I recently wrote a blog about the value of architecture, in which I concluded that a building’s cultural symbolism or history, and the way its design is perceived by the public and the industry affects the return it delivers to investors. Having spent many years living in Chicago, I decided to look at how this theory holds true for one of the city’s iconic buildings: the John Hancock Centre. As a structural engineering achievement of its time, how is its value holding up today?
The Numbers of The John Hancock Building
The John Hancock Center is located at 875 North Michigan Avenue in the heart of the high end retail mecca of downtown Chicago. When it was topped out at 100 stories (1,127 roof, 1,506 towers) it was the tallest building in the US outside of New York. It was owned by Jerry Wolman, a Washington, DC developer. John Hancock Mutual Life Insurance Company furnished the financing. The reported construction cost was $100 million. When the developer went bankrupt, John Hancock took over completion of the construction and ownership.
The building is a multi-use project consisting of retail, condominium and office use plus a parking garage. These uses have been sold off separately. In 2006, Shorenstein Development, who had bought the building in 1998 for $220 million, sold off the non-residential portion of the building for $385 million. Later on, the tower was sold in pieces: Hancock’s 856,000 square feet of office space and 710-car parking deck for $145 million and the retail and restaurant space, the observatory and the broadcast antennas separately for a combined $256 million in three deals.
The building was designed by Bruce Graham of Skidmore Owings and Merrill and was influenced by structural engineer Fazlur Khan‘s design philosophy of Structural Art. A number of iconic structural features have made the building and architectural icon. The exterior exposed cross-bracing was Khan’s idea of tube design where the exterior skin acted as resistance to horizontal forces from wind or earthquakes (see here for an interesting article about current approaches to increasing seismic resilience of California building’s) as well as carrying the vertical loads. This enabled a reduction of the columns required in the interior which allowed for a lot of open space office design. Of course earthquakes weren’t a concern in Chicago, but the fact that the building was located right near Lake Michigan and its height made wind loads an issue. Understanding the structural design of this type of building will be an important part of any equity or debt transaction and will require significant expertise.
The building is affectionately known in Chicago as “Big John”. An article in Chicago Real Estate Daily in 2012 said that the new lease by a major tenant is expected to raise the building’s occupancy to 95%, way above the current national average quoted by Cassidy Turley as 85%. The competition in Chicago is with new office towers built in the last decade in the West Loop which is closer to transportation hubs like Union Station and Ogilvie Transportation Center.
Historic and Iconic Features Are Key To Property Value
While competition in the Chicago office market is tough, Big John holds its own not only because of the floor plan, very suitable for the “open office” concept but its iconic exterior and its position in the history of building tall. Its iconic structural design and status as a famous structural engineering achievement continues to impact its value.
“Big John” is a symbol of this city where Daniel Burnham, the famous Chicago 19th century architect said “Make no little plans. They have no magic to stir men’s blood.” In keeping with that tradition, Chicago is exploding with adaptive reuse of historic buildings to hotels, and of industrial buildings to high-tech offices (for example, Google’s move from downtown to an old cold storage building in the city’s West Loop district.)
My colleague Bob Geiger wrote a blog on Globe Street specifically about the hotel industry in this regard, describing several projects of office/hotel re-purposing. In this blog he details important items to be addressed during acquisition due diligence of old buildings and what questions must be answered in advance when building interiors equipment and systems such as HVAC, electrical, and plumbing may need to be completely demolished and replaced.