Adaptive Reuse Projects Creating New Markets Beyond The CBD

In land-constrained markets like Manhattan and San Francisco, new office space most often comes from the construction of high-rises. But Chicago’s central business district has room to spread out and reach into neighborhoods once considered most suitable for industrial uses. The fondness among millennials for loft spaces with an industrial look and feel has made such horizontal development even more attractive to developers.

“We’ve always measured growth by how many millions of square feet of glass towers we put up within the CBD,” Avison Young principal Randy Waites said. The end of the recession has led developers to construct several new downtown office towers.

But Sterling Bay’s 1KFulton project, which took a cold storage building and transformed it into Google’s gleaming new regional headquarters, might end up being a more influential building, as it helped create the new office submarket of Fulton Market.    

The emergence of such new areas means the boundary of the CBD has changed drastically. “That line has become so much more fluid,” Waites said. He works with Condor Partners on its new Mural Park project in Pilsen and will take part in a panel at Bisnow’s Emerging Markets Conference Dec. 12 at that development.   

Sprouts of new growth are taking place in an arc that stretches from the Northwest Side’s Goose Island, through the West Loop and down to Pilsen on the Near Southwest Side. It is far from certain that these new areas will ever mature into true submarkets, but whatever happens, this demand for space in new neighborhoods will open up a lot of opportunities for developers willing to repurpose old industrial structures.

“From a business perspective, adaptive reuse provides big returns,” especially if such efforts create beautiful working environments that attract millennials, Waites said. “They don’t want to work in Dad’s office. That’s been proven over and over in market after market.”

Done right, adaptive reuse also has the potential to bring benefits to a whole community. Condor spent about $8M on Mural Park, located at 1901 South Sangamon, and replaced what had been a source of urban blight, an old abandoned factory, with 200K SF of brick-and-timber creative offices. The company will also develop an outdoor public park that provides both tenants and local residents with green space and public art that reflects the largely Mexican-American neighborhood’s unique artistic heritage.

City officials made Mural Park the starting point for El Paseo, a 4-mile rails-to-trails project similar to The 606 that will extend across the Southwest Side and connect Pilsen, Little Village and University Village.  

Waites calls Mural Park “a civic addition,” rather than a simple office development.  

That is important, because those qualities bring in creative tenants, which typically avoid traditional workspaces in favor of more sustainable environments that also provide the excitement of true destinations.

All of this activity fulfills recommendations made by the Urban Land Institute and the National Trust for Historic Preservation. The groups formed the Partnership for Building Reuse in 2012 to foster “the market-driven reuse of vacant and underused buildings in cities across the country.” Chicago and four other cities participate in the initiative.    

“In some cities, including Chicago, thousands of buildings sit vacant and many others are only partially occupied,” the partners stated in a 2016 report. Adaptive reuse decreases building demolition and resource waste, and can support community revitalization in diverse neighborhoods.

ULI and NTHP also found that neighborhoods with older, smaller, “high-character” buildings tend to be the liveliest.

Their research team mapped bars, restaurants and retailers from the Chicago Reader’s “Best of Chicago 2015” poll and Chicago Magazine’s 2015 “Best of Chicago” list. The analysis shows “62.5% of Chicago’s best bars, restaurants, and retailers are located in areas with high character scores, although such areas represent only half of the commercial areas citywide.”

These high-character spots are concentrated just outside the Downtown/Loop area, primarily in Bridgeport and Pilsen and just north and northwest of the Loop.

Condor Partners has already secured several leases for Mural Park that will bolster its appeal. Craft brewer 5 Rabbit Cervecería signed the first lease, and in 2019 will open a small batch brewery and full-service restaurant. Puratos, a Belgium-based international food science company, then signed up for 7K SF and plans to open an innovation center to serve its Midwest clients.

Whatever the future of Pilsen, Waites believes new offices will play a modest role.

“It doesn’t have a concentration of product like Fulton Market,” Waites said. For the most part, it will make due with small, creative firms “that also rely on the local population. We’re not putting McDonald's in Pilsen.”

Learn more about Pilsen at Bisnow's Emerging Neighborhoods event Dec. 12.