CHICAGOBUSINESS.COM | AUGUST 11, 2014 | $3.50

BY STEVE DANIELS

Northern Trust Corp. hasbeen a steady performer formore than a century by stickingfast to these fundamentals: fiscal

conservatism, customer serviceand loyalty to employees.

But as Chicago’s largest local-ly headquartered bank cele-brates its 125th anniversaryAug. 12, Chairman and CEO

Frederick H. “Rick” Waddellsays economic times havechanged —and Northern Trustmust change with them. Trans-lation: A bank that through theyears has spared no expense to

pamper its wealthy clients andasset-rich institutions now mustpinch pennies.

A punishing environment inwhich rock-bottom interestrates dampen revenue growtheven while Northern Trust gen-erates what it says are recordlevels of new business is giving

the bank little choice, Mr. Wad-dell says in an interview. In fact,Northern Trust has waited toolong to act, he allows. He initial-ly thought rates would rise as theeconomy recovered from theGreat Recession.

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BUSINESSOF LIFE

PAGE 23

More cost-cutting likely as bank celebrates its 125th anniversary

See NORTHERN on Page 12

NEWSPAPER l VOL. 37, NO. 32 l COPYRIGHT 2014 CRAIN COMMUNICATIONS INC. l ALL RIGHTS RESERVED

In the social mediaera, guerrillamarketerscome upwith evenmore waysto get creative.FOCUS PAGE 17

GREG HINZ In dealing with thecity’s transportationproblems, civic leadersneed to follow Daniel Burnham’sadvice and think big. Page 2

SHIA KAPOSAfter the shooting of aLoop CEO, Rishi Shah andother execs talk abouthow to keep a tough conversationfrom becoming a confrontation. Page 6

Northern Trust adapts to a more frugal era

BY RYAN ORI AND JOHN PLETZ

When Montgomery Ward & Co. opened itsmassive Catalog House along the ChicagoRiver in 1908, it was at the cutting edge of

commerce, with “pickers” on roller skates zippingthrough the halls to gather merchandise orderedfrom the retailer’s catalogs.

More than a century later, the behemoth at 600 W.Chicago Ave. is once again a pathbreaking address inChicago commerce. Every day, hundreds of employ-

ees bicycle to work at Groupon Inc., where they sellall manner of products and services via the Internet.It’s just one sign of how the city’s burgeoning techsector is radically transforming the largest downtownoffice market west of Manhattan.

Tech is “really the engine of the market right now,”and its impact can’t be overstated, says Chicago ten-ant broker Kyle Kamin, an executive vice president atCBRE Inc. whose tenants include Google Inc.

“Where would the Chicago market be withoutthese tenants?” Mr. Kamin says. “We’d have these gi-

ant vacancies in buildings that traditional office ten-ants don’t find attractive.”

Tech leases have been a life preserver for landlordsstruggling as law firms and other space-eaters haveretrenched in recent years. And while other indus-tries cut employment, the expanding ranks of young,highly paid tech workers brought dollars andevening-hours vitality to downtown, helping cushionthe impact of a prolonged recession.

See TECH on Page 8

SPECIAL REPORTSPECIAL REPORT

THE GROWING TECH SECTOR IS TRANSFORMING BOTH THE OFFICE MARKET AND CITY NEIGHBORHOODS

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Chicago’s dance scene is growing by leaps and bounds.

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8 AUGUST 11, 2014 • CRAIN’S CHICAGO BUSINESS

Like the South of Market areain San Francisco, where techiesflocked to rehabbed warehous-es, Chicago’s River Northneighborhood has changedfrom gritty to glitzy.

From the Montgomery Wardbuilding to the MerchandiseMart, it is the tightest officemarket in the city, with a 10.8percent overall vacancy duringthe second quarter of 2014,compared with 14.1 percent forall of downtown.

The multiple cranes across theskyline are another reminder oftech’s impact. Those new techjobs helped fuel a frenzy of high-rise apartment construction inthe city, as developers anticipateswelling ranks of millennialswho want to live and play neartheir workplaces.

Tech-oriented companiesoccupy about 6 percent of totaloffice space downtown, butthey signed 17.1 percent of thenew leases in 2013, up from just4.7 percent four years earlier,according to Los Angeles-basedCBRE Inc. And those statisticslikely underestimate the sec-tor’s impact, considering they

don’t include leases of less than10,000 square feet, a range thatincludes scores of startups.

