Everyone knows that the commercial real estate market is in the deep dumps. Fortunes have been lost. Fine new office buildings plead for tenants and offer bargain rents. Some stand empty.
But for the shrewd real estate operator, opportunities still exist. There are some success stories.
And one of the most inspiring of these stories-if you`re inspired by somebody making a good buck-recently occurred in Chicago.
There is an old office building in the Uptown neighborhood on the North Side. Like many buildings in that depressed area, it isn`t much to look at. Kind of run-down.
That`s probably why it has been empty for about 18 years.
It`s attached to a roller rink and is under the same ownership. The two buildings have been hit with almost 60 building code violations over the last two decades.
There`s a tavern nearby and a notorious car towing company. It`s a neighborhood where you wouldn`t want to walk around at night unless you were wearing a construction helmet.
Yet, the building`s owner recently swung a deal that was so sweet it has become the talk of real estate and political circles in that part of town.
At a time when most commercial real estate in that area is renting for between $10 to $16 a square foot, the owner of that building found someone who was willing to pay $28.
And the new tenant is going to rent the entire building, all 14,000 square feet, which means the tenant will be paying almost $400,000 a year.
To make it an even better deal, there is a 10-year lease, which means that the owner is sure of receiving about $4 million.
He`s the envy of everyone who owns an old, run-down empty building in the Ravenswood-Uptown area. In fact, he is the envy of some who own much nicer buildings in better neighborhoods nearby.
And how did it happen? Is there a sudden surge in property values in tired Uptown? Has it become a hot new gentrified neighborhood with businesses eager to rent, move in and open their doors?
No, it didn`t happen quite that way.
The secret to this success story appears to be that if you are lucky, you will do business with the federal government, which is generous with our money.
The new tenant is the Social Security Administration, which plans on relocating its North Side office to the old building at 4824 N. Clark St.
Until the move is made, the office will be at 2444 W. Lawrence Ave., where it has been for almost 15 years. This is a much more stable
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neighborhood, where there is better public transportation and where you are less likely to get bopped on the head.
But the bureaucrats at Social Security say they aren`t happy on Lawrence Avenue. They say the present owners haven`t been good landlords, although government records don`t indicate much dissatisfaction.
So they are moving to a neighborhood that isn`t as safe, has less public transportation, and they are going to pay about double the going rental rate. Naturally, this has upset the owners of the Lawrence building, who offered to put up a new building and charge only $27 a square foot.
But their offer was rejected. The Social Security bureaucrats said they`re moving to Clark Street because the Lawrence Avenue location is too swanky.
They believe they can provide better service for their low-income, elderly clients because the building is in a run-down neighborhood where, the bureaucrats believe, there are more low-income people.
This might make sense to the bureaucrats, but it hasn`t impressed their elderly, low-income clients, thousands of whom have signed petitions objecting to the move. They say it is less convenient and they are more likely to be mugged.
It also has failed to impress local community leaders and politicians.
Normally, a politician likes seeing a government office move into his ward. But in this case, Ald. Eugene Schulter (47th) says:
”You don`t have a major hub for mass transit as in the other location. It doesn`t have amenities such as restaurants and coffee shops. Then there`s the price.
”After being in the City Council, you get an idea of real estate values. I think even $14 to $16 would be high. The federal government is not getting the biggest bang out of our tax dollars.
”The present location is fine. There`s no problem with it. So why pay more tax dollars foolishly? It`s a terrible waste of money when the government is taking away dollars for seniors. And for what? To inconvenience senior citizens? The bureaucracy seems to be saying: `If it`s not broke, break it.`
It`s unconscionable.”
So how does the government justify this deal?
An agency called the General Services Administration put it together. It sets the standards. It decides what a dollar will buy.
And the GSA says that it had an appraisal done that showed that when the building is rehabbed, which it will be, it will be worth $29 a square foot.
Who did this appraisal? One of Chicago`s many reputable real estate appraisal firms?
No, the GSA said the appraisal was done by the GSA.
So is it possible to look at the appraisal records? Maybe show them to some private appraisers and real experts?
No, the GSA says these records are private, confidential, for the eyes of bureaucrats only.
Doesn`t seem fair. We don`t get to see their records, but they get to see our money. And to treat it like confetti.