HEADQUARTERS

In 2005, HDREP began negotiating CME’s upcoming 2008 world headquarters facility lease renewal at The Chicago Mercantile Exchange Center (CMEC), located at 20 South Wacker Drive. At the time, CME had over 520,000 square feet under lease at this complex, which housed over 1,000 employees. The largest challenge HDREP faced on this assignment was Equity Office Properties (EOP), the landlord at the time, perceived CME as a “captive” tenant due to the fact that open outcry trading was still active at CMEC.

Strategy

HDREP immediately assembled a team of seasoned architects/space planners, contractors, and technology consultants to interview CME executives and staff to determine the amount of office space that did not have to be located in the same complex as the open outcry trading floors. The information extracted from these interviews coupled with CME’s employee demographic/transportation study compiled by HDREP concluded that approximately just over 50% of CME’s office space could be relocated offsite.

Equipped with this information, HDREP scoured the Chicago real estate market and uncovered a unique opportunity among its established Chicago real estate network that had not been publicized or marketed. It involved an extremely large block of space in a building (550 West Washington) that had very efficient floor plates. The tenant in this space, who still held a very long term lease, had expressed interest in downsizing to the landlord and relocating to a smaller space within that landlord’s portfolio.

Knowing this building offered such efficiencies, HDREP quickly had its space planning and architecture consultants conduct a space comparative analysis of CMEC to 550 West Washington.

Result

Leveraging CME’s extremely high credit and growing reputation, HDREP was not only able to negotiate a very aggressive economic deal with the landlord at 550 West Washington for more than half of the CME staff, but was also able to reduce the total amount of square footage CME had to lease by upwards of 66,000 square feet. This resulted in an aggregate savings to CME in the amount of $80 million over a 17 year lease term.

2006 Assignment

November 2006, two years prior to the expiration of CME’s world headquarters lease at the CMEC, New York based Blackstone Group announced the acquisition of EOP in what would be the largest leveraged private equity buyout, valued at over $39 billion.

Concurrently HDREP was in the process of re-evaluating CME’s Chicago real estate strategy.

CME had recently announced the acquisition/merger with the Chicago Board of Trade (CBOT), the most historical acquisition in Chicago history, creating the world’s largest and most diverse derivatives exchange.

Strategy

Understanding Blackstone’s historic profile of “flipping” real estate portfolios to reap immediate profits, HDREP utilized its 30-year personal relationship with one of the Blackstone partners to present its strategy. Contacting Blackstone on behalf of CME, HDREP presented a master redevelopment plan of the complex that would allow Blackstone to maintain CME’s long term tenancy, thereby increasing the value of the future portfolio sale in the marketplace.

Initially, Blackstone hesitated, preferring to simply ‘flip’ the EOP portfolio back to the market as quickly as possible in an effort to capitalize on the frenzied capital markets. Utilizing creativity and leverage, HDREP convinced Blackstone it was in their best interest to consider HDREP’s proposal to provide CME with an aggressive, long term lease maintaining the complex as CME’s world headquarters facility. HDREP demonstrated to Blackstone that the CMEC complex, the largest and most prized asset in the entire national EOP portfolio:

  • Faced significant vacancy exposure in the near term with the upcoming expirations of CME and member firm leases.
  • CME’s anchor tenant lease would not only increase the value of this single asset, but also significantly amplify the value of the entire EOP portfolio.
  • The complications of CME Trust’s ownership of the eight story trading facility located in between the million square foot office towers would impede the transaction and reduce valuation of the complex.

HDREP further leveraged their knowledge of CME’s trading floor consolidation strategy and the future threat of the impact of electronic trading to further enhance CME’s negotiation position.

Using its creative acumen and knowledge of the existing enhanced infrastructure inherent at the CMEC, HDREP engaged an architectural firm to depict a massive redevelopment plan to demonstrate to Blackstone how enhanced ‘value’ could be created by a conversion of the 20 South Wacker trading floors and abutting office towers to a state of the art electronic trading and control center. HDREP further convinced Blackstone that in order for CME to extend its tenancy at 20 South Wacker, and to entice other industry related office users, efficient large open floor plates with high tech infrastructure and low cost energy efficiency were essential, and could be accomplished at the CMEC for a $25 million investment.

