Connect Chicago

• Lincoln Yards/The 78 and perceived impact on balancing have/have nots of city
• Public narrative behind mega-developments assumes capital to spur redevelopment is finite (I.E. funds going to mega projects are not going to reinvest in run-down neighborhoods on west and south sides misperception of TIF districts helps drive this narrative)

• Concerns of opportunity zone bubble
• Incentives to take capital which was previously “on the sidelines” and work with local stakeholders to accomplish meaningful projects on the south and west sides
• Best use of opportunity zones in Chicago: combination of local expertise and external capital to execute properly

• For real estate, leverage and supply has been more moderated than the previous recession
• Real estate lenders have been largely disciplined; real estate should see a soft landing during the next economic downturn
• Panel conclusion: the next downturn should not be as bad the previous one

• Cost has been largely absorbed by corporate profit margins
• Estimated 0.5 percent drag on GDP

• Overall, not being discussed enough in real estate circles; short-term fiscal and political issues are taking precedent
• Investors are starting to pay more attention to climate-responsible assets (E.G, LEED-certified)
• Potential cause/effect of capital relocation in the wake of environmental disasters (I.E. money being moved out of California following recent wildfires)

• Not economically feasible to build affordable housing
• Costs of labor, materials, land are too high, especially in metros like Chicago, San Francisco, Los Angeles, and New York
• Metaphor on how to achieve more affordable housing: Build Class A apartments, then wait 30 years to get affordable housing

• Market participants are currently in wait/hold period
• Some are expected to take their money out while other players will see opportunity compared with their current markets (San Francisco, New York, Los Angeles)
• Uncertainty suppresses values:
  • Fudge factor when estimating future property taxes: +/- 10% of expected taxes
• Going forward market participants hope for more efficient and transparent assessment process

• Appetite for tenants/brokers who have interest
• Institutional money is a large player: general desire to do big deals

• Projects often can’t get TIF funding without being a certain size
• Can’t accomplish community goals of affordable housing and diverse job creation without access to TIF funds
• For projects like Lincoln Yards, it is able to provide ~600 affordable housing units because of TIF district funding

• Her current take is that she wouldn’t allow a future project of a similar nature to Lincoln Yards or The 78
• Market participants are optimistic, given her private sector background, that she could come around and potentially be development friendly in the future

• Hard to get alderman, planning commission, and neighborhood groups all on same page. Consistent development guidelines for neighborhoods where each party involved in the approval process is on the same page.
• Can be tough to get developments off the ground for this reason.
  • Metaphor: The official requirement for affordable housing in a neighborhood like Pilsen is 10 percent, yet alderman in the area want new developments to have 30 percent. 30 percent isn’t generally financially feasible and the overall result: zero new developments multiplied by a 30% requirement is zero new affordable housing units.
• Community leaders aren’t always wary of the economics behind potential projects

• Initial hurdles to Fulton Market Expansion:
  • Legacy of industry: strong presence of meat packing and cold-storage
  • Stringent zoning restrictions
  • Neighborhood transportation difficulties that changed after Uber/Lyft emerged
• Proximity to transportation hubs and great drink/culture scene are appealing
• Core areas of the city are adding young people, while tertiary neighborhoods are shredding population

• Designated by the state and approved by federal government
• Deferred capital gains through 2026
• Step up at five and seven years
• Appreciation is tax free

• Approved the ability to make debt financed distributions
• While leased property is a qualifying asset and is considered an active business, ownership of triple net leased property is not and does not qualify.
• Funds are allowed to sell individual assets, which allows for the emergence of larger multi-asset funds.
• Substantial improvement is evaluated on an asset by asset basis rather than by fund
• Investment needs to occur by end of the year for full 7 year step up

• Top 20 percent of opportunity zones are meant to apply to projects that are nearly feasible, but need the opportunity zone to make the financials work. (E.G, may be in areas with weak demographics or population density)
• Bottom 80 percent: The opportunity zone alone is not enough to spur investment. To make this work there need to be other incentives/efforts in place to justify the at-risk capital.
• Almost all of the opportunity zones in the city of Chicago are in the bottom 80% and are still perceived as risky real estate investment.

• Technically no. The difference is largely the perception/optics of the given transaction

Below are typical indicators of when a deal would be considered in industry as a merger or acquisition. Again, these are typical and there is technically no difference and the terms are interchangeable.

Characteristics of a Merger:

• • May be stock for stock deal
  • Both buyer and seller have vested interest in the quality of the other

Characteristics of an Acquisition

• • May be straight cash deal
  • Seller typically just wants highest price, does not care about buyer
  • Naturally, buyer cares about quality of seller