The impact can be felt at thevery top end of the spectrum,too. There were no tech-relateddeals among the 20 largest leas-es in downtown Chicago in2009, according to Chicago-based Jones Lang LaSalle Inc.In 2012 and 2013, the sector ac-counted for 21.3 and 19.4 per-cent, respectively, of the totalvolume of the biggest deals.

While Chicago trails other bigcities in total tech employment,investment and cachet, Google,Salesforce.com Inc., LinkedInCorp., Twitter Inc. and FacebookInc. have expanded offices herein recent years. Several home-grown companies are developingat dizzying speed: Groupon wentfrom tiny startup to anchor ten-

ant within half a decade.GrubHub Inc., the online

food-ordering serv-

ice founded in 2004, moved twoyears ago to 60,000 square feet inthe Loop’s Burnham Center.

Such vertiginous growthmeans startups often are think-ing about their next space assoon as they move in.

InContext Solutions LLC,which makes 3-D software, out-grew a River North office beforeeven moving in. After initiallysigning on for 2,800 square feetin a Wells Street building, it in-stead moved into 4,400 squarefeet at a neighboring buildingon Wells, says Aaron Zaretsky,leasing director at Urban Inno-vations Ltd., which owns bothbuildings. Within 18 months,InContext moved to 9,200square feet at 300 W. Adams St.

With space scarce and rentsrising, tech firms are spreadingto other industrial areas onceviewed as the hinterlands byoffice tenants. River West andthe Fulton Market meatpackingarea have become hot in justthe past two years, and evenGoose Island and Ravenswoodare poised to capitalize.

FLOODING RIVER NORTHTech firms began looking out-

side the traditional centralbusiness district for wide

floors to foster collaboration, ex-posed brick and timber beamsinstead of drop ceilings and dry-wall, quirky amenities such asroof decks and bike rooms, and,at least initially, low rents.

“Those things are importantto all employees, but the techcompanies recognized it first,”says Howard Conant Jr., ownerof Urban Innovations.

The eight-story MontgomeryWard building, near the site ofthe former Cabrini-Green pub-lic housing high-rises, fit thebill for Groupon.

“Early on, (tenants) thoughtit was no-man’s land,” saysBrad Serot, a CBRE senior vicepresident who represents techtenants including Groupon.“They’d say, ‘Why would I gothere when I could be closer tothe trains?’ The building of-fered something a lot of build-ings couldn’t, a huge floorplate and creative space, and itwas significantly cheaper. Theywere doing deals at $23 to $24gross (rent per square foot),and now they’re at $33.”

Today, the building is about92 percent leased, withGroupon and other companiesconnected with tech entrepre-neurs Eric Lefkofsky and BradKeywell, as well as tech-basedtrading firms Jump TradingLLC and ThinkorSwim, whichwas sold in 2009 to TD Ameri-trade Holdings Corp. Theeclectic tenant mix includesthe Big Ten Network, someelectronic data storage andold-line companies such asgum maker Wm. Wrigley Jr. Co.and vacuum cleaner makerDyson Inc. There also is park-ing for nearly 1,000 bikes.

“It was the first building thatvalidated you could do seriousbusiness and not be in theCBD,” says Andy Gloor, manag-ing principal at Chicago-baseddeveloper Sterling Bay Cos.,which has signed technologyfirms such as Google, ride-shareservice Uber Technologies Inc.,social media giant Twitter andin-flight wireless provider GogoInc. to office leases.

Although 600 W. Chicago re-mains important, its place in

the tech ecosphere is be-ing supplanted by a

TECH from Page 1

“TEN YEARS AGOTHERE WAS NOGROUPON, ANDGOOGLE WASN’T

HERE. IT’S REALLYGROWN UP HERE.”

SCOTT GOODMAN, FOUNDING

PRINCIPAL OF STERLING BAY

COS., ON CHICAGO’S TECH

LANDSCAPE

BIG DEAL

Each of the past two years, tech firms accounted for about one-fifth of total office space among the biggest leases signed downtown. As recentlyas 2010, the tech sector had virtually no impact on the list of major deals.

INDUSTRY SHARE OF CHICAGO’S TOP 20 ANNUAL LEASES

02005

10

20

30

40

50%

2006 2007 2008 2009 2010 2011 2012 2013

Professional,business services

Financial services High tech Insurance Law firms

19.4% High tech

Note: Based on 20 largest new leases signed each year.Source: Jones Lang LaSalle Inc.

