VILLAGE PARTNERS Development Proposal...

VILLAGE PARTNERS

Development Proposal for:

Table of Contents

Executive Summary ..................................................................................................................... 1

Project Market Overview ............................................................................................................ 2

Chicago Metropolitan Statistical Area .................................................................................. 2

History of Presidential Towers ............................................................................................... 2

Neighborhood Overview ............................................................................................................ 3

Presidential Towers Competition .......................................................................................... 4

Modified Redevelopment Proposal .......................................................................................... 6

The Shops at West Village ....................................................................................................... 7

The Residences at West Village ............................................................................................ 11

The Towers at West Village .................................................................................................. 14

Environmental Considerations ............................................................................................ 16

Size and Price Comparison ................................................................................................... 17

Zoning and Planning ............................................................................................................. 17

Financial Overview .................................................................................................................... 17

Tax Increment Financing ....................................................................................................... 22

Affordable Housing ............................................................................................................... 22

Concepts Not Pursued .............................................................................................................. 24

Senior Housing Market Overview ....................................................................................... 24

Student Housing ..................................................................................................................... 25

Hotels ....................................................................................................................................... 26

Appendix ..................................................................................................................................... 27

V i l l a g e P a r t n e r s Page 1

Executive Summary

For over 25 years, Presidential Towers has made a lasting impression on the Chicago skyline and has enhanced the lives of the many residents that have called the four iconic towers home. When initially constructed, Presidential Towers was situated in a distressed but evolving urban corridor. The project was a pioneer in bringing safe, affordable residential living to the downtown core, and it accomplished this goal with a structure that signaled strength, protection, and isolation from the unrefined surroundings.

Over the past three decades, the area surrounding Presidential Towers has been transformed. New office and residential developments have brought life to the region. The area now captures some of the highest office and retail rents in Chicago. In response, Village Partners seeks to open and expose the project to the improved surroundings. We seek to create an entirely new urban neighborhood which integrates with the environment and provides sustainable options for living, shopping, and meeting. We seek to enhance the image of the residential towers through a bold yet feasible redevelopment plan that leverages Waterton’s expertise as a proven operator of apartments. We seek to create a clear, consistent vision for the project.

As a result, Village Partners proposes to transform Presidential Towers into The West Village; an urban destination that is desirable to renters, retailers, and patrons and that can ultimately command rents that significantly increase the total value of the project. The Shops at West Village will include high‐impact retail such as an educational tenant, a storage component, and destination restaurants with rooftop dining and beer gardens. The Residences at West Village will add two‐story and four‐story, for‐sale townhomes that will wrap the existing parking garage and significantly improve the streetscape and curb appeal. The rebranding strategy outlined in our report provides a clear vision and detailed plan to execute our redevelopment vision. Finally, The West Village will create synergy among its various components that will have a positive impact on the existing apartment towers, increasing rents and lowering vacancy rates, making the property dramatically more profitable over time.

As detailed in the following report, Village Partners offers a unique redevelopment proposal that creates significant value over the current redevelopment plan for Presidential Towers. Although a maximum capital commitment of $75MM was allocated in the project challenge, Village Partners believes that a bold transformation can be accomplished with fewer resources. The West Village can be achieved based on an initial $17MM capital commitment that will create a net present value of $33MM over a nine‐year hold period and dramatically improve the project reversion value. The project value creation is summarized in the table below. We are very excited to introduce you to The West Village.

Recommended ProjectsTotal Cost NPV IRR

Townhomes $6,932,727 $3,214,970 50.8%Adjustments to Retail Proposal 1,739,758 5,502,535 51.2%Storage 241,946 936,406 43.1%Tax Increment Financing 6,537,048Spillover Effect on Apt Operations 899,168 14,903,385

Total $9,813,600 $31,094,344 49.8%


Project Market Overview

Chicago Metropolitan Statistical Area The Chicago Metropolitan Statistical Area (MSA) is the nation’s third largest and consists of eight counties encompassing over 4,600 square miles at the southwest end of Lake Michigan. With a population of approximately 9.5 million people, the Chicago MSA has a large and well‐diversified economic structure, which allows it to consistently remain among the strongest in the nation. Chicago experiences less seasonality and cyclicality than many single‐industry cities due to its economic diversification. Chicago is home to 40 Fortune 500 companies and employment at these firms has contributed to the historical stability of the local economy.

Income& Employment Personal income is a significant factor in assessing the demand for multifamily housing and the strength of retail sales in a given real estate market. From 2004 to 2009, the Chicago MSA's income grew at an average annual compound rate of 1.06%, compared to the State of Illinois's average annual compound growth rate of 0.87%. Overall, the economic outlook for the Chicago MSA and the State of Illinois is positive. More importantly, both areas are projected to experience increasing income and employment growth over the long‐term. However, as with many metropolitan areas around the nation, the Chicago MSA has felt the impact of the current recession. Local employment across all sectors has declined rapidly over the past 12 months. Currently, according to the Bureau of Labor Statistics, the March 2009 unemployment rate for the Chicago MSA is 9.4%, which is above the Illinois rate of 9.1% as well as the national average of 8.5%. The current level of unemployment can be attributed to layoffs and problems at large industry leaders such as United Airlines, Motorola, AT&T, a multitude of financial services firms and regional national home builders. Even with its diverse economy, the Chicago MSA is not insulated from the nationwide economic downturn and we anticipate business activity to remain sluggish through much of 2009. Therefore, we feel that any Chicago MSA recovery is expected to be in step with a nationwide recovery. Forecasts for an eventual recovery range widely from late 2009 to beginning of 2011.

History of Presidential Towers Until the mid‐1960s, Chicago’s West Madison neighborhood was a skid row and home to mostly low‐income residents living in run down single‐room occupancy hotels. City planners designated a six‐block area, bound by the Kennedy Expressway, Washington, Canal and Monroe Streets, for “urban renewal” and razed many of existing businesses and hotels. In 1979, the idea of Presidential Towers was born. It was the vision of three developers – Daniel J. Shannon, James P. "Jack" McHugh and Daniel E. Levin. Each had close ties to City Hall and the project received massive public subsidies. Presidential Towers was designed as self‐contained community that covered two city blocks with four skyscrapers offering over 2,400 units, all set on a base of indoor retail shops. There is a single, secure entrance to the property. In 1986, The Wall Street Journal labeled the project "Yuppie Heaven."


The developers acquired the site from the city in 1980 for $30 per square foot, exactly what the city paid for the land in 1968. The project also received tax‐exempt financing from the city and the federal government. With the help of House Ways and Means Committee Chairman Dan Rostenkowski, the developers were able to grandfather in their project and skirt the requirements of the 1980 Ullman Amendment, which makes it mandatory that housing developments financed with tax‐ exempt bonds to set aside 20 percent of their units for low‐ and moderate‐income families. Despite its favorable financing, the Tower's prominence in the press ultimately led to its downfall. Potential renters were turned off by the negative media and protests from former area residents and advocates for the homeless and affordable housing. When the rental market softened from 1986 through the early 1990s, demonstrations escalated causing vacancies to increase significantly. The developers defaulted on their $159 million FHA mortgage payment in 1990, but recapitalized and brought in Pritzker in 1995. The Pritzker family brought Presidential Towers to market in December of 2006.

Neighborhood Overview

The project neighborhood is commonly referred to as the West Loop submarket, which is directly west of the Chicago CBD and east of the Kennedy Expressway. While Presidential Towers is predominantly of residential use, adjacent land uses have historically been office buildings and grade‐level parking. The neighborhood is also home to Old St. Patrick’s Church, the oldest public building in Chicago. Within the past five years, this neighborhood has absorbed increased residential uses during the condominium boom along with new retail developments in the more popular and historic Greek Town and West Loop condominium markets. The Project is within a short walk to a Chicago Transit Authority elevated train line and more immediately linked to suburban commuter rail stations, Union Station and Ogilvie Station, both located within one block of the Project. Approximately one mile east is Chicago’s famed Michigan Avenue retail district, the “Magnificent Mile.”