REDEVELOPMENT

Result One

HDREP succeeded in convincing Blackstone to delay the sale of EOP’s Chicago portfolio, negotiating a below market rent for CME that included the redevelopment of all CME’s existing space in the low rise, including the conversion of the trading floors to prime tech space with windows, increased CME’s identity along both Wacker Drive and the Chicago River, and future optionality/flexibility with long-term expansion and contraction rights. The overall terms of the transaction were documented in a Letter of Intent between all the parties.

Blackstone marketed the entire Chicago office portfolio with the CMEC redevelopment and CME Headquarters tenancy as its cornerstone. Tishman Speyer Properties (TSP), one of the leading owners, developers, operators and managers of first-class real estate in the world, quickly ensued as the winning bidder. Prior to formal documentation of the transaction with the credit markets beginning to unravel in Fall of 2007, TSP‘s original lender, Bear Stearns, made several attempts at ‘re-trading’ the CME deal. Based on HDREP’s knowledge of the overall financial structure of the sale and TSP’s financing and the resulting significant earnest money at stake, gave HDREP the confidence to negotiate intensely on CME’s behalf. HDREP continued to emphasize to all parties the devastating effect should CME relocate outside of the CMEC, not only diminishing the value of the immediate asset and, subsequently, the overall Chicago portfolio, but how in the uncertain economic climate of 2008/2009, the difficulty of replacing a tenant of CME’s size and creditworthiness.

On August 24, 2007, TSP closed on the purchase of the EOP portfolio from Blackstone with Bear Stearns as the lender. The CME lease was finalized and incorporated a complete redevelopment of the complex at the Landlord’s cost. CME is currently midstream in the restack and renovation of its world Headquarters facility located at the most prominent financial address in Chicago with efficient office space, robust infrastructure, state-of-the-art clear span, high ceiling, electronic control centers, supporting information technology staff, lab, and data center space — all negotiated at below market rental terms.

Result Two

Post CME lease execution, British Petroleum (BP) learned about the planned redevelopment at the CMEC and approached TSP with an interest in leasing space. BP had recruitment and retention issues in Warrenville and had been scouring the downtown Chicago office market for months with a desire to lease large, open plan, high ceiling space that could house over 500 electronic traders. HDREP determined BP had limited options for consideration and that the CMEC facility was truly BP’s only alternative.

Given HDREP had negotiated exclusive rights to utilize both redeveloped trading floors on CME’s behalf, TSP and BP were forced to negotiate with CME to relinquish its rights to the upper trading hall. Due to the consolidation of the trading floors to the CBOT Building, CME had no use for both high ceiling former trading floors. They ‘traded’ the rights to the upper redeveloped trading floor to BP in exchange for TSP building CME an additional 45,000 square foot floor with the lower trading facility, thus providing CME with additional expansion rights in the mid-rise of the 30 South Wacker Drive tower at below market rates and additional contraction rights.

The expansion rights that HDREP negotiated on behalf of CME provided enhanced value to CME while allowing BP to consummate a 240,000+ square foot lease transaction at the soon to be redeveloped CMEC at 10, 20 and 30 South Wacker Drive.

SALE/LEASEBACK

The building, otherwise known as The Chicago Board of Trade (CBOT), is an assemblage of three building structures built over time with the first being constructed in 1930. CME retained HDREP, in conjunction with Jones Lang LaSalle, to sell two of the three structures with the remaining to be retained by CME to house its floor-trading operations. In addition, CME elected to leaseback 128,000 square feet of the 1.3 million square feet it desired to sell.

Challenges

CBOT had been owned and operated by CME or its predecessors since 1930. Because the building has historically been managed as a corporate facility with an emphasis on facilitating trade and delivering client service rather than with an investor mentality, the operating methodology was very different compared to other buildings of comparable quality and vintage.