600 W.ChicagoAve.

FROM MAIL ORDER TO EMAILMontgomery Ward & Co. opened its Catalog House at 600 W. Chicago Ave. in 1908 as a warehouse for mail-order merchandise. The department store chain vacated most of the 2.2 million-square-foot structure in 1980, and the eight-story building has morphed into a home to thousands of tech-based employees.

1997 Chicago-based Montgomery Ward files for bankruptcy protection.

2001 All remaining Montgomery Wardstores shut their doors. A telecom cen-ter called E-Port opens in the proper-ty’s remaining 1.6 million square feet.

2004 David

Barton Gym

opens.

2006 Wm. Wrigley

Jr. Co. leases148,000 square feetof office space.

2012 Groupon becomes largest tenant after sub-leasing Bankers Life’s space, creating room for1,500 employees working in an East Loop tower tomove to headquarters.

1999 Development venture pays $62million for Catalog House and adjacentland, then creates 292 residential con-dominiums in part of the building.

2002 Focus shifts fromdata center to offices.

2003 Restaurant Japonais

opens on ground floor; Bankers

Life & Casualty Co. leasesback-office space.

2007 Big Ten Network opens studios and office space;Bankers Life extends 220,000-square-foot lease to 2018.Group of New York investors buys 600 W. Chicago for $290million; the building is about 78 percent leased.

2011 Newton, Massachusetts-based CommonWealth REIT buysbuilding for $390 million; buildingis 98 percent leased.

2014 Buildingis 92 percentleased.

2008 Groupon Inc. launches from incubatorspace in the building before signing its firstlease for 18,000 square feet.

Source: Crain’s reporting

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20140811NEWS---0008,0009,0010,0011-NAT-CCI-CCB-- 8/8/2014 3:01 PM Page 1

riverfront building less than amile south. Also built for an-other purpose—as a ware-house and wholesale centerfor department stores—theMerchandise Mart becamehome to startup incubator1871 in 2012. The building’sprominence was cementedthis year when Motorola Mo-bility moved from north sub-urban Libertyville into 604,000square feet at the Mart, theequivalent of a 25-story officetower of average width andthe biggest lease in Chicago innearly a decade.

Changes at the Mart are “atestament to the re-urbaniza-tion that we are witnessing,not just in Chicago but in allthe great 24/7 urban centers,”says David Greenbaum, an ex-ecutive at building owner Vor-nado Realty Trust who over-sees its office business in NewYork, Chicago and San Fran-cisco. “Millennials want to bein an environment where theycan live, work and play. TheMart has become a 24/7 build-ing, as people live close by andwill come in earlier or worklater into the night. There is abuzz in the building, with anentrepreneurial spirit, and youcan feel a difference.”

While the local tech sceneoften is compared unfavorablywith Silicon Valley or evenAustin, Texas, Chicago is mov-ing up. Among the top 20 citiesfor high tech, Chicago had thefifth-fastest growth in employ-ment between 2010 and 2012,according to CBRE. From 2009to 2011, Chicago’s tech em-ployment growth ranked 14thamong the largest high-techmarkets.

Yet the area remains a rela-tive bargain, with rents climb-ing just 3 percent from 2011 to2013, according to CBRE. Rentsswelled 52 percent in San Fran-cisco during that period and 25percent across the broader SanFrancisco peninsula. Rentsrose 18 percent in New Yorkand 12 percent in Austin duringthe same period.

River North, though, is notas cheap as it used to be. Dur-ing the second quarter of 2014,asking rents were up 25.9 per-cent from two years earlier,compared with 5.9 percent forall of downtown during thattime, according to CBRE.

“Four years ago, peoplewere throwing real estate atme,” says Wes Shepherd, CEOof Chicago-based Channel IQ,which helps online merchantsmonitor pricing and detectsellers of counterfeit products.

“There were spaces youcould pick up for $16 or $17per square foot. Now they’regetting $25 all day,” he says.“Everyone in town is sayingthey can’t find engineers fastenough and they can’t findgood space.”

Rising rents and long timeframes are stressful for start-ups trying to make the movefrom someone’s basement,coffee shops or shared officespace. Their reluctance to lockinto the commitment and up-

front costs of a long-term leaseleaves new firms scramblingfor options.