Surrounding uses within the neighborhood consist of existing commercial and new residential development. The immediate area surrounding the Project consists primarily of office uses built during the 1980s and 1990s. More recently, new condominium developments have added increased residential density to the neighborhood. The majority of the residential development within a one‐mile radius of the Project may be described as loft‐home conversions and new condominium high rises ranging

from $245,000 to $985,000 in price. New residential developments in the form of high‐rise rental buildings are underway in high volumes in Kinzie Station, which is one‐quarter mile north of the Project.


Primary access to the neighborhood is provided by Madison Street, a westbound thoroughfare, and Monroe Street, an eastbound thoroughfare, linking the Project and the Loop to Interstate Highway 90/94, which provides access to all parts of the city’s metropolitan area. Interstate Highway 90/94 also provides access linkage to Wisconsin to the north, Indiana and Downstate Illinois to the south and Michigan to the east. O’Hare International Airport is approximately a 45‐minute drive to the northwest and Midway Airport is approximately a 30‐minute drive to the southwest. The Project is in an area dominated by Class A office buildings and high‐rise condominium and rental developments, and offers the potential for increased urban infill possibilities. The West Loop is a prominent residential/commercial location that is now considered one of the desirable residential locations west of the CBD in terms of access and amenities. The outlook for the neighborhood is for continued growth with population increases over the next several years, which will contribute to the economic and occupancy improvement of the Project. As a result, the demand for the Project will grow, particularly as it links the West Loop residential neighborhood west of the Kennedy Expressway and the CBD east of the Project.

Presidential Towers Competition Condominium Units for Rent The Chicago residential market has witnessed

significant condominium conversion projects.

Between 2003 and 2007, over 16,300

apartment units were converted to

condominiums in the Chicago area1while,

during this same time, only 4,5321 apartment

units were in the introduced into the market.

The large amount of conversions combined

with the low supply of apartment units

strongly helped decrease vacancy rates and

increase rental rates as the available inventory

shrunk. Now, the market has turned, as three

factors are starting to adversely influence the

apartment market.

First, the “shadow market” of condominium

units available for rent has increased, and will

continue to increase, as condominium

projects continue to deliver units to the

market. A portion of the new condominium

owners will seek to rent their units as the exit

(i.e. “flip”) strategy has become non‐viable.

Residential units will continue to increase as

1 Reis Observer, March 2009


nearly 8,700 new dwellings remain underway in the greater Chicago area. Second, foreclosed

condominium projects also present a problem, as the projects under construction are coming on line as

apartment buildings. The last factor influencing the vacancy and rental rates is the increase of

apartment units coming online in the market. In summary, vacancy rates are expected to spike in 2009

with a slow recovery during the following years.

Size and Price Comparison VP performed a review of the rental rates available per unit type in lieu of performing a global average

analysis. In general the findings are consistent with the preliminary concerns of Waterton. The available

units in the building are 4.6% to 16.3% smaller than the units of the peer group. The rental rates per unit

are also lower as a consequence of the size constraints. The most important finding of this analysis is the

difference in rent per square foot per unit type. On average, rents per square foot available in

Presidential Towers are 5‐10% lower than those within the peer group.

Unit size

Presidential Towers Peer group

Comparison Average % below Min Max Average

Studio 518 13.8% 430 1,225 590

Convertible 593 4.6% 442 765 620

One Bedroom 706 14.9% 567 1,209 811

Two Bedroom 1,101 16.3% 930 2,510 1,280

Unit Price



Studio $1,181 18.7% $999 $2,740 $1,402

Convertible $1,378 7.5% $1,181 $1,748 $1,482

One Bedroom $1,445 23.5% $1,121 $3,267 $1,785

Two Bedroom $2,231 20.5% $1,500 $5,665 $2,689

Price/ Sq.Ft.



Studio $2.28 8.9% $1.93 $3.05 $2.49

Convertible $2.32 4.8% $1.95 $2.76 $2.44

One Bedroom $2.05 9.9% $1.33 $3.06 $2.26

Two Bedroom $2.03 8.3% $1.40 $2.73 $2.20


Modified Redevelopment Proposal

In recognition of Chicago’s unique urban environment, we propose to create an entirely new neighborhood in the center of the downtown core. The West Village has been designed to incorporate the critical elements of a neighborhood, and to transform the entire Presidential Towers project, while building upon its existing strengths and excellent location. We will wrap two‐story to four‐story townhomes around the perimeter of the parking garage and add high‐impact retail such as fast casual restaurateurs, an educational tenant, a storage facility and two restaurants with rooftop dining and beer gardens. We will rebrand Presidential Towers to become The West Village and realize the positive externalities created from retail for the apartments in terms of increased rents and lower vacancy rates. The highlights of West Village are described below and explained in greater detail in the following sections.


A Village Includes:

Homes: The improved retail façade and the addition of townhomes to the project add a true sense of community to the existing Towers.

Shops: The project allocates space for a lucrative mix of high‐end retailers, paired with destination restaurants and bars to maintain a vibrant, 24‐hour community.

Schools: The West Village includes approximately 20,000 square feet for a major educational tenant. Many such facilities are expanding and seeking a Chicago headquarters for their classes and student facilities.

Entertainment: The corner of Clinton and Monroe is a perfect candidate for a destination sports bar, which attracts a professional, happy hour clientele, along with resident and student patrons.

Gathering Spaces: The West Village now integrates directly with the project’s neighbors, including Old St. Pat’s Church and provides spaces for meeting, dining and connecting.

Green Spaces: The West Village includes a vast new green roof on top of the renovated parking structure, creating a space for resident recreation

Apartments: The existing dense towers complement the neighborhood theme.

The Shops at West Village

Design Challenge- East Parcel: Bringing Down the Wall Uninterrupted brick walls on the east and south elevations dominate the current pedestrian‐level façade of Presidential Towers. The north and west elevations offer an equally unfriendly expanse of stark concrete cladding on the parking garage. These walls are consistent with the fortress design of the 1980s, when the project was conceived. Unfortunately, these very walls are now responsible for the limited success of the existing retail outlets and the empty feeling that pervades the surrounding streets after standard business hours.

With due respect to the designers, Village Partners believes that the current retail renovation plans are insufficient to create an entirely new image for the project. Although cost effective, the decision to retain the existing brick façade severely limits the ability to improve the project appearance or pedestrian perception. The current renovation scheme also fails to address the need for variety in the height, setback and texture of the streetscape. A long, continuous wall along Clinton Street, even with


larger windows and new signage still conveys the message of a vast, uniform, and perhaps uninviting building. The solution is to bring down the existing fortress walls, and to open up the project to the surrounding community.

Design Solution: Create a New Urban Village Chicago’s best retail and residential architecture creates pedestrian environments that are organic, interesting and inviting. The VP proposal calls for the re‐cladding of the existing Clinton and Monroe facades with a series of distinct contemporary storefronts varying by building depth, height and texture that will attract the existing foot traffic into The West Village. The ultimate goal of the revised façade proposal is to subdivide the large existing building into several distinct zones, thereby creating the feel of an actual neighborhood, rather than a single building. We estimate that the revised design will require capital expenditures that are 17% greater than the current scheme. However, this additional expense will almost immediately be returned, as the improved project will capture higher rents per square foot and attract stable tenants with longer lease terms.

