Federal Reserve Bank on the current recovery…the good and the bad.

Last week I attended an SIOR event that featured a speaker from Federal Reserve Bank of Chicago, here are my notes.


Recovery from 2009 has not been as strong as past recessions. Why?
1. Hesitant growth since 2009
2. Spike in financial stress. Tight lending principals. Now stress is low.
1. Fed has kept Fed Fund target rate close to zero. Fed raised rate 50 basis points in Dec 2015
2. Quantitative easing. Buying securities, fed holds over $4T.
1. Food below inflation
2. Energy (oil) price are low.
3. Long term unemployed (more than 6 months) is at its highest historical level, but it is going down. One example would be people who want to work full time only working part time.
4. Labor force participation is low, but getting better. One reason may be wages have not increased.
5. Broad based recovery. Auto and auto parts/components. Fed sees a 2.4% manufacturing increase in 2017.
6. Dollar has been increasing. Good for US consumer detrimental for exports/manufacturing.
1. Inflation is beginning to increase +\-2%.
2. Employment has been steady, but not growing too much.
3. IL. Unemployment is creeping up (bad).
4. Housing starts are increasing steadily over 1M per year.
5. Interest rates are staying low.

Market’s strength = closer to the end?

{Singing} It’s beginning to look a lot like 2007…record low cap rates, spec construction at a fever pace, high rental rate expectations, bullish forecasts of continued growth.  Despite what our presidential candidates would tell us, the real estate world is on a roll.

thMulti-channel distribution networks are absorbing distribution space at a phenomenal pace. eCommerce has in effect made warehouse equivalent to retail! More technology and more people are being deployed to meet global supply chain demands. The market dynamics are pushing all boundaries.

Unfortunately all good things must come to an end. Believe me I have my board and plan to ride this wave at maximum pace.  But how long can this last?  I hope a long, long time! In the mean time keep singing.

O’Hare rail crossing delays will soon be over!!

Irving Park Rd (Rte 19) and York Rd (Elmhurst Rd) scheduled for Labor Day 2015 completion

Eastbound and westbound lanes on Irving Park Road east of York Rd (Elmhurst) will be closed on March 14-16, 2015 and March 21-23, 2015. BUT this should be the end of the grade rail tracks that has reeked havoc with traffic for nearly 60 years, since O’Hare Airport opened. Two months later on Labor Day, May 25, 2015, after the all concrete and intersection work is complete both the CP and CN rial will be elevated…no more waiting for the trains…supply chains rejoice!!

IL19 & York Rendering

More information on the project can be found by clicking this link to IDOT.


Despicable campaign by Indiana to lure Illinois companies, shows paltry results.

Enjoy this article discovered by Daniel Smolensky, SIOR in Crain’s Chicago Business.

January 03, 2015

Inside Indiana’s campaign to lure ‘Illinoyed’ businesses


INDIANAPOLIS—Victor Smith sinks into an upholstered armchair in his office and smoothes the wrinkles from his charcoal gray suit. It’s been a good year for Indiana’s secretary of commerce. Following the largest tax cut in state history, Smith presided over a record-breaking year for economic development that included persuading dozens of companies to jump the border from Illinois. Soon, Smith will walk across the street to the cavernous state Capitol and listen to Indiana’s Republican Gov. Mike Pence tout the relocations and expansions as proof that “Indiana is open for business.”

AR-301039989.jpg&maxw=600&q=100&cb=20150113010941&cci_ts=20150106131110Indiana Secretary of Commerce Victor Smith – KENDALL KARMANIAN

For now, though, Smith, a boyish-looking 46, is taking a few moments to show off his department’s promotional handiwork. “I love this one,” he says, pointing to one of a half-dozen snarky tag lines mocked up for potential advertisements. It reads: “Can you spell decifit? We can’t.”

Others—all conceived by Smith and his team—read: “Hoosier Santa now?” “Do you have financial envy?” “Psst, the folks who raised your taxes are on the naughty list.”

Many never made it to print, but the ribbing probably sounds familiar. For three years, in an economic development strategy aimed squarely at jobs and revenue in higher-tax states, Indiana has been trying to poach Illinois businesses. While they say the tactic has succeeded wildly, officials in Illinois say the impact of cross-border moves largely has been a wash, more political theater than anything substantive.

