Final presentation March 13 2012

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A Policy Assessment for Commercial Real Estate Development in Evanston, Illinois

• Kevin Bell• Kevin Heckman• Marcio Silva• Ben Wilmoth

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The Situation and the Question

The situation in brief: Evanston has underdeveloped and undeveloped parcels of land that the City would like to see developed.

Two sets of goals:

Primary Goals: Increasing the property tax rolls, Bringing more economic activity (jobs) into the city.

Secondary Goals: Creating partnerships with Northwestern University, Attracting the City’s target industries, Beautifying the downtown by filling unused space.

Three questions emerge: Is there demand for more office space – perhaps even a new Class A office

building – in Evanston? If so, should the City incentivize development? If there isn’t demand, are there other recommendations that can achieve any

of the primary and secondary goals?

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Agenda

The Commercial Real Estate Landscape in Evanston

Leading Practices from Other Cities

Policy Recommendations

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Agenda




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Evanston clearly has competitive advantages (1 of 2)

Rank Employer Nature of Business # of Employees1 Northwestern University Higher Education 5,3252 Evanston Hospital General Hospital 3,7803 St Francis Hospital General Hospital 1,6494 City of Evanston Local Government 1,0005 Evanston School District 65 Elementary School 7006 ETHS Public High School 5667 C.E. Niehoff & Co Manufacturing 5508 Presbyterian Homes Retirement/Nursing Homes 5339 Rotary International Non-profit Service Org 46010 Jewel/Osco Foods Food/Drug Stores 455

Evanston naturally lends itself to industries such as academia, healthcare, and eldercare. These are reflected in Evanston’s top employers.

Evanston Top Employers

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Evanston is an attractive location for users of office space. Existing tenants and brokers have highlighted some of the key advantages Evanston has over other office markets:

Convenient access, particularly along the lakefront to/from downtown Chicago, via CTA and METRA trains,

Intellectually vibrant feel of a college town, High quality of life for employees – restaurants, shopping, and lakefront, all within

walking distance, Proximity to two first-class hospitals, Access to talent at Northwestern University.

These qualities are unique to Evanston – you cannot make the same claims of the West Loop, Northbrook, or Skokie.

Evanston clearly has competitive advantages (2 of 2)

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Current demand for Evanston office space is strong

Existing Office Users in Evanston

Evanston office users are typically small and mid-size companies Overall office – 70% occupy less than 2,500 square feet Class “A” office – 85% occupy less than 10,000 square feet

Locally owned and operated Lack of national and regional firms, unlike Evanston’s retail footprint

Existing Class “A” Office Buildings

Evanston has commercial office space available for tenants According to Colliers and CoStar, there are nine Class “A” office buildings in

Evanston, totaling 1.6 million square feet Currently, there are 163,000 square feet available, yielding a vacancy rate of

10.3%

The largest (in square footage) companies within each Class “A” building

Are not large on average (few private sector companies lease more than 10,000 square feet)

Tend to be in the medical, government, education, non-profit sectors

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Building Address Built / Renovated SF Current

Occupancy# of

StoriesAvg Floor

Size Ownership

One Rotary Center 1560 Sherman Ave 1977 368,767 92% 18 20,527 Rotary

International

Orrington Plaza 1603 Orrington Ave 1969 / 1999 307,499 88% 20 14,000 Lowe Enterprises

The 909 Davis Building 909 Davis St 2002 195,245 100% 6 32,540 Franklin Street

Partners500 Davis Center 500 Davis St 1978 186,000 85% 10 11,924 Privately Owned

Church Street Office Center 1007 Church St 1984 / 2005 153,389 57% 8 19,174 Privately Owned

1800 Sherman Office Building 1800 Sherman Ave 1986 135,679 100% 8 17,000 Northwestern

UniversityThe Carlson Building 636 Church St 1925 / 1984 108,000 99% 9 12,000 Privately Owned

820 Davis St 820 Davis St 1975 / 1985 81,044 97% 5 16,740 Privately Owned

University Place 1033 University Pl 1991 55,685 100% 4 15,890 Equitabile Evanston LLC

Totals/Average 1,591,308 90%

Evanston’s Class “A” Buildings

Evanston “Class A” Buildings

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Three largest companies operating in select Class “A” buildings

One Rotary Center (Tenant size range of 200 SF – 42,440 SF):