Design Inspiration: Successful Retail/Residential Corridor The intersection of Halsted and Armitage in the Lincoln Park community forms one of the finest commercial streetscapes in Chicago. The district contains an excellent mixture of residential and commercial buildings in an urban setting. The corridor includes small residential buildings and larger, multi‐story buildings, similar to Presidential Towers. Together, the district's buildings form a beautiful streetscape that exemplifies the importance of neighborhood shopping streets in the history of Chicago. It is equally important to note that this corridor was also a place of danger and disrepute in the 1970s. Similar to the region surrounding Presidential Towers, the corridor has been gentrified over the past three decades and the buildings have been renovated and re‐opened to the public as the neighborhood has improved.

The VP proposal calls for the re‐cladding of the Monroe Street Market facade with recycled brick and a series of two‐story, arched storefronts as indicated in the adjacent rendering. This façade takes inspiration from the arched windows of Old St. Pat’s Church only one block away, and opens the Market to the street when weather permits. A setback from the original property line creates generous outdoor space for farmer’s markets, sidewalk sales and the gathering of tenants, students and neighbors. Based on the revised Market layout, with extended exposure to Monroe Street, The West Village and the surrounding environment will now be seamlessly integrated.


Design Challenge: Low-Margin, Short-Term Retail

The current renovation shows several long, narrow retail slots (Tenants C‐F). As drawn, these spaces may be likely to attract small retail tenants of marginal quality. The designated areas along Clinton Street lack façade variance and destination appeal.

While these slots can be combined for lease by larger tenants, they remain very deep and include rentable area that is far from any source of natural light or window frontage.

The configuration of the grocery store and Tenant L severely limits the integration of the existing market with the neighborhood and requires many small shops or one large tenant to take space on the less desirable Monroe façade.

Design Solution: Creating an Urban Destination for High-Quality, Long-Term Tenants

The inclusion of fewer tenants with shallow bays and enhanced street exposure will create more value than the existing retail plan. As inspiration for the ideal tenant mix, we have continued the theme of the essential components of a true village.

The goal of the proposed tenant mix is a property, which is the center of activity on a 24‐hour basis.

In response to retail broker suggestions, the prime spaces on Clinton Street have been made more shallow to provide enhanced street frontage and reduced back‐of‐house, low‐rent area. This allows the back‐bay space to be used as the storage facility.

The Monroe Street Market (grocery store) has been rotated 90 degrees and set back from the street to allow for vast street frontage

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Proposed Storage Facility VP proposes that the underutilized back‐bay retail space behind Tenants C and D be converted to a storage facility for the apartment tenants. In order to justify this usage we have evaluated both apartment and public storage facilities, as Presidential Towers would face competition from both. The apartment storage segment offers storage lockers sized at 6’x6’x8’. Currently, only 41% of Presidential Towers’ competitors offer storage. Thus, Presidential Towers would have an advantage over approximately 60% of its competitors. The public storage segment offers lockers ranging anywhere from 2’x2’x8’ to 21’x16’x8’. It also offers climate‐controlled storage for an additional premium. Monthly revenues per locker are formally determined based on size, the climate‐controlled feature and location. Presidential Towers currently offers a very small storage locker to residents. Each apartment is limited to a maximum of two storage lockers at $15/month per locker. The smaller unit size of the studios and convertibles at Presidential Towers generates additional storage needs for tenants. Thus, if its tenants require a larger storage space, conveniently located close to home, they would be forced to shop at public storage competitors or consider renting at one of the Presidential Tower competitors offering on‐site storage. This presents a huge opportunity for Presidential Towers to provide better storage facilities to its tenants, and increase its revenue generation at minimal cost.

Proposed Educational Tenant Rather than rely solely on several small retail tenants to take space on the south face of the site, we propose pursuing a large, stable tenant that offers the project enhanced "destination" appeal. Below are several community college clients (i.e., art schools, nursing schools, and city colleges) that are expanding rapidly and currently looking for large blocks of space near the loop. ‐ North Park University ‐ City Colleges of Chicago ‐ Kaplan College

‐ Westwood College ‐ MacCormac College ‐ Argosy University

‐ Northwestern College ‐ Robert Morris College ‐ Illinois Institute of Art

These educational tenants tend to sign long‐term leases and desire buildings that offer on‐site housing, fast casual dining and public transportation options. Older, urban buildings like Presidential Towers are great candidates for these tenants, as they do not require large windows or large column bays and typically require 20,000 to 30,000 square feet for a city campus. According to Cushman & Wakefield, recent “comps” show rents from the high $20s to the mid $30s. VP believes a new lease for a technical school or college located at Presidential Towers would be executed at $30 to $35 per square foot, with little required in tenant allowance. We believe an educational tenant will increase the evening use of the project, add to the use of the retail and have additional residual effects, complementing the other components of The West Village.

Proposed Restaurant Tenants Potbelly Sandwich Works is located at the northeast corner of the Project and benefits from heavy foot traffic due to its proximity to Ogilvie Train Station and its street exposure. VP suggests The Shops at West Village attract fast casual restaurants that will help extend retail hours of operation and contribute to the destination theme. Retail units P and D have high street visibility and locations desirable to tenants such as a Chipotle, Argo Tea or Five Guys. According to MidAmerica leasing brokers, fast casuals

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will pay rents in the high $30s to mid $40s per square foot. Tenant improvement allowances are expected to be between $30 to $40 per square foot for fast casual tenants at The Shops at West Village.

Proposed Rooftop Dining and Beer Gardens Our redevelopment retail proposal provides two distinct and attractive restaurant spaces on Clinton

Street with rooftop gardens available above. Unit D will include a bar tenant similar to the popular Rock

Bottom Brewery or Martini Park in River North. Unit J would be ideal for a restaurant tenant similar to

D4 or an entertainment component like Dave & Buster’s or Lucky Strike. According to MidAmerica retail

leasing brokers, achievable retail rents at The West Village for a restaurant or entertainment tenant are

between $40 to $50 per square foot with $30 to $40 per square foot in tenant allowance.

The Residences at West Village

Design Challenge– West Parcel: Bringing Down the Wall The current pedestrian‐level façade of Presidential Towers along Madison and Des Plaines Streets consists of a long, uninviting expanse of reinforced concrete. The parking garage walls continue the fortress theme and limit the ability of the project to relate to its improved surroundings. The current renovation proposal appears to leave the west parcel of the project unchanged. Considering the project’s valuable location, this is a waste of precious downtown street frontage. Village Partners believes that the neighborhood is growing around the fortress and, despite the challenges of renovating the west parcel, the project must respond. Unfortunately, the long spans of frontage actually provide too much street area for a viable retail corridor. Instead, it appears that the optimal but unconventional solution is to create a new residential neighborhood of townhomes at the perimeter of the parking garage.

Design Solution: The Residences at West Village

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Village Partners has imagined an urban streetscape that is both modern and inviting. Understanding that architecture is a very subjective topic, we have also considered the creation of a townhome village with a more traditional Chicago appearance. The photographs below reflect successful Chicago townhome communities that could be incorporated with a more classic material palate and similar costs.

Design Challenge – West Parcel: Parking Garage The creation of townhomes along the perimeter of the parking garage poses many challenges. The primary concern is naturally the loss of parking area. There are also structural considerations, functional concerns and zoning and planning restrictions. Village Partners has studied each of these limitations and devised a strategy for their resolution.

Design Solution: The Park at West Village

In order to avoid the loss of lucrative parking spaces in the region of the new townhomes, a new story of parking will be built upon the existing structure. All lost spaces will be replaced and a green roof will be added above the new parking level. The green roof will offer an attractive landscape to the residents of the towers and be used as an amenity for the townhome residents – a backyard in the city.