“If there’s even a whisper ofsublease space coming avail-able, there are brokers callingto ask about it as quickly asthey can,” says Jack Keenan, aJones Lang LaSalle managingdirector whose clients in-clude 1871.

Others are forced to consid-er the Loop, despite their dis-comfort with the traditionaloffice tower.

Website host SingleHopLLC subleased space fromonline travel agency OrbitzWorldwide Inc. in CitigroupCenter, the huge tower atopOgilvie Transportation Cen-ter in the West Loop. Thatgave SingleHop more elbowroom than it had on the thirdand fifth floors in a RiverNorth loft, co-founder DanUshman says.

“We gave up the roof deckand the ability to bring dogs to

CRAIN’S CHICAGO BUSINESS • AUGUST 11, 2014 9

One startup’s space odyssey

“I can’t predict where I’m going to be in two years,” says Shawn Riegsecker, CEO of Centro Inc. He expects toneed more space than his current Hubbard Street office provides by the middle of next year.

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Running a successful techstartup requires being partentrepreneur and part nomad,

moving from one office to another,constantly looking for space tohouse a growing company.

Chicago-based Centro Inc. istypical: In the past 10 years, ithas expanded its space seventimes and called three buildingshome.

“We’re very cost-conscious.We’ll take up as much space aswe think we’re going to need fortwo years,” says ShawnRiegsecker, who founded thecompany in 2001. “But everytime, in 18 months, we’re having aconversation with (our landlord)Urban Innovations about needingmore room.”

In just four years, Centro wentfrom one floor to three at 222 W. Hubbard St., a brick-and-timber loft space in River Norththat was built nearly a centuryago as a factory atop a formerhorse stable. The company, whichdevelops software to managebuying online advertising, nowoccupies about 40,000 squarefeet, filling the entire building ex-cept for the first floor, which is

home to a high-end furnitureshowroom.

Such growth, particularly inthe years when most of the econ-omy was shrinking, has madetech startups popular amonglandlords, even as the volatilityof early-stage businesses pres-ents special issues.

“The challenge is: How do youaccommodate success?” saysHoward Conant Jr., owner of Ur-ban Innovations Ltd. “We wish wehad more vacant space to offer.It’s tricky.”

It’s just as tricky from the ten-ant’s perspective. Landlords may“ask for a 10-year lease: I can’tpredict where I’m going to be intwo years,” Mr. Riegsecker says.“That’s an eternity for me.”

The challenge goes beyondsimple logistics. Old buildings likethe one Centro calls home be-come as much a part of a start-up’s culture as happy hours andfoosball tables.

“I have no desire to relocateus to a big office tower in theLoop,” Mr. Riegsecker says. “It’snot the culture or vibe I want.”

Centro’s Hubbard Street digsoffer plenty of light and thesteady rumble of trains grindingalong the el tracks. The building

is just a block from the Merchan-dise Mart, the city’s nerve centerfor tech startups.

Despite several moves, Centrohas managed to stay within asmall area of River North. Its firsthome was a 350-square-footserver room at 211 E. Ontario St.

But that may have to change.With headcount approaching 250in Chicago, Mr. Riegsecker sayshe’ll need more space by the mid-dle of next year.

“In ’04 or ’05, there were a lotof places to go,” Mr. Riegseckersays. “The tech startup scenehadn’t taken off yet. There’s beena shift; software and tech has be-come a bigger percentage of thesquare footage here.”

As a result, River North hasbeen picked over. And with com-panies scooping up buildingsacross the West Loop, findingthe space he wants is going torequire hustle, creativity—andcash.

“We might try to buy a buildingand build it out,” Mr. Riegseckersays. “We want to stay in a ware-house feel. That doesn’t leave aton of options right now. Allthose buildings have beenbought. I don’t know what we’regoing to do.”

BY JOHN PLETZ

June 2004

Dec. 2005

April 2007July 2007 November 2009

August 2010November 2011

February 2013

325 W. Huron St.

444 N. Wells St. 222 W. Hubbard St.

1,7514,374

10,196 13,354 13,100 18,82926,150

39,250

TOTAL SQUARE FOOTAGE

Techies have eaten up signifi-cantly more downtown Chicagooffice space, both by volumeand a percentage of all leasing,in the past three years.

SPACE LAUNCH

Notes: Includes all new leases of 10,000 squarefeet or more. Downtown includes most of thecity of Chicago, excluding areas near O’Hare International Airport and south of Interstate 55.