Pivot Point International 42,440 SF Hair/Beauty Education

National Merit Scholarship Corporation 10,857 SF Non-Profit Yellowbrick Consultation & Treatment 6,000 SF Medical

The 909 Davis Building (Tenant size range of 400 SF – 75,562 SF):

McDougal Littell 75,562 SF Publishing Houghton Mifflin Harcourt Publishing 70,000 SF Publishing NorthShore University HealthSystem 20,299 SF Medical

University Place (Tenant size range of 200 SF – 19,586 SF):

Social Security Office 19,586 SF Government Startspot Mediaworks 6,000 SF Data Processing Evanston Northwestern Healthcare 4,110 SF Medical

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Despite strong demand for existing office space, Evanston faces negative perceptions that limit demand, especially from larger users

Perceived High Costs of Evanston

Perception of Inconvenience

According to brokers, Evanston Class “A” office space is approximately equivalent in cost to the West Loop

Brokers note that high monthly parking costs relative to other suburban locations are a deterrent for some potential tenants

Evanston’s higher taxes and occupancy costs make office space significantly more expensive than equivalent space in Lake County

Prospective tenant companies and brokers alike believe that Evanston is inconveniently located

Ideal location only for North Shore and lakeside Chicago residents Lack of available and adequate east / west arterials makes commuting from

many suburban areas, particularly the western suburbs, very time-consuming

Located five miles off of the Edens Expressway at both the Dempster and Old Orchard exits

While located along both Metra and CTA rail lines, the benefit is exclusive to those that live near the access points

Ultimately results in a smaller pool of potential relocation candidates; companies located in the West Loop can draw from an employee base that spans the entire Chicago metro area; companies in Evanston cannot realistically make the same claim.

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Challenges facing new Class “A” development

There are many challenges facing a new Class “A” office development:

Need to mitigate development risk in order to obtain construction financing Lender requirement of pre-leasing percentage is likely to come from a few anchor

tenants Creditworthiness requirement and construction timeline leads to a small subset of

companies that can qualify – tend to be more regional/national in scale Lack of available inventory today for larger office users has continued to feed

Evanston’s small business perception

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There are several sites that could support new development

Site Address Acreage Current Usage Ownership Proximity To

1515 Chicago 1515 Chicago Ave 0.52 Vacant Building

P Schatz Davis Chicago Downtown

Evanston Library Parking Lot 1703 Orrington Ave 0.57 Parking

Lot City of Evanston Downtown

Research Park 1102 Emerson St 0.67 Vacant Lot Carroll Properties Downtown

Vacant Lot on Davis 609 Davis St 0.17 Vacant Lot M Koch & M Koch Downtown

Main & Chicago 845 Chicago Ave 0.70 Vacant Lot OMS Evanston LLC Adjacent to Metra and

“L” at Main

Engelhart Parking Lot 1915 Maple Ave 1.07 Parking

Lot Northwestern Adjacent to “L” at Foster

Evanston has several undeveloped or underdeveloped parcels of land that could accommodate office building construction

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View of the six sites that could support new development

Site

A 1515 Chicago

B Evanston Library Parking Lot

C Research Park

D Vacant Lot on Davis

E Main & Chicago

F Engelhart Parking Lot

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Agenda




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There are four main types of leading practices that cities use to create, attract, and retain businesses

Vision and Strategy

Marketing the City

Use of Incubators

IT and Social Media

Have a clear understanding of your competitive advantages Don’t try to be what you are not, focus on existing clusters Partnerships with Universities will only be really effective if the

University sees itself as an engine to promote growth

Develop a crisp pitch of the City and constantly promote it Actively connect to “Evanstonians” attached to the city (went to NU,

opened a company in Evanston, have friends here, etc.) Plan ahead calendar to promote the city (site selector conventions etc)

Most successful model: dedicated incubators by type of industry Structured Guidance to Entrepreneurs (book keeping,

commercialization, etc.) Include in the sales pitch for the City a little bit of “start up glamour”

Website should be an aggregator of information on the city, data should be easy to find

Communication through social media should be as open as possible, making Economic Development staff accessible

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Cambridge’s “Toward a Sustainable Future” vision provides a great example of what a City’s Strategy and Vision statement can be (1 of 2)

Vision and Strategy

Marketing the City

Use of Incubators

IT and Social Media

Cambridge lays down an overarching framework of Economic Development every 10 years

