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The 78 lands a big tenant draw with DPI

Crain's Chicago Business

Thursday, February 13, 2020  |  Article  |  Danny Ecker

In an era of companies moving entire headquarters to gain an edge in recruiting top tech talent, Related Midwest can now point to the prospect of setting up shop next to a training hub for one of the country's top engineering schools.

After spending more than two years trying to sell his vision to turn a long-vacant 62-acre swath of the South Loop into a corporate destination, Curt Bailey finally has something real to talk about.

 

The Discovery Partners Institute, a University of Illinois-fueled innovation and research center now cleared to become reality along the South Branch of the Chicago River, will be a big boost for developing young talent in the city, the president of developer Related Midwest said today.

 

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But more than that, it's Bailey's new best recruiting tool for the 78, Related's planned mixed-use megaproject that could eventually include some 4 million square feet of offices and 10,000 residential units between Roosevelt Road and Chinatown. And it could make companies start looking at his $7 billion campus as a legitimate place to do business.

 

"It's going to make an enormous difference for us in how we articulate our plan and the attractiveness of being at our site," Bailey said today before joining Gov. J.B. Pritzker, Mayor Lori Lightfoot and U of I leadership to announce key funding goals for DPI. "There's this search for tech talent across the country, and you have this engine that's going to be kicking out all these incredibly smart minds all the time."

 

There are still some high hurdles to clear before companies buy in, including financing and building out various infrastructure projects to make a fallow stretch of land more accessible. Plus, there are already other emerging locations downtown, such as the Fulton Market District and the southwest corner of the Loop, that tenants are clamoring to populate.

 

But the timing of DPI's commitment is crucial for Related. Companies moved into more downtown office space last year than in any year since 2007, making now the time to be fishing for a tenant.

 

DPI also could give the 78 an advantage over other sprawling megaprojects hunting for tenants. Those include Sterling Bay's Lincoln Yards campus between Lincoln Park and Bucktown and Tribune Media's River District proposal along the North Branch of the Chicago River.

 

The 500,000-square-foot DPI building slated to break ground before the end of this year will eventually be home to some 2,000 students, a pipeline of U of I talent in downtown Chicago eager to wade into the city's deep corporate pool. In a tight labor market—one marked by companies moving entire headquarters to gain an edge in recruiting and retaining top tech talent—the prospect of setting up shop next to a training hub for one of the country's top engineering schools is a big draw.

 

"If there is an opportunity for (companies) to connect with the university and go right to the source of highly educated professionals that have a technical background, they're more likely to look at that location as a destination for an office," said Brad Serot, a vice chairman at CBRE who represented tech giant Salesforce in its 500,000-square-foot lease at a namesake tower soon to rise at Wolf Point.

 

Serot foresees DPI legitimizing the 78 as an emerging neighborhood the way Google did the Fulton Market District.

 

"This will have a ripple effect of similar magnitude, where (prospective tenants) will focus on the neighborhood and look at it a little bit differently, whereas before it may have not been on the tour list," he said.

 

Bailey is counting on that interest. He said Related Midwest plans to break ground in the next 12 months on a 300,000-square-foot office building at Roosevelt and the Chicago River whether or not it has signed a tenant to anchor it. Within that same time window, Related aims to begin work on other parts of the first phase of the 78, including a mixed-use tower along Roosevelt with a gym, hotel and as many as 500 apartments; a series of four-story, 120,000-square-foot office buildings closer to the river, and a five-acre park.

Another 1 million-square-foot office building immediately north of the DPI building would be built if Related can land a tenant to anchor it, and two more office towers are also planned along Roosevelt for a future phase, Bailey said.

 

Building offices on speculation, or without any tenants signed, is typically a risky strategy and can make a building more difficult to finance. On top of that, Related will be looking for capital partners deep in an economic growth cycle at a time when some institutional investors have been hesitant to back big projects in the city.

 

Seeing buildings come out of the ground and getting buy-in from restaurants and retailers could help persuade companies to make a long-term commitment to the 78, but they also need to see progress toward making the campus more self-sustaining, Serot said.

 

"The two biggest questions we hear from clients when there's a relocation of any kind are 'How am I going to get to work, and where are my employees going to eat lunch?' Those are some basics they have to address."

 

Infrastructure projects planned for the first phase of development—slated to be completed by 2024—include an ongoing extension of Wells Street through the site, straightening Metra tracks running parallel to it, renovating Clark Street and building out LaSalle and 15th streets through the 78 site.

 

Related won a commitment from the city last year to eventually reimburse more than $180 million of those projects with tax-increment financing money from a new TIF district that encompasses the 78 site.

 

A planned new CTA Red Line station at Clark and 15th streets—thought to be a key access point for the site—won't be part of the first phase. But Bailey points to the CTA Red Line Roosevelt station as a good option for commuters and said it's a 15-minute walk to the 78 from Union Station. The developer also anticipates prospective tenants getting there by water taxis, shuttles and ride-hailing services like Uber and Lyft.

 

DPI's arrival should give prospective 78 tenants a clear understanding of how people will get to and around the site, said Cushman & Wakefield Senior Managing Director Steven Bauer, who represented Facebook two years ago in leasing 263,000 square feet at 151 N. Franklin St.

 

"This is now going to fast-track infrastructure, and that takes a major variable out of the project to any end user," he said. "And there's going to be buzz and activity and people physically on the site. . . .It can't be overstated how important that is to have."