Property downturn creating best opportunity in decades, Andy Gloor says

ONE of Chicago’s preeminent real estate developers said now is the time for those with capital to make a contrarian bet and invest in commercial real estate.

“Over the next two quarters, I don’t think there is a better time in commercial real estate to acquire,” Sterling Bay CEO Andy Gloor said on Monday (Aug 19). “The opportunities that we are seeing, we haven’t seen in 20 years. It is a great time. It’s a contrarian move.”

Chicago has struggled to recover from the pandemic, which hollowed out America’s downtowns. Vacancy rates in the central business district have set records quarter after quarter, reaching 23.1 per cent in the three months to June, according to Jones Lang LaSalle.

But the property downturn has started to attract investors looking for a bargain, with the Prime Group – the developer behind Google’s new office in the city – buying the former headquarters of Cboe Global Markets for about half of its pre-pandemic value.

“The commercial real estate business has been under a category five storm for a few years,” Gloor said. “You need to lower the cost of capital for people to start making investments back into these urban areas.”

Financial markets are fully expecting the Federal Reserve to start lowering borrowing costs next month. Gloor said he had hoped for a rate cut during the June meeting, but now is looking for the central bank to cut rates by at least 50 basis points in September, delivering a “green shoot” for those sitting on the sidelines.  

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Sterling Bay, which has a national portfolio of office, residential, retail and life sciences real estate, has completed several buildings in the West Loop and Fulton Market neighbourhoods of Chicago. The firm, which is planning a US$6 billion Lincoln Yards mega-development, has also built headquarters for some of the city’s biggest businesses including McDonalds.

Chicago’s return-to-office rates have hovered around 50 per cent, according to data compiled by security firm Kastle Systems, which scans badge data at offices.

“Let’s face it – we need to get these cities back on track,” Gloor said. “We need to get people coming back to work, and I think that you need to change some of the fundamentals with interest rates to make that a reality.” BLOOMBERG