It all started in 2011 when Indiana spent a paltry $369,000 to line the highway from Illinois with billboards asking drivers if they were “Illinoyed by higher taxes?” Since then, the state has lured—by way of low corporate tax rates, good fiscal health and financial incentives—more than 100 companies to expand or relocate from Illinois.

In mid-December, Pence spoke at the City Club of Chicago. Opening his speech, he thanked the club for the invitation despite his state’s “playful penchant to poach business.” Leaning into the lectern, Pence said he thought his state’s harshest jab came in the pages of Crain’s, in an ad telling Chicago-area readers, “Envy is a sin, but moving here isn’t.”


The earnest push to target Illinois businesses started under Gov. Mitch Daniels, who—helped along by Illinois’ 30 percent hike in corporate income tax and nearly 70 percent hike in personal income tax—said he wanted to build “the best sandbox in America” for companies. In 2013, Pence picked up where Daniels left off and successfully pushed to lower the state’s corporate tax rate, which will drop from the current 7.0 percent to 4.9 percent by 2021. (On Jan. 1, 2015, Illinois’ rate dropped to 7.75 from 9.5 percent.)

But all that glitters is not necessarily gold. Jobs data show Indiana has a higher rate of growth in lower-end manufacturing compared with Illinois. This, experts say, means Indiana’s strategy may be appealing to companies that are footloose—but also low-wage and low-innovation.

“In some ways, it’s the easy way out,” says Howard Wial, executive director at the Center for Urban Economic Development at the University of Illinois at Chicago and a Brookings Institution fellow. “They can say they have attracted jobs. They have healthy job growth. But you have to look at the quality of jobs.” The problem with this strategy, Wial says, “is there is always someone who can beat them in a race to the bottom.” Texas and China come to mind, he adds.

Asked to respond, Smith says Indiana wages have been going up, averaging $20.17 an hour, according to the latest state figures. “We’re like, bring it on!” he says of the naysayers. (The most recent data from the Bureau of Labor Statistics, from May 2013, show Indiana’s average hourly wage is $19.61 and Illinois’ is $22.92.)

Indiana Gov. Mike Pence recognizes 16 manufacturers that will create 2,100 new jobs in his state over the next several years. Joining him at the press conference Dec. 18 are lawmakers, business owners and executives.
Indiana Gov. Mike Pence recognizes 16 manufacturers that will create 2,100 new jobs in his state over the next several years. Joining him at the press conference Dec. 18 are lawmakers, business owners and executives.
The recent example of food equipment maker AM Manufacturing could support either side in that argument. Exploring a move to Indiana, the company hit a snag that ostensibly rewarded sheer numbers of jobs over their quality. Mark Van Drunen, AM’s engineering and production manager, says his 35-employee company fell short of the 50-person requirement for certain tax credits, despite wages averaging more than $20 an hour.

“I made the argument that I am not bringing 50 minimum-wage employees—I am bringing 30 higher-quality jobs,” he says. In the end, his argument worked. Last fall, with $400,000 in tax incentives, AM moved its factory from south suburban Dolton about 5 miles southeast to Munster.

What’s more, Indiana’s personal income tax is not as low as it appears, even with a planned 5 percent reduction by 2017. While the state levy is only 3.4 percent compared with Illinois’ 3.75 percent, factoring in local income taxes can make it nearly equal, if not higher, depending on the county.

Smith, a former manufacturing company executive, likes to say Indiana has “a good story to tell” and “armed with the facts,” companies will “make the right decision.” In other words, because Illinois hasn’t gotten its fiscal act together—high debt, exploding pension costs and past increases in personal income taxes—Indiana is going to show folks what they’re missing. “Indiana just needs a bigger megaphone” is a phrase Smith comes back to again and again.

As head of the Indiana Economic Development Corp., a public-private company with about 60 employees and a budget of $75 million, Smith regularly logs 50,000 miles a quarter on the road. Once a month, he travels to Chicago, often in his state-issued Toyota Sequoia, to meet with companies and sell them on his state. Smith earns $162,999.98 a year, according to a state-maintained database of Indiana public-sector employees. On a mission to spread the word about Indiana, Pence and Smith rang in the new year in Israel, and they plan to go to Brazil this year.


Kelly Harrington Nicholl, head of marketing at the development corporation since 2009, is the woman behind Indiana’s most memorably catty catchphrases: “Illinoyed” and “Stillinoyed.” But after years of poking fun at its fiscally challenged neighbor, Indiana is about to soften its tone. “We’re not going to beat up on Chicago anymore,” Smith says.