TECH’S PERCENTAGE OF NEW LEASES

2013 17.1%

2009 4.7%

2012 11.0%

2011 13.2%

2010 7.4%

SQUARE FOOTAGE OF NEW TECH LEASES

2013 1.2 million

2009 278,008

2012 1.2 million

2011 1.2 million

2010 480,759

Source: CBRE Inc.

“IT’S NOT ABOUTCHEAP RENT. IT’S TO

GET THE BESTPEOPLE AND KEEP

THEM.”

HOWARD CONANT JR., OWNER

OF URBAN INNOVATIONS LTD.,

ON THE LURE OF RIVER NORTH

LOFTS

A STARTUP’S REAL ESTATE JOURNEY Centro Inc.’s growth, seen through its real estate activity during the past decade

Source: Centro Inc.

JOHN

R. B

OEHM

20140811NEWS---0008,0009,0010,0011-NAT-CCI-CCB-- 8/8/2014 3:02 PM Page 2

the office, but we gained theability to be much closer toeach other on one floor,” hesays. “We didn’t want to com-promise environment, but weended up having to a little bit.There were spaces that werebigger and spaces that weresmaller, but for what weneeded there weren’t a lot ofoptions.”

A few companies can affordnot to compromise. Google,whose pockets are as deep asanyone’s, is known for quirkywork spaces. So after out-growing its Kinzie Streethome in the heart of RiverNorth, it decided to leasemost of the 10-story FultonMarket Cold Storage buildingwest of the expressway, start-ing in 2016. The buildingneeded to thaw out beforeowner Sterling Bay could startrenovating it for offices.

Some Loop landlords aretrying to meet the new tenantspartway. Owners of the CivicOpera Building, PrudentialPlaza, Sullivan Center, 1 E.Wacker Drive, the BurnhamCenter, 55 W. Monroe St. andthe Wrigley Building haveadded amenities such as roofdecks and bike rooms and cre-ated built-out and furnished“spec suites,” which eliminateupfront expenses for cost-conscious startups.

THE LANDLORDSPerhaps no landlord is as

closely associated with thetech boom as Sterling Bay,starting when it bought a vin-tage office tower at 300 W.Adams St. from real estate bil-lionaire Sam Zell in 2007. De-spite closing on the deal justbefore a devastating recession,the developer was able tomore than double its sale pricefive years later, after rippingout the drop ceilings and fill-ing the tower mostly with techtenants, including IfbyphoneInc. and Vibes Media Inc.

Aside from 1K Fulton, as itcalls Google’s future officebuilding at 1000 W. FultonMarket, Sterling Bay hasadded about two dozen otherbuildings in the neighbor-hood, including Oprah Win-frey’s Harpo Studios campus.

Near the West Loop com-muter trains, Sterling Bay isrevamping an 860,000-square-foot structure on Canal Streetthat was built nearly a centuryago as a mail-order warehousefor Butler Bros. Co. Like 600 W. Chicago and the Mart, 111N. Canal St.’s wide layout hasattracted tech tenants thatprefer to put a lot of employ-ees on the same floor.

In the largest deal there,Gogo signed a 232,000-

square-foot lease in Octoberto move from west suburbanItasca by early 2015. Thatdeal, and leases with Twitter,HR software maker FieldglassInc. and online ticket sellerVivid Seats Ltd. have nearlytripled the value of the build-ing, brokers say, since SterlingBay bought it for $100 millionin December 2012.

Another major player in themarket is Al Friedman. Heowns so much real estatenorth of the river—52 build-ings covering nine city blocks,including 50 restaurants—that he’s often referred to as

“the mayor of River North.”He estimates that only 20 per-cent of his tenants are in thetechnology sector, but he’sbenefiting from a severelysqueezed market.

In the ’70s, the area was bleakand industrial-looking and histenants were mostly art gal-leries, photography studios andgay bars, Mr. Friedman says.Now, a hot restaurant scene,easy access to Red and Brownline trains and close proximityto the Loop have convergedwith a younger generation’s de-sire to stay in the city, he says.

That was the experience forShiftgig Inc., which matchesservice-industry jobs withworkers. It moved to RiverNorth from the suburbs afterlosing a developer who pre-ferred to be in the city, CEOEddie Lou says.

“The majority of our staff aresingle, and because we’reyoung, proximity to down-town makes more sense,” Mr.Lou says. “They want to beable to get up from their apart-ment in River North, Buck-town, Wrigleyville to jump onthe train or bus or bike.”

