Interesting times in the Windy City A few weeks before The John Buck Co., Chicago, and Atlanta-based Lend Lease Real Estate Investments announced that they would go ahead with construction of One North Wacker, a Chicago real estate executive mentioned that the rumor mill had the partnership proceeding with the 50-story, 1.3 million sq. ft. behemoth without an anchor tenant. That rumor had swirled around the Windy City for a few months, and it came to fruition in September, though the $250 million development has been scaled back considerably.

Still, the building is the largest under construction in the United States and seems to be leading the race to begin construction and nab tenants. Delivery of One North Wacker is expected by June 2001.

Although the Buck-Lend Lease project has not announced an anchor, development is proceeding with 200,000 sq. ft. preleased and another 500,000 sq. ft. under serious negotiations. Local sources say GE Transportation Systems may be one of One North Wacker's lead tenants. Lend Lease's Value Enhancement FundIII is providing the majority of the capital for the development, with additional financing coming from a group of banks.

With more than 2.5 million sq. ft. of office space currently under development in Chicago, LaSalle Bank NA vice president Charles Krawitz expects projects currently underway to fare well, but does not expect much beyond that, especially considering technological renovations on existing buildings and large blocks available in Chicago's suburbs. Lenders not willing to bite on projects that are not significantly preleased will see to it that overbuilding does not occur, he says.

"I think that's going to be it for a while," says Krawitz. "The dynamics of the office market as a whole have to play out, and you're not going to see a situation where overbuilding leaves some big vacancies. The vacancies get filled up, and then the new building occurs.

"Lenders are much more conservative than they were, certainly in the late-1980s," he adds.

With so many large Chicago office developments announced and champing at the bit for tenants, Hines was able to keep Chicago law firm Wildman, Harrold, Allen & Dixon at 225 West Wacker. As the 650,000 sq. ft. building's largest tenant, Wildman, Harrold will expand its lease from 132,000 sq. ft. to 145,000 sq. ft. The firm extended its lease, which would have ended in 2005, through 2012. The firm has been in 225 West Wacker since the building opened in 1988.

The new lease provides technology upgrades and improvements, as well as a redesign to accommodate planned growth - a big factor in the firm's lease renewal, according to Hines vice president Greg Van Schaak.

Although the law firm's lease did not expire in this development cycle and it was not a potential steal for any of the new buildings, Hines still reconfigured parts of the building to meet the firm's space demands.

Van Schaak expects two or three buildings - out of about 10 on the drawing board - to be built over the next few years, and expects strong demand for whoever can get there first. New buildings such as One North Wacker could have an edge, he adds, because many tenants cannot grow in their current locations. Again, Van Schaak points out that tenants, and subsequently lenders, decide who builds what.

"There are a lot of tenants that have to go with new space because their space does not work," says Van Schaak. "Signs of a healthy market will be when a tenant moves out of building 'A' to a new building, other tenants within that building 'A' will backfill that vacant space. That's the real test.

"You'll see movement from one building to another, but I don't know if the holes will be backfilled," he adds.