A previous study of the feasibility of this concept has been completed by Walker Parking Consultants. The Walker Parking study recommends the addition of one floor using the same construction techniques of the original structure. While reasonable, this strategy is extremely costly, and limits the amount of weight that the structure can bear. Instead, VP proposes the use of an innovative but tested method of steel construction for the new parking deck and the construction of an additional level of green roof above. Long span steel parking garages offer significant savings in construction costs. Recent projects of similar scope and in similar conditions have been completed for $6500 per parking spot. This is much less than the $32,000 per spot allocated by Walker Parking.

Design Inspiration for Townhomes: “The Vancouver Model” Vancouver, British Columbia is recognized internationally as a successful example of urban design and dense residential development. The Vancouver Model, which has now been copied in many cities such as San Diego, Melbourne and Dubai, combines high-rise towers with a podium of residential townhomes in a single project.

Per capita, no city in North America has as many residential high-rises as Vancouver. In order to maintain a vibrant street presence with so many towers, the city council of Vancouver has mandated that tall residential projects incorporate dwelling units at street level. This ordinance has successfully led to pedestrian-friendly neighborhoods within a major city. We recommend that this model be incorporated into the West Village in order to capture the benefits of the project location and create a sense of human scale. Chicago’s Mayor Daley has visited Vancouver and shown strong support for The Vancouver Model as a means of reducing auto traffic, increasing use of public transportation and adding to the appeal of the city.

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Before and After Structural Sections

Townhome Design

Village Partners proposes to reuse the existing post‐tensioned concrete structure exactly as currently built. The proposal calls for minimal structural modification, with sleek urban interiors, exposed concrete floors and a bold new façade as indicated below.

Sample Interiors and Floor Plans


The Towers at West Village

In order to create a dramatic new presence on Chicago’s skyline and to signify the new position of the project, Village Partners proposes that the towers be repainted to a bolder, brighter shade.

We understand that the towers were repainted in 2004‐2005 as a part of the scheduled maintenance program. Although the next paint coating may not be required until 2015, we recommend that the program be accelerated to 2010 to coincide with the rebranding effort and the opening of the renovated retail spaces.

Marketing Strategy

Rebranding Rationale Re‐branding is defined as affecting a change to a brand in order to stimulate a change in consumer attitudes, perceptions, and behavior with the end goal of generating positive market growth. Rebranding is often necessary when a brand has outgrown its identity or its marketplace as in the case of Presidential Towers. Successful rebrands, however, are about balance. The value of the existing brand remains while the new values signal a change in direction. It should be about a positive evolution not a desperate revolution and should "create some surprises" around the brand, inviting consumers to


reassess their opinion. To better understand the current perception of the Presidential Tower brand, we conducted research that we felt would be comparable to a target tenant’s search for a Chicago apartment. We undertook a sample Google search using the keywords “Presidential Towers + Chicago, IL”, compiled over 65 reviews from common sites (yelp.com, apartmentratings.com, city‐data.com), and interviewed several previous residents. Please see Appendix for the results. We also conducted an extensive analysis of Presidential Towers competitors in order to determine its standing in the rental market. Current rents throughout all unit types are in the bottom quartile compared to the peer group. This is due to a combination of multiple factors, including but not limited to building age, apartment density, location, utilities included in rent and image of the building. Changing factors such as the building age and apartment density does not make economical sense whereas altering the utilities included in rent is typically determined by market conditions. However, VP believes that there is significant potential to match peer buildings average rental rates by influencing the market’s perception of Presidential Towers. Thus, this data signals a need for rebranding. Please see Appendix for details on competitor analysis. While Presidential Towers offers a host of desirable attributes, it also has significant challenges to overcome. The Challenges center largely on the historical perception of the project and the blunders of its previous management. With that in mind, we strongly encourage Presidential Towers to undertake branding efforts that address the lack of a neighborhood feel, disconnect the project from its past, and allow consumers to form a new sense of the brand.

Rationale for Name Choice Presidential Towers is currently stuck in “no‐man’s land” in that it is physically situated in what most view as the West Loop office submarket but on the outskirts of the West Loop residential submarket. Due to its initial fortress design (internal retail and tower configuration), it feels isolated and intimidating. We propose renaming the entire project, The West Village, to capture the neighborhood feel the term “village” connotes and to leverage the energy from the new, externally facing retail configuration. By maintaining the West descriptor, we feel The West Village will still be associated with the positive West Loop connotation while defining itself as a Chicago destination. See the proposed logo below:

We also believe that renaming the different components (i.e., The Shops at West Village, The Towers at West Village, and The Residences at West Village) will make the project more accessible and delineate its different purposes. In addition, replacing the Presidential Towers brand will allow the project to:

Remove the negative associations many long‐term Chicagoans associate with the development of the project


Disassociate itself from the negative press and reviews found on the internet

Create a new perception of both the neighborhood and the project and immediately capitalize on the buzz generated from the new leases, renovations, and improvements

Marketing Benefits and Challenges While Presidential Towers does have some challenging aspects, it also has the opportunity to significantly differentiate itself from the competition by properly marketing the existing benefits and minimizing the negatives. Presidential Towers is inherently “green” and should capitalize on the small footprints of its studios, the density of its towers, and its walkable community to offer residents the opportunity to live smarter. In addition, Presidential Towers should leverage the current trend to live economically and promote its affordable rents as a chance to live in one of the world’s greatest cities and have money left over to spend exploring all it has to offer. Marketing Benefits

Central location Unmatched views Naturally green (density, small footprint, walk‐to options, etc.)

Proximity to Loop without congestion Desirable retail location Up‐and‐coming area for both residential and office

Marketing Challenges Significant negative perceptions to overcome

Relatively small unit spaces Huge complex to navigate Too much of one product type Years of bad press

Targeting and Positioning In order to successfully rebrand Presidential Towers, we must properly position the project to include its various uses and to justify the asking rents for both retail and residential. The external look of the project, the internal operations, and the overall branding must form a cohesive message in order to seamlessly transition Presidential Towers to The West Village. Currently, Presidential Towers is the landing place for new‐to‐the‐city residents or renters on a budget. Through these combined efforts, we would like to shift the focus away from affordability alone and position it as a destination for: Residents: The West Village is an urban living destination for value‐conscious tenants who appreciate a modern mix of on‐site amenities, easy access to the Loop, a variety of public transportation options and a defined neighborhood atmosphere.

Prospective Retail: The West Village is an urban destination for tenants who demand a visible location with foot traffic, thrive on business generated by the work crowd, appreciate the urban mix of amenities and value the captive resident audience.

Environmental Considerations

Village Partners has designed The West Village to meet or exceed all current industry standards for environmental sensitivity. In addition to achieving LEED Certification in all proposed projects (price of


certification is included in all estimates), we believe that The West Village has several inherent, qualitative attributes that are environmentally beneficial to its residents and the environment.

The following West Village attributes are inherently green and can be leveraged as environmentally friendly as the image of the building is transformed.

Superior location: Located in the heart of downtown Chicago, the West Village is located near multiple rail systems that reach out to the entire Chicago‐land area. The West Village resident has access to multiple business areas including but not limited to: downtown Chicago, the West Loop office market and satellite business districts in the Evanston, Deerfield and Downers Grove areas without the use of vehicular transportation.

Dense and efficient apartments: The West Village dweller’s carbon footprint is minimized by the size and energy consumption of his/her dwelling. By living in a small dwelling, encompassed in an efficient development, with multiple services and accessible locations, the West Village resident enjoys the true meaning of smart, environmentally responsible living.