The process is repeating it-self around Fulton Market andRandolph Street, long the do-main of meatpackers, pro-duce markets and other foodindustry wholesalers.

A flourishing restaurant rowled by Grant Achatz, Paul Ka-han, Stephanie Izard, Bren-dan Sodikoff and Graham El-liot has taken off in the pastthree years. The Soho Househotel and private club onGreen Street—under develop-ment before the Google leasewas signed—is scheduled toopen Aug. 11.

Plans for a hotel and Japan-ese restaurant from NobuHospitality Group—whoseHollywood backers includeRobert De Niro—and a Brook-lyn Bowl entertainment com-plex and bowling alley havehighlighted a surge of newproposals.

Not everyone is embracingchange, though. Frothy prop-erty values have tempted manyowners to sell or to jack uprents, displacing some long-time businesses. Other sellershave cited disruptions frommore people walking, drivingand parking in the area.

“The neighborhood waschanging,” says Steve Nathan,president of food distributorVictory Spud Service, whichrecently sold a RandolphStreet warehouse. “There werewomen walking with theirbuggies, pushing their child. Ienvisioned someone with aforklift hitting someone, to tellyou the truth. There were peo-ple walking and jogging, and itbecame very busy on thestreet. It’s just not going towork with forklifts drivingdown the streets and side-walks. It’s not a good mix.”

WHAT’S NEXT?As areas such as Fulton Mar-

ket heat up, some firms are go-

10 AUGUST 11, 2014 • CRAIN’S CHICAGO BUSINESS

“IT WAS GOD-AWFULHERE. I HAD TO

COME UP WITH ANAME OTHER THAN

SKID ROW. WESTARTED

MARKETING IT ASRIVER NORTH.”

AL FRIEDMAN, AKA “THE

MAYOR OF RIVER NORTH,”

ON HIS EARLY DAYS AS A

LANDLORD IN THE

NEIGHBORHOOD IN THE 1970S

Tech firmsseek dealsdowntown

TECH from Page 9

The Merchandise Mart, an artdeco behemoth on the northbank of the Chicago River,

used to be known for the interiordesign showrooms where wealthyChicagoans perused suitable sofasor curtains. But over the past twoyears, the 84-year-old building hasmorphed into the epicenter of thecity’s burgeoning tech scene.

The pivotal moment came in2012, when incubator 1871 openedon the 12th floor, attracted by thedowntown location and the oppor-tunity to expand within the 4.2 mil-lion-square-foot structure. (NewYork-based owner Vornado RealtyTrust says the Mart is the nation’ssecond-largest office building,trailing only the Pentagon.) Thereputation was solidified whenGoogle Inc. bought cellphone mak-er Motorola Mobilityand this year movedmore than 2,000employees from thefar north suburbs to604,000 square feetin the Mart, a spacelarger than 10 foot-ball fields.

And the movescontinue: In June,San Jose, Califor-nia-based eBay Inc., which ac-quired Chicago credit-card soft-ware company Braintree Inc. in2013, announced plans to lease60,000 square feet in the Mart,more than double its currentspace in the West Loop. San Fran-cisco-based online review giantYelp Inc. is set to lease about50,000 square feet, a big jumpfrom temporary space in 1871.

Completed in 1930 by MarshallField as a warehouse and whole-sale center for department stores,the 25-story building housed fed-eral government offices duringWorld War II. Since Joseph P. Kennedy bought the building in1945, it has included a mix of show-rooms and offices. But the per-centage has been moving dramati-cally toward the latter, as new of-fice leases go for $35 a squarefoot, nearly double what someshowrooms are paying.

“For a long time, the Merchan-dise Mart was considered a dogwith fleas,” says tenant brokerJack Keenan, a managing direc-tor at Chicago-based Jones LangLaSalle Inc. who represents 1871.“It has the wide floors, lots ofcolumns and not a lot of light.”

Now, with tech firms desiring

those sprawling floors to fostercollaboration, it’s a destination,and one whose value is increasing.Vornado paid $384 million for the25-story building in 1998, and ex-perts say it’s now worth $1 billionto $1.2 billion.

The Mart’s momentum has cre-ated a halo effect: A neighboringbuilding, once called the ApparelCenter because of its clothingshowrooms, recently added ten-ants Networked Insights Inc., asoftware firm, and advertisingtechnology company Rocket FuelInc. (It also houses the ChicagoSun-Times.)

