. This is often coupled with loft-style buildouts (see Merchandise Mart Moto buildout) which again keeps costs low. For a user like Walgreen or Moto, a building with massive floorplates makes a ton of sense. These companies are looking for huge cubicle farms and a 150,000 SF floor plate doesn't sound that unreasonable.

Ironically this is kind of the same reasoning behind the Sears Tower. Sears was looking for a vast amount of space with enormous floor plates and limitless expansion possibilities. The same thing applies to Montgomery Ward, Merch Mart, Fulton Cold Storage, and now the Post Office. I made an extensive post about this a while back with more reasons why it makes sense.

Originally Posted by untitledreality

They never said "remodel", they said "redevelop". And redevelop would likely include much more than just a upgrade of the Old Post Office building itself. It could include new construction on adjacent parcels controlled by Davies (with recent PD amendments), infrastructure work, and river walk work.

And yes, the main lobby of the building is quite nice, but the rest is just a concrete loft space.

That could be the the reason for the high number. Sterling Bay might even want to get into the hotel or residential game at a site like this as 2.7 million SF of office space is bound to generate huge demand for both uses. Maybe they are thinking about building the smallest tower adjacent to the Post Office proposed by Davies as a part of that $500 million number? It's almost a "why not" proposition if you are going to draw this kind of office density to one location.

[ardecila]

New York managed to do something similar at 111 8th Ave with Google. These large buildings are super desirable. The post office is wider and shorter, but maybe they can cut some light courts.

[wierdaaron]

Merchandise Mart doesn't seem to be having trouble filling its massive floor plates in its old building. Same with 600 W Chicago. I think much of the post office has high, warehousey ceilings and large rooms used for sorting and distribution equipment. Old warehouses and factories cater well to modern style office layouts and are easier to retrofit with new plumbing, hvac, and wiring than older office buildings must be.

[hawainpanda]

Originally Posted by LouisVanDerWright

You might be surprised. Asbestos can be expensive, but really is not that pricey when you look at it in the scheme of things. It depends a lot on how much asbestos there is and what kind it is (insulation, tile, wallboard, etc), but it's generally fairly reasonably priced for environmental remediation especially in an unoccupied structure. The real pain in the ass that makes it pricey is when you have active uses directly adjacent and have to be ten times as care about isolating it. At the Post Office they can basically just seal the whole building off and tear it all out instead of sealing one little area off at a time if there were active users in the building.



Actually, the large floor plates can be extremely functional for modern office layouts. The new trend is open office with almost no partitions. This means having vast, wide open spaces is the most efficient layout because you can allow the light to filter all the way into the space for everyone to enjoy. This is often coupled with loft-style buildouts (see Merchandise Mart Moto buildout) which again keeps costs low. For a user like Walgreen or Moto, a building with massive floorplates makes a ton of sense. These companies are looking for huge cubicle farms and a 150,000 SF floor plate doesn't sound that unreasonable.

Ironically this is kind of the same reasoning behind the Sears Tower. Sears was looking for a vast amount of space with enormous floor plates and limitless expansion possibilities. The same thing applies to Montgomery Ward, Merch Mart, Fulton Cold Storage, and now the Post Office. I made an extensive post about this a while back with more reasons why it makes sense.



That could be the the reason for the high number. Sterling Bay might even want to get into the hotel or residential game at a site like this as 2.7 million SF of office space is bound to generate huge demand for both uses. Maybe they are thinking about building the smallest tower adjacent to the Post Office proposed by Davies as a part of that $500 million number? It's almost a "why not" proposition if you are going to draw this kind of office density to one location.

Wow I'm imagining that Sears could be a possible tenant. Honestly with a 500 million dollar budget they could have easily build a new super tall, so it does sound a lot more sense if the 500 million includes some sort of new residential tower which may also justify utilizing retail space in the post office.

[BVictor1]

The $500 million is just for the redo of the current building. It's been languishing for nearly 20 years. None of the info that's come out has included the site along the river edge, nor the Holiday Inn site along Canal. Remember, we're talking about a renovation of 2.7 million square feet.

The Rosenwald development along 47th & Michigan itself is going to cost $100M.

[guesswho]

Originally Posted by BVictor1

The $500 million is just for the redo of the current building.

Correct, the Crain's article mentioned that Sterling/Davies used a $500MM figure only for the Post Office, and explicitly stated that budget was NOT to be used for any of the nearby parcels for high rise development and that their "partnership" only extended to the Post Office, not any further development (although that may change in the future).

[SamInTheLoop]

^ Yeah, this is just for the post office building itself. This is precisely what Sterling Bay does - only this is by far their largest project yet. The $500 mil. price tag quoted actually doesn't surpise me. Redevelopment (this does not necessarily mean any new construction, this word is also often used in the adaptive reuse/complete rehab sense) of a 2.7 mil sf building into modern office space - this is going to take an awful lot of work. But, to LVDW's point, $500 mil. is the approximate construction cost (maybe just slightly higher), than the 1.1-1.2 mil sf new office towers that are about to begin construction. So you have the cost basis difference for your rental rate advantage - however, at the same time, the new towers and projects like these (the gut rehab of older industrial and/or unique extra large floor plate structures) are not - for the most part (obviously there are some exceptions) - attracting the same types of tenants, with the latter attracting technology and mainly old-line consumer product corporations, and of course the former your traditional law, financial, professional and business services firms that typically anchor or otherwise locate in new Class A tower construction.

^^^ Sears - I guess anything is possible, but that would probably be the most unexciting large corporate relocation to downtown ever - a company that is in the midst of its painful, slow-motion and likely irreversible death spiral....

Funny how something can change overnight from being a pipe dream to a very real project. Super excited about this now. Sterling Bay is not only the perfect - but maybe also the only - developer that I have a high level of confidence in to take on this project. Hopefully Davies' actual involvement in the redevelopment is quite passive, and he just collects his negotiated return from his contribution of the property. Sterling Bay needs to completely run this show. Of course just talking about the actual Post Office building itself. Any new construction is still firmly in the "concept/pipe dream" category. However, when the redevelopment of the Post Office is completed and occupied, and generating a lot of activity and new energy into this corner of downtown that sorely needs it - large new construction on the adjacent parcels could be entirely feasible.

[munchymunch]

So 500 million just for the re-do but it never said the deal doesn't include the new tower so, it will come with time.

[munchymunch]

accidental double post

[hawainpanda]

Was thinking that besides a corporate or technology space this would of been a good site for a large government agency (but I don't know of one that is looking for new space). What comes to mind is the recent move by the IRS who moved into the old post office site in Philly.