All‐inclusive amenities which reduce the need for driving: As mentioned above, The West Village dweller enjoys multiple in‐house amenities as well as plentiful commerce and neighborhood areas in less than a mile radius. The newly developed Shops at West Village is a brand new commercial area located just an elevator ride away. The West Village resident has the chance to enjoy multiple benefits associated with a real urban living experience.

Zoning and Planning Based on discussions with several architects, attorneys and representatives from the City of Chicago Department of Zoning and Planning, the concepts included in The West Village would be very compelling to the city. The chairman of the city council Committee on Finance, Alderman Edward Burke has stated that projects which improve the image and functionality of the city deserve public support. It can easily be argued that the enhancements to the project at the pedestrian level will have benefits for all of the surrounding neighbors, including the offices, apartments and churches directly adjacent to the site.

Financial Overview

Based on a $10MM capital commitment, we project a net present value return of $31MM over a nine‐year hold period. We arrive at this return through contributions from numerous sources. We recommend a series of projects, and each of them makes a positive contribution to value creation. While not all projects are a tremendous share of the value created, incorporating all of the projects has the positive effect of improving the image and brand of The West Village. Improving this image has a positive spillover effect on the apartments’ operations, and this creates the greatest share of the value created. We recommend the following projects be undertaken:


In addition to the recommended projects listed above, we considered a number of projects on existing apartment structures, including assisted living, hotels, and independent living. We found that, while the standalone projects were not inherently negative projects, the cash flows that were surrendered from the apartments outweighed the benefits of going forward with any of the aforementioned projects. First, we recommend replacing a portion of the parking on the west parcel with townhomes, which will only be built when 50% of the units have been presold. This will create an additional $3.2MM in value on a capital commitment of $6.9MM. We will replace the lost parking spaces by adding a new floor to the parking garage. Selling townhomes maximizes the value of the property, and withholding the construction of the townhomes until the presales hurdle is met will reduce the project’s volatility.

Returns SummaryTotal Capital Contributions $9,812,308IRR 48.4%Total Net Present Value $30,590,225

Recommended ProjectsTotal Cost NPV IRR

Townhomes $6,932,727 $3,214,970 50.8%Adjustments to Retail Proposal 1,738,467 4,998,416 48.6%Storage 241,946 936,406 43.1%Tax Increment Financing 6,537,048Spillover Effect on Apt Operations 899,168 14,903,385

Total $9,812,308 $30,590,225 48.4%

The Townhomes at West VillageTotal

Amount Percentage Per Unit Per Sq. Ft.Home Sales:

Base Price $16,406,344 98.2% $565,736 $327.21Options/Upgrades 300,247 1.8% 10,353 5.99Total 16,706,591 100.0% 576,089 333.20

Construction Costs:Hard Costs ‐ Base 7,220,160 43.2% 240,672 144.00Hard Costs ‐ Options/Upgrades 100,200 0.6% 3,340 2.00Total 7,320,360 43.8% 244,012 146.00

Home Sale Closing Costs:Closing‐Related Costs 43,500 0.3% 1,450 0.87Marketing Commissions 290,000 1.7% 9,667 5.78Total 333,500 2.0% 11,117 6.65

Gross Margin ‐ Amount $9,052,731 54.2% $301,758 180.55

Fixed Costs:Parking Structure 2,254,020 13.5% 75,134 44.95Other Up‐Front Costs 450,000 2.7% 15,000 8.97Subtotal 2,704,020 16.2% 90,134 53.93

Variable Costs:Contingency Reserve 144,403 0.9% 4,813 2.88Administrative Costs 145,000 0.9% 4,833 2.89Subtotal 289,403 1.7% 9,647 5.77

Estimated Profitability (Undiscounted) $6,059,307 36.3% $201,977 $120.85

Discounted @ 11% $3,214,970


As shown in the sensitivity table, the value created by townhomes is resilient to soft market conditions such as a decrease in home prices or fluctuations in construction costs.

Next, our retail plan creates an additional $7.5MM in value for the project by incorporating the following changes: ‐ Constructs a premium structure that will increase occupancy ‐ Makes use of rooftops to increase leasable square footage

‐ Reduces the depth of street‐front retail and use the back‐bay square footage to create an owner‐operated self‐storage segment. ‐ Draws school as a tenant to attract desirable commercial tenants

By increasing construction costs relative to the existing plan for commercial space, The West Village could really separate itself as an attractive location for retailers. We recommend a 17% premium to the existing plan, which we believe will increase occupancy by 2.5%. We recommend creating a rooftop beer garden that will increase the leasable square footage, and we believe it will also increase the desirability of the rental apartments as it creates a more socially active community in the area. Next, we believe that self storage is a positive NPV project that will contribute $900,000 in value to the retail space. We recommend creating this space by reducing the depth of certain retailers’ bays. This is an attractive investment because front‐bay rents are higher than back‐bay rents, so the self storage contributes relatively higher rents for the back‐bay area of the property. Last, we recommend bringing in a school as a tenant, as this will increase foot‐traffic to the commercial space, and it will create more of a destination to the property. All of these projects serve to make the area more desirable to potential retail tenants, allowing Waterton Residential to increase net rents on the property by $6.44 per square foot, as shown in the below diagram.

$3,214,970 $300 $320 $340 $360 $380 $400$158 $1,335,322 $2,001,482 $2,667,641 $3,333,801 $3,999,961 $4,666,120$156 $1,413,512 2,079,672 2,745,831 3,411,991 4,078,150 4,744,310$154 $1,491,702 2,157,862 2,824,021 3,490,181 4,156,340 4,822,500$152 $1,569,892 2,236,051 2,902,211 3,568,370 4,234,530 4,900,690$150 $1,648,082 2,314,241 2,980,401 3,646,560 4,312,720 4,978,879$148 $1,726,271 2,392,431 3,058,591 3,724,750 4,390,910 5,057,069$146 $1,804,461 2,470,621 3,136,780 3,802,940 4,469,100 5,135,259$144 $1,882,651 2,548,811 3,214,970 3,881,130 4,547,289 5,213,449$142 $1,960,841 2,627,001 3,293,160 3,959,320 4,625,479 5,291,639

Range of Possible Sales Prices per Square FootConstruction Cost

per Square Foot

Senstivity Analysis: Base Sale Price v . Construction Costs


Waterton Village Partners

Existing Leases Unit PSF Rent SF Revenue PSF Rent SF RevenuePotbelly Tenant A $42.00 2,495 $104,790 $42.00 2,495 $104,790Yolk Tenant B $35.00 4,200 $147,000 $35.00 4,200 $147,000McDonalds Tenant H $35.00 4,715 $165,025 $35.00 4,715 $165,025Enterprise Tenant N $31.00 710 $22,010 $31.00 710 $22,010Health Club Tenant Q $21.00 5,855 $122,955 $21.00 5,855 $122,955

Potential TenantsGrocer Tenant M $15.00 15,169 $227,535 $23.00 10,000 $230,000Crust Tenant C $40.00 1,754 $70,160 $50.00 4,583 $229,150Martini Park Tenant D $33.00 2,769 $91,377 $50.00 2,889 $144,450D4 Tenant J $43.00 2,838 $122,034 $54.00 7,400 $399,600Martini Park / D4 Roof $25.00 8,000 $200,000Kaplan Tenant L $30.00 13,260 $397,800 $35.00 18,187 $636,545Dry Cleaner Tenant O $28.00 1,724 $48,272 $38.00 1,724 $65,512Chipotle Tenant P $40.00 2,614 $104,560 $45.00 2,614 $117,630Storage Tenant R 5,560