Vornado has insisted that it re-mains committed to having show-rooms, which occupy about 45 per-cent of the building. One-third ofthe building’s 3.6 million rentablesquare feet is filled with tech busi-nesses, Vornado says.

“The Merchandise Mart usedto have showrooms that wereonly used at certain times,” Mr.Keenan says. Now, it’s “likeGrand Central station and it’sonly going to get busier.”

About 15,000 to 16,000 peoplework in the Mart, and 120,000 passthrough its doors each Mondaythrough Friday, Vornado estimates.In its sprawling corridors, techiesin hoodies and jeans mix withstiletto-wearing designers andbuyers. An Intelligentsia coffee barserves entrepreneurs in 1871, whileMoto workers have their own bikeroom, a massive roof deck and per-mission to bring dogs to work.Younger, tech-oriented employeesalso tend to work later and thenunwind nearby.

A few blocks north on OrleansStreet, the Green Door Tavern isserving a crowd mostly in its mid-20s and early 30s, says managerBrad Shorten. As office rentsclimb, some non-tech companiesare being priced out of the neigh-borhood, forcing older regularsto find a new place for lunch.

“We’ve seen quite a few movewest, looking for cheaper rents,”Mr. Shorten says. “They come inand say their goodbyes.”

BY RYAN ORI AND JOHN PLETZ

Motorola Mobility’s new space at the MerchandiseMart includes a huge rooftop deck.

From ‘dog with fleas’to tech destination

“WHEN YOU SEE ACOMPANY LIKE

GOOGLE MAKE THEMOVE THEY DID ANDFILL UP STERLINGBAY’S BUILDING,

IT’S GOOD FOR THEENTIRE ASSET

CLASS.”MATT GARRISON,

CO-FOUNDER OF SOUTH

STREET CAPITAL, WHICH

PLANS AN OFFICE CAMPUS ON

GOOSE ISLAND

SPECIAL REPORT

STEP

HEN

J. S

ERIO

STEP

HEN

J. S

ERIO

STEP

HEN

J. S

ERIO

20140811NEWS---0008,0009,0010,0011-NAT-CCI-CCB-- 8/8/2014 3:02 PM Page 3

CRAIN’S CHICAGO BUSINESS • AUGUST 11, 2014 11

600 W. CHICAGO AVE.Background: The former Montgomery Ward warehouse’s ultra-wide floors are a good deal for Groupon Inc.

Current tenants: Belly Inc., BenchPrep, Echo GlobalLogistics Inc., Fooda Inc., Groupon Inc., InnerWorkings, Jump Capital LLC, Jump Trading LLC, Level 3Communications Inc., Lightbank, MediaOcean,Thinkorswim Group Inc./TD Ameritrade

222 MERCHANDISE MART PLAZABackground: The longtime showroom for custom furnishings now is where huge tech firms make themselves at home.

Current tenants: 1871, Allscripts Healthcare Solutions Inc., Chicago Ventures, GoHealth, Impact Engine, Matter, Motorola Mobility, Origin Ventures, Publicis Groupe S.A./Razorfish, TechStars Chicago (Excelerate Labs)

Future tenants: Basecamp (formerly 37Signals), Braintree Inc., Yelp Inc.

111. N. CANAL ST.

Current tenants: Braintree Inc.,Fieldglass Inc.Future tenants: Gogo Inc., Twitter Inc., Vivid Seats

Background: The onetime Butler Bros. Co. mail-order warehouse makes way for tweets, front-row seats and in-flight wireless.

CHICAGO’S TECH UNIVERSERiver North is the undisputed epicenter of Chicago’s startups. Yet, whether guided by their wallets or a nose for unique space, techies are branching out.