  • The building was 79% occupied which offered a buyer the unique opportunity to implement a successful lease-up strategy for a repositioned asset.
  • CBOT’s unparalleled electrical and mechanical infrastructure assured complete scalability and unsurpassed reliability. Investors were not immediately aware of the robust nature of the building.
  • Since all three buildings were interconnected, a complex easement arrangement was necessary to ensure CME could maintain operations in a seamless fashion.

Strategy

  • HDREP assembled a team of architects, engineers, technology consultants, and contractors to thoroughly evaluate all aspects of the real estate strategy. Before bringing the building to market, all aspects of the assignment were scrutinized to ensure CME would not be exposed as a tenant in the building.
  • To measure value, HDREP played a vital role in market leasing assumptions, providing up-to-date market information which offered the support to push pricing and achieve the highest possible value.
  • The legal strategy was a key aspect of the assignment due to the requirements for a complicated easement arrangement and leaseback of office space. HDREP worked tirelessly to make sure CME’s exposure was minimized while producing fair legal documents.

Result

The seamless, integrated strategy employed by HDREP, in cooperation with a global real estate investment sales group as co-broker, resulted in the sale of the CBOT north and south office towers for $151 million in mid-2012, despite the default of a prominent clearing firm and major tenant of the office building, MF Global.  HDREP helped CME achieve its goals of monetizing this non-core real estate asset while maintaining control of its mission critical trading facilities.

DATA CENTERS

2000—2001 Assignment

Shortly after Chicago Mercantile Exchange Holdings Inc. was formed, it was apparent that a disaster recovery facility was an immediate requirement.  HDREP was assigned the task of identifying a facility that could accommodate approximately 50,000 square feet of executive, trading and back office support.  CME had retained various consultants for the project, and it was determined that the facility should be located approximately 32 miles from CME’s Chicago headquarters location.

Result

HDREP prepared a demographic study of the personnel that would be occupying the disaster recovery facility in the event of an emergency in order to identify the appropriate suburban markets.  In addition, HDREP studied all of the fiber maps alongside CME’s IT department, in an effort to ensure proper connectivity was in available.  A complex, formerly occupied by Experian, was selected; however, the current owner was not in a position to proceed with the transaction due to financing.  HDREP successfully secured a new financial partner, and CME executed a long term lease that provided for much needed flexibility, due to the ever changing technology requirements of the company.

2004 ASSIGNMENT

As CME’s electronic trading volumes began to surpass that of open outcry, it was clear that the wave of technological advance was on the horizon and HDREP was tasked with locating a facility capable of accommodating CME’s data center needs.

Result

After an extensive search of existing data center facilities in and around the Chicago marketplaces, HDREP originated conversations with the owners of 350 East Cermak, a 1.1 million square foot facility historically utilized as RR Donnelly’s printing press but converted to a telecom use.  Taking advantage of in-place infrastructure and low infrastructure and overall occupancy costs, HDREP was able to negotiate a approximate 100,000 square foot lease in the building today known as Lakeside Technology Center.  CME’s long term commitment to Lakeside Technology Center provided a pathway for numerous financial service firms to follow suit.   At present, Lakeside Technology Center is the world’s largest data center and an ecosystem of connectivity for the financial services industry.

2007 Assignment

In 2007, CME determined it needed its own stand alone facility to house its mission critical infrastructure.

Result

HDREP created a strategy with CME IT and conducted a four-state evaluation a well suited site.  Connectivity, power, and proximity to Chicago were all relevant variables in addition to the traditional real estate factors of land cost, taxes, and improvements.  Over fifty properties were evaluated and CME eventually chose an existing warehouse in Aurora to house its equipment and colocation environment.

2012 Assignment

Over three years prior to lease expiration, CME strategically chose to evaluate its leasehold at Lakeside Technology Center, where it had been a tenant since 2004.

Result

By evaluating the process well in advance of its lease expiration, CME was able to avoid the time pressures that typically hamper the decision making process.   HDREP guided CME through the process working directly with senior management of Digital Realty Trust, one of the world’s largest data center providers,  handling all negotiations and financial analytics.  The outcome was a substantially below market transaction, increased flexibility, and a revised lease agreement that provided opportunities for further expansion and the ability to freely interact with other financial tenants in the building.