This means that a cluster of billboards along I-90 cautioning northbound drivers that higher taxes lie ahead will come down soon, Nicholl says. “It’s time to play nice,” she says. She declines to say whether Illinois’ newly elected Republican governor, Bruce Rauner, has anything to do with it. “There is a sunset to everything.”

Nicholl, 52, says she and her three-person team, comprising a copy writer, graphic designer and events coordinator, do 95 percent of Indiana’s marketing—from coining the catchphrases that line Smith’s office to buying the ad space. “We operate like a mini ad agency,” she says. She declines to give specific spending numbers except to say that Smith has raised her budget since becoming commerce secretary.

Despite Indiana’s bravado, the number of state-to-state moves are increasing in both directions, according to an analysis of preliminary data by the Chicago Metropolitan Agency for Planning. The data, supplied by New Jersey-based research firm Dun & Bradstreet, show 70 companies in Illinois relocated their entire business or branches of their business to Indiana in 2013, up from 40 in 2012. During the same period, 48 companies in Indiana moved all or portions of their businesses to Illinois, up from 39 in 2012.

It’s important, too, to consider the size of each state’s economy, experts say. About 5.8 million people worked in Illinois in 2013, compared with 2.9 million in Indiana, according to the Federal Bureau of Labor Statistics. Census data show in 2012 roughly 29,300 new businesses formed in Illinois, compared with about 12,700 in Indiana. And Chicago pulled in more corporate investment projects than any metro area in the U.S. in 2013, according to Site Selection Magazine.

While Indiana’s job growth is outpacing Illinois’, “things are mostly moving in the same direction,” UIC’s Wial says. “Indiana is just growing . . . from a smaller base.”


Following the press conference, Smith and Pence stop by a local television station to talk up Indiana’s record year, which includes a commitment of $4.4 billion in corporate investment over the next five years, up from $2.63 billion in 2013. Afterward, they head to a tour of Elanco, a division of pharmaceutical giant Eli Lilly specializing in products for animal wellness. Elanco is about to spend $13 million building a vaccine research center. The lab, opening in early 2016, will be 48,000 square feet and employ 75 scientists with annual salaries averaging roughly $60,000. Smith grins. “This is the old farm all grown up,” he says.

While Smith admits companies might move to Indiana without the snarky billboards and print ads, he says the efforts of his team work as a catalyst. “It’s like throwing Miracle-Gro on a plant that is already going to grow,” he says.

As Smith and the governor head out, Pence stops to recall a recent conversation with Rauner. “I told him, ‘As near as I can tell, the only person talking more about Indiana’s economic record for the last year than me was Bruce Rauner.’ “

Wall Street Journal reports that The Modal Group platform (tenant-rep) is less conflicted.

From the Wall Street Journal

Study Reignites Debate About Broker Interests

New York City Has Been at the Center of the Commercial Real Estate Brokerage Debate


Nov. 30, 2014 8:56 p.m. ET
A new study by George Washington University’s Center for Real Estate and Urban Analysis has rekindled the debate over whether there are conflicts of interest at some of the country’s largest commercial real estate brokerages.

Brokers who represent only office tenants have argued for years that conflicts exist at firms that represent both landlords and tenants—and that their tenant clients often suffer as a result. Brokers at the so-called full-service firms that represent both have argued back that such potential conflicts aren’t an issue, partly because they typically disclose such relationships to all of their clients.

The George Washington study, written by Peter Smirniotopoulos, an adjunct professor, supports the critics of the full-service firms, arguing that conflicts may not be resolved through current disclosure practices.

“The conflicts of interest issue has not been addressed in any systematic way benefiting tenants,” the study says. “If legal ethics prohibit an attorney or a law firm from representing both the landlord and a tenant [in a lease]…how can the divergent interests of those same parties nonetheless be adequately represented by the same [real estate firm]?”

Executives at full-service firms who have read the study, which was released late last month, have challenged its conclusions, pointing out that their professional ethics require them to represent their clients’ best interests, whether they are landlords or tenants.

They also noted that the study was undertaken by the Center for Real Estate and Urban Analysis in partnership with Boston-based Cresa, one of the largest firms that represents only tenants and a big critic of the full-service firms.

