After a year still marked by sluggish overall transaction volume and a slowdown in new starts, Chicago’s commercial development landscape could be poised to come alive in ’25.
While dealmakers may be cautious in the beginning of the year as they wait for additional price discovery, panelists at Bisnow’s Chicago 2025 Market Kickoff event said they anticipate increased appetite for real estate investments this year with more clarity in the market.
As the year progresses, some investors could begin to deploy their generous stockpiles of dry powder, they said at the event, held at Braveheart 3 Office Park in Schaumburg last week.
Bisnow/Ryan Wangman
Nuveen’s Donald Hall, Waterton’s David Schwartz, LaSalle’s Rich Kleinman and McDermott Will & Emery’s David Wolff
“A few things that have changed since the start of ’24: One is we find that a lot of our clients, long-term institutional investors in real estate, with the performance of the stock market in both ’23 and ’24, find themselves underallocated to real estate again,” said Rich Kleinman, co-chief investment officer of the Americas for LaSalle Investment Management.
“They’re not saying, ‘How can I lower my allocation to real estate?’ They’re thinking about how they can move back into the market.”
Kleinman said some of his clients are wary of where the stock market may be headed soon and growing more interested in increasing their real estate investments.
While interest rates are still weighing on investors, he said they are in a different headspace from a year ago, when there was more trepidation about putting money into real estate.
Waterton, for one, closed a fund at the end of September. CEO David Schwartz said the company has a “big appetite” to invest in real estate, with a $1.5B budget to invest in multifamily and credit surrounding multifamily in 2025.
But to deploy that capital, the company needs to find the right deals, those in which it can get positive leverage and decent cash returns, Schwartz said.
Most markets in the country don’t have a lot of rent growth because of a glut of supply, so it’s hard to grow into a positive leverage position, he said. Chicago is a market that has good multifamily rent growth, although the city also has higher cap rates than other metros.
Chicago is forecast to see 3% to 4% rent growth in 2025 and outpace the U.S. average, according to a new RealPage multifamily report.
“I think we’re still in a period of price discovery, where there aren’t going to be a lot of sellers willing to sell the 6-cap,” Schwartz said, referring to a 6% capitalization rate. “That’s going to have to get sorted out over the next year, and that’s what it’s going to take to deploy the capital unless rates come down again.”
Some investors are waiting for that price discovery before committing to buying more real estate, Schwartz said. They may also wait to see the impact of some of President Donald Trump’s policies, like proposed tariffs that could lead to an uptick in inflation.
Schwartz said he sees 2025 as a year in which some of those investor fears could be resolved, and 2026 may be the year the industry sees the “major recovery.”
Bisnow/Ryan Wangman
Intersect Illinois’ Christy George, Cook County Assessor Fritz Kaegi, Cushman & Wakefield’s Vicki Noonan, JLL’s Lauro Ferroni and CLA’s Jim Milliken
Companies are also interested in the Illinois Quantum and Microelectronics Park, which nabbed PsiQuantum and IBM as tenants last year, said Christy George, president and CEO of Intersect Illinois. The city’s life sciences and technology industries are generating a lot of demand from companies in the space, she said.
“People want to come where there are really interesting ecosystems,” George said. “Particularly in those key growth industries, we’re seeing a lot of interest, and we’re seeing growth because of it.”
Donald Hall, global head of research for real estate at Nuveen, said the company is “leaning in” to make investments in the real estate markets. But he has noticed the bid-ask spread has widened again and isn’t sure sellers are in a realistic spot.
Investors need to be ready for slow rent growth out of the gate to do a deal in today’s climate, Hall said.
“We’re looking to do deals, but not where our underwriting is fictitious across most property types,” Hall said. “You need to be prepared for: Year 1 is negative rent growth. Year 2 is zero. Year 3 is positive. If you can make the deal work like that? OK, great. So we’re in, but where it makes sense.”
Although his company has dry powder to put into the market, Kleinman said it will likely take more of a wait-and-see approach until there is more information available.
“While we do have a lot to deploy, we’re probably going to be on the cautious side entering the year to get a sense of where pricing falls,” Kleinman said.
“As we start to get that visibility, we might be super excited about where pricing is. Or we might be saying, ‘Well, that feels a little rich for where we think fair value is right now,’ but we’re very much in this questioning point. And I think in two, three weeks, we’ll have a lot more clarity on that.”