Chicago Invests to Save Downtown Amid Corporate Sector Shrink

New York, NY, May 29, 2024-"Chicago gave birth to the skyscraper in the late 19th century. Now, local developers and politicians are trying to keep many of today’s office towers from dying off,” reports the Wall Street Journal.

“The city is going beyond any other in providing public subsidies to convert obsolete office space into apartments and hotels, despite enormous budgetary challenges. Even Chicago’s politically progressive mayor signed on last month. 

“The city’s office market has been hurt by weakening demand, higher interest rates and difficulties in refinancing. Big companies such as Citadel and Boeing have moved their headquarters elsewhere, and Chicago commercial-property values have plummeted. 

“While these economic trends have afflicted central business districts in other major U.S. cities, by one measure Chicago’s is the hardest-hit. 

“Three-quarters of the mortgages backing its office space that were converted into securities are either in default or are at risk of default, the highest of any major metropolitan area in the nation, according to credit research firm KBRA Analytics. 

“Chicago’s office-vacancy rate has soared to 16.3% from 11.9% in early 2020, and it is notably higher than the U.S. average of 13.8%, according to data firm CoStar Group. Some downtown office buildings have sold for less than one-quarter of what they were valued at a few years ago.

“Average asking rents haven’t fallen much, but partly because so many landlords are facing financial difficulties, the available supply is shrinking. 

“‘There are fewer landlords competing for tenants because so many buildings are in this zombie state,’ said Michael Reschke, a leading Chicago developer. 

“This dire situation has even caused the city’s mayor to ally with the real-estate community on a plan to save the downtown office district.”