Mr. Smirniotopoulos, who also is a consultant in the real estate industry, said in an interview that Cresa provided a “gift letter” that helped finance the research. But the Center has complete control over the study’s scope and objectivity. “It had to be consistent with scholarly work,” he said.

New York City long has been at the center of the conflict-of-interest debate because Julien Studley, one of the pioneers of the business of representing only tenants, founded his firm here. Earlier this year, that firm was acquired by Savills PLC in a deal that valued Studley at up to $260 million. While Savills is full service, its U.S. division—now named Savills Studley—has remained a tenant-only shop.

“The industry is replete with conflicts,” said Mitchell Steir, the head of Savills Studley, which represents a number of major tenants in New York. “Each side deserves an advocate.”

Cresa’s office in New York has been a relatively small player, but it has grown since it was taken over by Mark Jaccom, who worked at Studley at an earlier stage in his career. Mr. Jaccom said the New York Cresa office employs about 45 people and will represent tenants in about 1.5 million square feet of deals this year, up from 600,000 square feet in 2013. The deals brokered by Cresa this year included Affinity Health Plan’s lease of about 95,000 square feet of space at Simone Development’s Metro Center Atrium in the Bronx, Mr. Jaccom said.

Brokerages that only represent tenants use the conflict-of-interest issue to lure business from full-service firms. “You question how hard [full-service firms] push the landlord who gives them tens of millions of square feet of business for a tenant looking for 20,000 square feet,” Mr. Jaccom said.

But executives at the firms with the largest offices in New York say that tenants clearly like the service they get from full-service operations.

“We represent more tenants for more space than any other firm,” said a spokesman for CBRE Group Inc. “That speaks volumes for the value that we deliver for them.”

Executives at the top firms also pointed out that tenants get more insight into the market when brokerage firms also represent landlords.

“Having a broad perspective from all angles in the market coupled with a strong adherence to confidentiality is a clear advantage to our clients,” a spokeswoman for JLL said in an email.

Some brokers at full-service firms acknowledged that the potential for conflicts of interest exists. But they said it happens very rarely because both tenants and brokers are becoming more sophisticated.

The issues raised in the George Washington report “are valid issues,” said Peter Hennessy, head of the New York region for Cassidy Turley. “But the level of sophistication of brokers is such that they’re able to manage the conflict issue,” he said.

The report recommends further study, better self-regulation and the development of a “model code of conduct” in the commercial brokerage industry.

Write to Peter Grant at peter.grant@wsj.com

Do you expect to overpay on your lease?

US companies occupying industrial real estate, listen up!   The market has pivoted to a Landlord’s market, that means you will pay more.   Taking on this market without proper representation, well why not just tie a steak around your neck and walk into a Lion’s den…you’re dead meat.


Chicago stats:

Unemployment is down to 6.2%

Vacancy rate has decreased to 8.2%, lowest since 2001!

15 million square feet is under construction!

This data tells us there are more people employed, the amount of available space is lowest since 2001, and developers can’t build enough space to meet demand (or to feed their performas).  What does it all mean? Asking prices are up and incentives are down like free rent, large tenant improvement dollars, and risk diversion, you are in a Landlord’s market… expect to pay more.

But you don’t have to.  Embrace the approach of creating a competitive atmosphere where multiple buildings are being seriously considered you should be able to compress the rental rate and get some concessions from Landlords. Consider the vacancy rate of 8.2% it reflects nearly 90 million square feet of available space in Chicago metro!

If you have a renewal or are considering a new location:

  • Engage a real estate professional who has access to on and off market properties
  • Go see everything. You may not have 10 options, but there should be three or four and you need to leverage them.
  • Give yourself time, 9-12 months before your back is against the wall.

This is nothing new, but its never been more important.

Client saves cash and risk exposure


 The Modal Group completes sublease in less than 60 days.

CHICAGO-In early 2013 The Modal Group represented a company that leased an air cargo facility in Bensenville, IL in the  O’Hare submarket of Chicago.  In 2014 that same company realized they needed to suspend the Bensenville operation so they engaged Daniel Smolensky, SIOR of The Modal Group to sublease the space. In less than 60 days the client had a fully executed sublease and their financial exposure and risk was diverted to the subtenant. With an aggressive marketing campaign Smolensky had over 5 showings and four offers in the first two weeks.  Smolensky continued to receive offers and negotiate with interested parties in the weeks to come and then settled on a company that was the best fit.  The rent will cover 100% of the client’s exposure including utilities.