Tenant E $32.50 2,889 $93,893Tenant F $32.50 2,889 $93,893Tenant G $32.50 2,889 $93,893Tenant K $32.50 4,562 $148,265Corridor 4,200 $0.00 4,600 $0

Existing Leases $31.25 17,975 $561,780 $31.25 17,975 $561,780Potential Tenants $27.96 57,557 $1,491,681 $30.86 65,557 $2,022,887Total $28.79 75,532 $2,053,461 $35.23 83,532 $2,584,667

Difference $6.44 8,000 $531,207

NPV @ 8% Cap $6,600,000

Retail Comparison Existing Plan West Village

Ongoing Cash FlowsOccupancy 85.0% 87.5%Average Net Rental Rate /sf $28.6 $35.3Rent Revenues $2,291,438 $2,906,654Vacancy & Collections Allowance 321,230 339,562Operating Expenses 149,907 190,155

Net Operating Income $1,753,914 $2,296,121

Reversing Cash FlowsStabilized NOI $1,753,914 $2,296,121Capitalization Rate 8.0% 8.0%

Retail Value $21,923,925 $28,701,511

Intial Capital ExpenditureTenant Improvements /sf $1,836,580 $1,386,485Leasing Costs 48,527 90,550Construction Cost / sf 120.0 140.4

Total Initial Capital Expenditure $9,160,209 $10,656,730

Estimate Net Present Value @ 13% $9,060,147 $14,058,563

This is a summary of a more detailed, year‐by‐year financial analysis. Please see Appendix [#1] for supporting details

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Improvements in apartment operations create $15MM in value towards our overall concept. Perhaps the most significant contribution to the existing plan is the inclusion of a rebranding plan, thus creating The West Village concept. We recommend an investment of $250,000 for marketing to make the apartments more attractive to prospective and existing tenants. We believe that this investment will both improve the reputation of the building and the actual visual appearance of the towers. We recommend spending $569,000 to repaint the towers. Since Waterton plans to repaint in five years, the net cost of the repainting is the difference between painting the towers now minus the present value of the same repainting cost in five years. Next, we recommend a $250,000 marketing expense to help woo potential tenants. We think that we can reduce turnover by meeting certain tenant requests such as an additional entrance for the apartment buildings for $80,000. We believe that the impact of these changes will conservatively improve rent revenues by 3% and occupancy by 1%. We very much think that these improvements should be greater, but even with these conservative projections; this is an attractive project from a returns perspective. Finally, we believe that this project is a viable candidate for tax increment financing in the amount of $10MM, due to both its location and the value creation that the project is having for the entire surrounding neighborhood. The NPV of a $1MM tax credit per year for ten years contributes $6.5MM. All of these factors included create $20MM in value towards the overall project.

We believe that by implementing a rebranding campaign of the entire project, The West Village will be able to positively affect the demand for its units, thereby increasing both the occupancy and the rents at the project. Implementing the entire plan proposed in this document will ultimately make The West Village a destination location and a more desirable place to live. With those improvements, we believe The West Village will be able to capture an increase in rents ranging from $2.19 to $2.33 per square foot.


To summarize, we feel that the risk‐adjusted returns warrant a significant rebranding effort, the development of new townhomes on the west parcel of the land, a more aggressive retail component with new lines of business such as educational, entertainment, and storage, and the pursuit of $10MM in tax increment financing. This conservatively creates in excess of $31MM in NPV.

Tax Increment Financing

Presidential Towers currently sits at the border of two existing TIF districts. These districts have been liberally expanded over the past decade to provide incentives for private investment and urban infill development. The West Village is exactly the type of project that the City of Chicago would consider for tax assistance due to its goal of revitalizing the neighborhood. Per SB Friedman, it is believed that The West Village project would be able gain inclusion in one of the adjacent TIF districts and acquire up to $10M in TIF even without an affordable housing component.

Affordable Housing The City of Chicago has many programs to provide affordable housing to low‐income residents. These programs also supply benefits to landlords that provide affordable housing. The following paragraphs describe various programs offered by the city that may appeal to Presidential Towers. Chicago Low‐Income Housing Fund – This Fund offers a Rental Subsidy Program. The program provides annual rental subsidies to building owners that reduce rents on a specified number of units. The rents must be reduced to a level that is affordable for very low‐income individuals and families. Low‐income in this context means 0‐30 percent area median income. Landlords accepted into the program receive a

= Presidential Towers Site

River West TIF District Canal Congress TIF District


Housing summaryCurrent

Total revenues $34,583,458With Affordable Units

Total revenues $32,091,404Delta ($2,492,054)Cap Rate 8.0%Capitalized delta income ($31,150,677)

Additional TIF revenues Additional AH income $10,000,000Difference ($21,150,677)

one‐year renewable grant, paid quarterly in advance. Affordable Requirements Ordinance – This ordinance states that if Presidential Towers receives help from the city in the following methods it must allocate a certain percentage of units towards affordable housing.

The affordable housing must be applicable to 60% of the median income levels and thus requires the rents to be at the levels indicated in the affordable column shown in the table to the right. These rents are significantly lower than Presidential Towers’ current rents. Per SB Friedman, the project could secure an additional $10MM in TIF if it allocated 20% of its units to affordable housing. In order to determine if the project should offer affordable housing in exchange for $10MM in TIF we conducted a cost/benefit analysis. This analysis assumes an increase in occupancy as affordable housing units would reduce vacancy and also assumes 20% of the units are rented at the affordable rents listed above. We then calculated the change in revenues associated with the above assumptions. The results are shown on the right. Affordable housing would create a significant loss in income solely due to the change in rents received. In reality, this loss would be even higher as this number does not incorporate losses in brand image and negative externalities caused by affordable housing tenants.

Assistance Provided by the City of Chicago % Of Required Affordable Housing Units

Receive a zoning change that: • permits a higher floor area ratio (FAR) • changes from a non‐residential to a residential use • permits residential uses on ground floor, where that use was not allowed

10%

Receive financial assistance from the City 20%

Are part of a Planned Development (PD) in a downtown zoning district.

10%

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Concepts Not Pursued

Senior Housing Market Overview The senior housing market consists of Independent Living and Assisted Living properties. This market has been negatively impacted by the housing bust, struggling economy and rising unemployment. The occupancy rate in senior housing has declined approximately 8% over the past few years. Currently, the senior housing market in Chicago has the third lowest occupancy rate of 31 metro markets at 86.4% for Independent Living and 89.7% for Assisted Living. There are 129 Independent Living properties in Chicago consisting of 19,666 units. Also, there are 173 Assisted Living properties consisting of 9,632 units in Chicago (NIC MAP MetroMarket Report). New construction will add 796 more Independent Living units and 622 Assisted Living units on the Chicago market between now and 2010 (NIC MAP Construction Report). According to Green St., rent reductions and transition costs for tenants will be more common in 2009 and 2010.

Assisted Living Assisted Living properties are typically purpose built and not converted from apartment buildings. A complete retrofitting would be required in order to convert a set of apartments in Presidential Towers into Assisted Living units. This would require gutting the building and installing emergency pull systems, nursing stations, adding extra emergency exits and more. Furthermore, Assisted Living properties generally occupy all units in a building and not just a section of units. Thus, it would be difficult to find a Senior Housing Operator that would be willing to work under this condition. For these reasons, we do not suggest incorporating Assisted Living into Presidential Towers.