Every policy designed by the City’s Administration is aligned to that framework

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Cambridge’s “Toward a Sustainable Future” vision provides a great example of what a City’s Strategy and Vision statement can be (2 of 2)

Vision and Strategy

Marketing the City

Use of Incubators

IT and Social Media

Company Employees TypeHarvard University 10,718 Higher EducationMassachusetts Institute of Technology 7,604 Higher EducationCity of Cambridge 2,922 GovernmentNovartis Institute for Biomedical Research 2,095 BiotechnologyMt. Auburn Hospital 1,665 MedicalVertex Pharmaceuticals 1,600 BiotechnologyGenzyme Corporation 1,504 BiotechnologyBiogen Idec 1,350 BiotechnologyFederal Government 1,316 GovernmentPfizer 1,300 Biotechnology

Cambridge’s Vision and Strategy document clearly derives from the Competitive

Advantage of its Biotech Industrial Cluster

Top 10 Employers in Cambridge

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Ann Arbor’s SPARK Program is a great example of marketing the city(1 of 2)

Vision and Strategy

Marketing the City

Use of Incubators

IT and Social Media

Ann Arbor’s SPARK intensively promotes the City’s Competitive Advantages

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Vision and Strategy

Marketing the City

Use of Incubators

IT and Social Media

And through programs such as “MichAgain”, Ann Arbor targets “expats”, promoting the city to those who have some attachment to it (2 of 2)

Connecting to people that have some sort of attachment to the city is an effective way to market its advantages

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Vision and Strategy

Marketing the City

Use of Incubators

IT and Social Media

Pasadena has effective incubators that foster an entrepreneurial culture

A successful model for Incubators should include: Focus on specific industrial segments Business development guidance to entrepreneurs Nimble office space adapted to the needs of nascent

companies “Cool amenities” to attract young entrepreneurs

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Pervasive use of social media and web resources provides open access to information and conveys a modern image

Vision and Strategy

Marketing the City

Use of Incubators

IT and Social Media

Intensive use of social media and Internet resources

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Agenda




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Recommendations (1 of 4)

Define and Target the Ideal User for Class “A” Office Space in Evanston –

Turn the current perceived location challenges facing Evanston into opportunities to target companies ideally suited to Evanston

Focus on companies who can draw on the labor base that is located up and down the lakefront

Target companies whose CEOs live along the North Shore and who draw on the labor force living in Chicago

Recognize that younger, recent college graduates living in Chicago will perceive Evanston favorably as compared to other suburban locations – no car required!

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Market Evanston and its Economic Development Capabilities

Improve the marketing of Evanston as a preferred office destination – Get Evanston back on the Map!

Revamp the City of Evanston website to broadcast all available incentive programs, link with other agencies, and better highlight the recent success stories for office tenants

Build up LinkedIn and Facebook presence Hold events for existing or potential businesses

To retain – solicit information from current Evanston businesses about what city government can do to make their lives easier

To attract – invite outside businesses to Evanston to get information about what the City can do to be a more business-friendly community

Reach out and develop relationships with the commercial office brokerage network; brokers are the “gatekeepers” to prospective companies in the market

Hold broker events – golf outings, brunches, etc. – as well as city walkthroughs Consider broker incentives

Attempt to create brand recognition as a city that caters to “________ companies”


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Develop Grass Roots Demand

Add new incubators – the more specific the better – preferably in collaboration with Northwestern University

Develop startup services Offer training to new startups to convey basic business knowledge Be prepared to take full advantage of the State of Illinois’ business incentives

Develop relationships with Chicago-area venture capital firms – perhaps in collaboration with Kellogg – and connect them with Evanston startups


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Be Prepared to Help Develop Sites that Could Support Smaller-Scale Office Buildings

Focus on smaller office developments that capitalize on existing market drivers Consider working with the owner on developing the vacant parcel in the Research

Park on Emerson along with a redevelopment of the former wet-lab building Work with the owner of the small vacant parcel on the north side of Davis Street just

west of Chicago Avenue to pursue development of a smaller-scale building

Consider the possibility of partnering with Northwestern University on these smaller-scale sites

“Prepare to Say Yes” Streamline city processes for developers Identify redevelopment sites and do advance work for future development

Final presentation March 13 2012

Government & Nonprofit

evanston evanston office

evanston office space

office buildings evanston

buildings evanston class

evanston leading practices

evanston school district

key advantages evanston

existing office space