TECH COMPANY LOCATIONS

Detailmap area

Current location

Future location

Circle size = number of tech tenants

3

65

7

8

1

2

4

CHICAGO

OAKWALTON

DELAWARE

SUPERIOR

HURON

ONTARIO

OHIO

GRANDGRAND

HUBBARD

ILLINOIS

KINZIE

LAKE LAKE

RANDOLPHRANDOLPH

WASHINGTON

MADISON

MONROE

MICHIGANMICHIGAN

WABASH

STATE

LASALLE

WELLS

FRANKLIN

LASALLE

FRANKLIN

ORLEANS

KINGSBURY

LARRABEEHALSTED

GREEN

RIVERSIDE

CANAL

CLINTON

JEFFERSON

DES PLAINES

PEORIA

SANGAMON

MORGAN

MAY

RACINE

ADA

ELIZABETH

ABERDEEN

CARPENTER

MILWAUKEEOGDE

N

DEARBORN

CLARK

COLUMBUS

LAKE SHORE DRIVE

ADAMS

JACKSON

VAN BUREN

CONGRESS

WACKERFULTON MARKET

ERIE

Current tenants (future tenant)OTHER PROMINENT TECH BUILDINGS

For information on each location, check out our interactive map at ChicagoBusiness.com/techmap

290

90

94

Lake Michigan

500 W. Madison St. Acquity Group LLC, Orbitz Worldwide Inc., SingleHop LLC, Inventus LLC

20 N. Wacker Drive Lyons Consulting Group Inc., Peapod Propulsion Labs, TechNexus

222 S. Riverside Plaza Cleversafe Inc., Peerless Network Inc., Trading Technologies International Inc.

300 W. Adams St. Ifbyphone, InContext Solutions, Vibes Media Inc.

440 N. Wells St. BuiltinChicago, Power Reviews, Signal Inc., Wavetable Labs

20 W. Kinzie St. Google Inc., Modest Inc., Sittercity Inc.

350 N. Orleans St. Merge Healthcare Inc., Rocket Fuel Inc., Ronin Capital LLC (Networked Insights Inc.)

1000 W. Fulton Market (Google Inc.) 4

3

2

1

8

7

6

5

ing all the way to Ravenswoodon the North Side.

Joe Hayes has been buyingindustrial buildings inRavenswood since the 1970sand now has 25, totaling nearly1 million square feet. Tenantsrun the gamut from high-speedtraders to yoga instructors.About one-third of the occu-pants are tech companies suchas Switchfast Technologies, acomputer consulting and host-ing firm. They’re drawn tocheap space, $16 or $17 persquare foot, compared withabout $25 in River North, and alocation that allows employeesto work close to where they live.

“The common theme is ten-ants who can walk or bike towork or have a short commute,”Mr. Hayes says.

The biggest obstacle forstartups that want to stay in

neighborhoods with funky, oldbuildings is their own success.Most of the buildings in thearea are carved up into rela-tively small spaces, and it’shard to accommodate firmssuch as Switchfast, which hasgrown to 50 employees fromthree, and to 8,000 square feetfrom 1,000.

Eventually, some have toleave the neighborhood. T-shirtmaker Threadless Inc., electron-ics distributor Newark Corp.and cloud-telecommunicationsprovider Nitel Inc. headed forthe West Loop after outgrowingtheir space.

Closer to the Loop, Chicago-based real estate investmentfirm South Street Capital be-lieves Goose Island is ready formore offices, given its proximityto well-educated workers in Lin-coln Park and Bucktown.

The company bought an in-dustrial building on Bliss Streetthat it plans to convert to a285,000-square-foot office cam-pus. It is about a half-mile south of UI Labs, a new tech re-search hub.

“As the demand for loft officespace increases, you’ll continueto see the perimeter expand,”co-founder Matt Garrison says.“Office tenants who wanted fa-vorable rent have already beendisplaced from River North yearsago, and now they’re being dis-placed from the West Loop andFulton Market.”

That might be the case withFood Genius Inc., which gathersand analyzes menu data forrestaurants and food makers.The company grew to 14 peoplefrom two in three years and hasmoved five times. It took 2,300square feet in a three-story

building on Fulton Market inOctober, and CEO Justin Massaalready is thinking about whatcomes next.

“I hope we can stay in theneighborhood,” he says. “Theprice already has gone up sincewe moved in. We’d be looking at10 percent to 20 percent moreper square foot (to move).”

The company has room for20-some people at its currentlocation. When it comes timefor more space, Mr. Massawould like to stay in the samebuilding or in the neighbor-hood. But the area’s low-risesare filling up fast.

“Part of me wonders, ‘Isthere space in the South Loopor on Taylor (in Little Italy)?’ ”

Contact: rori@crain.com

jpletz@crain.com

“THEY NEED APLACE TO GO: THECLOSER TO HOME,

THE BETTER.”JOE HAYES, PRESIDENT,

HAYES PROPERTIES INC.,

RAVENSWOOD

STEP

HEN

J. S

ERIO

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