Independent Living Independent Living on the other hand does not require nearly as much capital expenditure as Assisted Living. Thus, Independent Living is more suitable for Presidential Towers. The likely competitors to Presidential Towers are shown on the right. A closer look at Independent Living reveals a typical unit mix of 28.4% Studio, 51.0% One‐Bedroom, 17.9% Two‐Bedroom and 2.7% Three‐Bedroom (NIC MAP MetroMarket Report).This differs significantly in terms of Presidential Towers unit mix as it doesn’t have any three bedrooms and has many convertible units. Incorporating Independent Living into Presidential Towers would require a Senior Housing Operator to run rental operations for those units as well as provide all the amenities expected of an Independent Living facility such as transportation, meal services, planned activities and more2. To obtain a Senior Housing Operator in this market is significantly difficult as most are negatively impacted

2 Refer to appendix to view a matrix of amenities offered by competitors for independent living

Property Name Property Type Location # Of Units

Autumn Green at Midway Village affordable full service 6700 S. Keating Ave. 126

The Breakers at Edgewater Beach luxury full service 5333 N. Sheridan Rd. 345

Hallmark luxury full service 2960 N. Lake Shore Dr. 341

The Clare at Water Tower luxury full service 875 N. Michigan Ave 258

Resurrection Retirement Community luxury full service 7262 W. Peterson Ave. 471

Farwell House luxury full service 1420 W. Farwell Ave. 45

Jarvis House luxury full service 1345 W. Jarvis 39

Plaza on the Lake luxury full service 1426 W. Birchwood Ave. 98

Lawrence House LLC luxury full service 1020 W. Lawrence Ave. 371

Park Plaza Retirement Cntr. luxury full service 6840 N. Sacramento Ave. 191


by the housing market and by children of parents in need of care who have lost their jobs that are now caring for their parents themselves. In the future, it may be possible to enlist an operator. However, most operators prefer to run a whole building not a partial area designated to senior living. Thus, special contracts that indicate equal sharing of vacancy risks between the operator and owner would be necessary to entice an operator to accept the limitations of the project. Based on the assumption that a Senior Housing Operator is attainable, pursuing Senior Housing Independent Living would produce an NPV of ($7MM). Thus, we decided against pursuing Senior Housing in Presidential Towers.

Student Housing Chicago has many colleges and universities. The following table shows schools that are close in proximity to Presidential Towers and that provide dormitories for their students.

The table shows that the dormitories provide housing for only 13‐38% of students attending full‐time. This presents an opportunity for Presidential Towers to engage in providing student housing for these colleges. In speaking with these colleges, we learned most do not offer services to help students locate off‐campus housing; the exceptions are DePaul University and Loyola University. DePaul directs its students to a third party website service: Places4Students.com.

Presidential Towers is currently a highlighted apartment building on this website. Loyola University launched its first Off‐Campus Student Housing fair this year and Presidential Towers was not in attendance. Cliff, the Assistant Dean of Students, is more than happy to have Presidential Towers on the roster next year for this event. This would allow Presidential Towers early access to Loyola students looking for housing in the city.

Student housing and Presidential Towers are a good fit as Presidential Towers offers affordable apartments in a great location. Student housing could also help Presidential Towers stabilize leasing of a significant portion of its apartments. This is possible as Student Housing is all leased during the same few months every year. However, there is a downside to Student Housing. Students can have a detrimental effect to the property in terms of noise pollution and damage to the property itself. Also, they tend to exert a negative externality to the image of a property and prevent other more respectable tenants from leasing. Thus, in order to take full advantage of Student Housing and to minimize the negative impacts, a restacking of units must be executed. To do this, Presidential Towers could designate a section of a specific tower to only students. This can be achieved through pricing that section lower than the same sections in the other towers, and effectively the price‐sensitive students will fill that section.

NAME ADDRESS

# OF FULL‐TIME EQUIVALENT STUDENTS

DORM CAPACITY

% OF FULL‐TIME STUDENTS IN DORMS

Columbia College Chicago 600 South Michigan

11082 2579 23%

DePaul University 55 E Jackson 19528 2807 14%

Loyola University Chicago 820 N. Michigan

14210 3800 27%

Roosevelt University 430 S Michigan Ave

4778 600 13%

Rush University 600 S. Paulina St. STE 440

1303 490 38%

School of the Art Institute of Chicago 36 S Wabash

2837 706 25%

University of Illinois at Chicago 601 S Morgan

23015 3806 17%


Hotels We do not recommend incorporating a hotel into the redevelopment plan of Presidential Towers at this time, due to the opportunity costs of lost apartment rental revenues, the saturation of lodging in the Chicago downtown area, and the flailing expected performance of hotel operations in the short and mid‐term. The lodging sector in general has gone from a boom to bust over the past two years. RevPAR and operating margins have declined sharply during the recession. Analysts expect a 20% decline in RevPAR and a 50% decline in EBITDA, which will not bottom out until 2010. Even after the trough, slow recovery is expected, as analysts do not expect a full recovery until 2014. Beyond the general economic cycle, analysts also believe that the current populist sentiment against corporate indulgence could create a paradigm shift in corporate spending that will reverberate strongly through the hotel sector. Thus, any recovery will come slowly, but a full recovery may be unachievable.

Competitors There are 18 hotels located within three quarters of a mile of Presidential Towers, and they cover a range of classes from mid‐scale to luxury. A shadow supply of five other hotels is likely to come online in the near future as well. More telling, 17 other intended hotels that were scheduled to come online have either been cancelled or are unlikely to be completed. Of these projects, some have been abandoned for financing reasons, while others have considered continuing development but switching from a hotel to a different asset class. This indicates a saturated lodging market in downtown Chicago.

Execution The most significant struggles of incorporating a hotel, on top of the foreboding market conditions, are the sacrifices that the general partner would need to make in order to develop a hotel. Not only would the development of the hotel shut down operations on segments of the apartment buildings, thus creating periods of lost apartment revenue, but also the discounted operations of the hotel must be compared to the discounted operations of the apartments. Comparing the net present value of these alternatives shows a negative net benefit of ~$13MM for taking the apartments off line and incorporating a hotel. As a standalone development opportunity, the returns are not unattractive, given that the hotel would likely come online towards the bottom of the cycle, but sacrificing the operations of the apartments makes it an unattractive investment.


Appendix

Sample links from first four pages of Google: Presidential Towers to get health club, CVS, eatery ‐ Chicago Real ... ‐ 11:06am Sep 17, 2008 ... (Crain's) — The retail redevelopment of the Presidential Towers apartment complex is moving forward, with letters of intent signed by two ...

Presidential Towers : Got bed bugs? Bedbugger.com By nobugsonme on Mar 10, 2007 in Presidential Towers, bed bug class action suit, bed bug disclosure, bed bug lawsuit, bed bugs, bed bugs Chicago, ... Presidential Towers ‐ Near West Side ‐ Chicago, IL ‐ 9:52am This place holds some special memories. The guy barfing in the circle drive, all the mornings at McDonalds, shopping sprees in the Prezzy Market, ...

Presidential Towers Deal Reserves Housing for Poor | Article from ... ‐ 11:05am Presidential Towers Deal Reserves Housing for Poor ... find Chicago Sun‐Times articles. WASHINGTON Developers of Presidential Towers, the financially ...

