Chicago native Julie Thicke, named Central Region Market Manager at JPMorgan this month, sees strong investor demand for Class A office buildings in the city’s Fulton Market neighborhood and smaller warehouses located close to last-mile distribution centers.
Despite the Fulton Market Building’s low cap rates, a measure of return on property, “tenants and investors are focused on Class A Trophy buildings that are well accessible and located close to transportation hubs,” she said.
“It demonstrates that they are willing to pay to be in that market,” Thicke said. “This is a truly fundamental market and tenants and investors alike are focused on the positive features of the market, which are the really exciting opportunities it has created for our clients.”
In her new role, she will oversee customized debt solutions and treasury service products for real estate developers, investors and investment funds across the United States.
Thicke, whose expertise is in commercial real estate, said Chicago’s industrial market is looking for another strong year. Supported by consumers’ e-commerce spending and demand for faster shipping, developers are looking to invest in smaller spaces in population centers as well as larger warehouses in suburban markets.
Born and raised in Chicago, Thicke hopes to address the workforce housing shortage for middle-class families. She plans to support development in historically under-served communities on the South and West Side through programs including ‘Yield Chicago’, which connects emerging developers of color with experienced people.
“I really want to see us support the next generation of developers and help them increase overall efficiencies and benefit from knowledge and shared resources from experienced developers.”
Read on for Thicke’s outlook on the office, industrial and multifamily housing markets and his goals for funding more mixed-income housing developments.
The interview has been condensed and edited for clarity.
What kind of experience do you bring to the job, especially since you have covered this area for a long time, including as a National Membership Loan Director?
I was born and raised in Chicago by heart. I love this city, it’s a true honor to have the opportunity to lead this team in a city I love and do great work that will impact the Chicago market and beyond . Rebuilding this subscription lending business within the walls of JP Morgan has been one of the most rewarding experiences of my career. It has given me great perspective on the inflow and outflow of capital in real estate as well as running a business within JPMorgan.
What are some city-specific aspects of the Chicago market?
Our customers are concentrated in the Midwest, finding growth markets across the country. In general, we have seen some setbacks during the pandemic for commercial real estate. But I think the outlook for 2022 is positive overall. There were some surprises and negative forecasts around the office and retail sector over the years. But overall, we didn’t see the negative impact dramatically impacting those areas. On the other hand, Industrial and Multifamily continued to do really well. One of the areas we are focusing on is workforce housing. There is not enough workforce housing for middle class families (such as homes) for teachers (and) firefighters. So we are really focusing on mixed income housing development and putting a lot of effort in combining market rates, affordable workforce in one project.
You mentioned that the pandemic did not negatively impact the office market. Can you explain your reasoning?
We didn’t have gloom and doom, the forecast that everyone is going to leave New York and you’ll never see anyone come back (for example). We have not seen that type of effect where vacancies decrease. Certainly vacancies have increased since then and especially in Chicago, we have certainly seen that impact.
Office leasing activity picked up, but vacancy rates are still far from pre-pandemic levels. How do you predict the recovery in Chicago’s office market this year?
Vacancy is at a 10-year high of 15.4 percent, which is not necessarily a Chicago phenomenon. Our Class A buildings currently reflect the national average. Sales and leasing activity in Chicago is very location and property specific. So Class B and C offices are struggling to maintain occupancy right now in a post COVID world, with tenants and investors really focused on Class A trophy buildings that are well-convenient and close to transportation hubs are located, especially in the Loop and Fulton Market areas to the west. We have seen many high profile departures from LaSalle Street such as Bank of America, BMO Harris, Chapman and Cutler. So that really emphasized that trend. I think the occupants are really in a state of flux as to what the post-COVID environment in the office is going to look like, depending on which stat you believe. There’s going to be 10 percent to 20 percent of the workforce that won’t return to an office that will work remotely on a permanent basis. But Chicago has long been a stable office market that has adapted well to bobbing user trends. This is really emphasized by the vast, diverse talent pool of employees we have here and the diverse set of industries. I think in general, investors are reticent to make large office investments in any market right now.
We cannot talk about Office Market except Fulton Market. What are you hearing from investors, developers about investing in Class A buildings in that area?
Fulton Market has certainly been a bright spot in Chicago. Starting with Google’s decision in 2014 to make Fulton Market its Midwest headquarters, Submarket has been incredibly dynamic. In Chicago, more than half the sales activity in the office area in the past 12 months was three large transactions. Two of them were in Fulton Bazaar. He was with Google as the principal tenant in both of those buildings. His third building was in the West Loop which the state of Illinois is going to use for state employees. The cap rate of Fulton Markets was the lowest of any sector at 6.1 per cent. Really high sales per square foot on average $3.90. It demonstrates that they are willing to pay to be in that market. It is no longer seen as a pioneer. This is a truly fundamental market and tenants and investors alike are focused on the positive features of the market, which are the really exciting opportunities it has created for our clients.
It’s been a banner year for Chicago’s industrial real estate. Suburban office tenants are moving out, and part of that space is being converted into warehouses. What other industry trends do you expect in 2022?
As we see e-commerce spend and the demand for faster shipping has really accelerated now, so are those warehouses and delivery facilities. Not only in big warehouses and old big boxes, but really in last mile delivery in those suburban markets and just on time delivery locations. We are seeing industrial real estate blossoming close to large population centers, as they tend to be within a certain radius of where deliveries are to take place. So I think we expect to see that growth going forward, with continued strong activity in this area. I think the complication for our customers is that it’s a highly competitive environment at the moment. Hence it becomes very difficult to get the right returns in this sector.
Brokers say there is a lot of interest from out-of-state buyers in multifamily properties because of the high cap rates that are creating multifamily properties. Are you seeing enough supply in the Chicago market?
We actually do a lot of multidisciplinary lending at JP Morgan through our group and through our commercial term lending team. We are highly focused on the multifamily sector. For Chicago, it has always been a truly livable urban environment with diverse employers, diverse industries, cultural attractions, and a deep pool of talent. So I think those fundamentals have really attracted employees, employers and investors alike. The rising high cost of single family homes combined with renters needing more space for that home office has in fact increased the demand for high-end rental units. So I think we’ll continue to see that trend play out. The downtown Chicago market, in particular, has experienced really strong demand. What I have noticed from the distribution is that it is distributed fairly evenly among local national and foreign buyers in Chicago. According to Costar, the forecast over the next five years suggests that supply and demand dynamics should remain under control. So we think it’s going to create some very healthy market dynamics and exciting opportunities for our customers.
What would you like to see in the Chicago market as a Real Estate Banking Central Region Market Manager?
I would love to see that we are able to work with our clients to finance those mixed-income housing developments. We have the ability to combine market workforce and affordable housing in one place. This is an important part of addressing the lack of housing available there. Another element that we are proud of, to support and hope to continue, is our partnership with the ‘Yield Chicago’ program, which is truly development by local developers in historically under-served communities on both the South and West. Helps, especially developers of color in those neighborhoods. Through programs like this and others, I would really love to see us support that next generation of developers and give them the overall potential and benefit from the knowledge and shared resources that program provides from experienced developers and industry professionals. will help increase.