Compilation of 65 on-line reviews and several previous tenant interviews: Negative Comments Positive Comments

Unresponsive and rude management (12) Central location (9)

Would not recommend to anyone (11) Increased security (7)

Student‐dorm atmosphere (10) Great views (6)

Overpriced in comparison to competition (10) Gym and pool are nice (5)

Bed‐bug problem (9) Convenient amenities (5)

Lacks neighborhood feel (8) Actual space is nice (5)

Little activity in area on weekends or at night (7) Fits budgetary needs (4)

Takes up to 20 minutes to enter building (7) Transportation options (4)

Security delay for guests (7) You never have to leave (3)

Bad smell (6) Parking (3)

Section 8 residents (5) Large bedrooms (3)

Dated units/appliances (4) Able to walk to work (3)

Security violates privacy (4) Great place for families (1)

Extra charges / separate billing (3) Effective management (1)

Bugs are an issue (3) Management of package delivery (1)

Does not feel like “home” (3) Community outdoor space (1)

Poorly maintained (3) Storage space (1)

Unfriendly for kids (1)

Package management (1)


A Day in the Life at West Village: Summer 2012 Time Activity 6:00 am Residents and off‐site members enter the gym for an early morning workout 7:00 am Yolk, the coffee shop, and the drycleaner are buzzing with the morning rush 8:00 am The professional crowd heads out to the office via cabs or on foot 9:00 am Students head out to their campuses for morning class, grabbing coffee to go 10:00 am Fast casual restaurants open for business 11:00 am A few prospective tenants decide to stop in for a tour, after having lunch in the project Noon The restaurant patios fill up quickly with people enjoying lunch and the nice weather 1:00 pm A group of young adults enter Dave and Buster’s for an afternoon of entertainment 2:00 pm Off‐site students grab a tea at Argo and settle in for an afternoon of studying 3:00 pm Young mothers park in the garage, drop their kids at swim lessons at the gym, and run a few

quick errands while they wait 5:00 pm Residents make their way home, stopping at the market to pick up a few items 6:00 pm The happy hour crowd pours into the beer gardens before catching a train at Ogilvie 7:00 pm Tourists in downtown hotels looking for something new arrive on foot for dinner 8:00 pm The townhomes’ garden rooftops are lit up as residents barbeque with friends and conversation

fills the air

10:00 pm Residents of The West Village area meet to share a drink and watch the end of Cubs game


Peer Group Analysis

The following apartment buildings were used as a peer group to analyze the building age, size, price per unit and price per square foot.

Name Year build Location Peer group Secondary

MDA City Apartments 1927 63 E Lake St Chicago, IL 60601 x

1130 S Michigan Apartments 1967 1130 S Michigan Ave Chicago, IL 60605 x

Plaza 440 CRSI 1980 440 N Wabash Ave Chicago, IL 60611 x

Millenium Park Plaza 1982 151 North Michigan Avenue Chicago, IL 60601 x

1212 S Michigan Apartments 1982 1212 S Michigan Ave Chicago, IL 60605 x

Presidential Towers 1985 555 W Madison St Chicago, IL 60661 x

North Harbor Tower 1988 175 North Harbor Drive Chicago, IL 60601 x

Columbus Plaza 1989 233 East Wacker St. Chicago, IL 60601 x

Cityfront Place Apartments 1991 400 N Mcclurg Ct Chicago, IL 60611 x

Grand Plaza 2003 540 North State Street Chicago, IL 60610 x

400 N Lasalle Apartments 2003 400 N Lasalle St Chicago, IL 60610 x

180 N Jefferson Apartments 2004 180 N Jefferson St Chicago, IL 60661 x

Left Bank Apartments 2006 300 N Canal St Chicago, IL 60606 x

Kingsbury Plaza 2007 520 N Kingsbury St Chicago, IL 60654 x

AMLI 900 Apartmetns 2008 900 S Clark St Chicago, IL 60605 x

Burnham Pointe 2008 30 S. Clark Street, Chicago, IL 60605 x

1401 S State St Apartments 2008 1401 S State St Chicago, IL 60605 x

One Superior Place 1986 One West Superior St., Chicago, IL. 60654 x

Oakwood Apartments 1988 77 W Huron St Chicago, IL 60610 x

The Chicagoan 1990 750 N Rush St, Chicago, IL 60611 x

Rivercity Condominiums 1991 800 S Wells St Chicago, IL 60607 x

One East Delaware Apartments 1999 1 East Delaware Chicago, IL 60611 x

River North Park Apartments 2002 320 W Illinois St Chicago, IL 60654 x

Park Millennium 2002 200 N Columbus Dr Chicago, IL 60601 x

The Shoreham 2005 400 E South Water St Chicago, IL 60601 x

Sky 55 Apartments 2006 1255 S Michigan Avenue Chicago, IL 60605 x

The Streeter 2007 345 E Ohio St Chicago, IL 60611 x

Echelong K Station 2008 353 N Des Plaines St Chicago, IL 60607 x

The Tides 2008 360 E South Water St Chicago, IL 60601 x


Amenities and Utilities Comparison

Besides a couple of apartment buildings, located in the north area of the loop, most of the comparables have a very similar set of amenities. PT

does not seem to have a significant edge over the competition in the amenities comparison. Presidential Towers is one three buildings in the

peer group that do not include any utilities in their rent. The use of the RUB system

Column1 Pres

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s

Gran

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Bank

Apa

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180

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400

N La

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Apa

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S M

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900

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)

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S St

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1212

S M

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partm

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SICo

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laza

Amenities

Pet friendly x x x x x x x x x x x x x x x x x

Laundry facilities in building x x x x x x x x

Laundry in Unit x x x x x x x x x x x x

Doorman x x x x x x x x x x x x x x x x x

Dry Cleaner x x x x x x x x x x x x x

Cover parking x x x x x x x x x x x x x x

Valet parking x x x x

Storage available x x x x x x x

Business center x x x x x x x x x x

Café x x x

Outdoor pool x x x x x x x x x x x

Deck with grilling area x x x x x x x x x x x x x

Social room x x x x x x x x x x x x x

Fitness center x x x x x x x x x x x x x

Utilities

Water x x x x x x x x x x x x x

Trash x x x x x x x x x x x x

Heat x x x x x x x x x x x

A/C x x x x x x x x x x x

Sewer x x x x x x x x x x x

Gas x x x x x x x x x x x

Cable / Dish TV x x x x x x x x

Internet x x x x x x x

Electric x

Professional Consultants Consultant Name Company Expertise Provided

Brain Vitale Gensler Design Concept and Architectural Consulting Patrick Carrata Gensler Architectural Consulting and Rendering Advice Kris Neurauter Gensler LEED Consultant Sachin Anand dbHMS MEP/LEED Consultant Michael LoDolce Draper and Kramer Building Operations Consultant John Lawlor Sonnenschein Nath Rosenthal Zoning Attorney David Stamm S.B. Friedman & Company TIF Consultant Ned Franke Cushman & Wakefield Educational Tenant Broker Mike Vesper CBRE Retail Broker Brian Tilton Ventas Senior Living Consultant Terry Grapenthin Cawley Commercial Real Est. Retail Broker Bruce Cohen Wrightwood Capital Conceptual Feedback and General Expertise Larry Frank Prudential Real Estate Conceptual Feedback and General Expertise Scott Sarver DeStefano + Partners Architectural Advice and General Expertise Todd Alwood AISC Construction Consulting Dan Jedrzejowski Bovis Lend Lease Construction Consulting Scott Calkins Otis Elevator Consultant AmritHassaram Power2Switch Utility Consultant Jason Trombley Jones Lang LaSalle Retail Consultant TatjianaStafets Jones Lang LaSalle Retail Consultant David Deuter Urban Innovations Construction Cost Consultant Jaime Platt Mid‐America Asset Mgmt Retail Leasing Broker Gregory Bayer Mid‐America Asset Mgmt Retail Leasing Broker David Schraufnagel Garrett Realty & Development Retail Leasing Broker Chad Tepley Garrett Realty & Development Retail Leasing Broker

Expenses Vendor Total Cost Item Purchased

Digital Imaging Resources $274.00 Printing and Binding of Final Reports Transportation and Parking $30.00 Taxi, Parking for Consultant Meetings

Contacts for Questions Instructor e‐mail School

William Bennett william‐[email protected] Northwestern University Joseph Pagliari [email protected] University of Chicago

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