By Eric Hawthorn
One of the big news items this week has been the announcement of voracious real estate buyer Blackstone Group LP (NYSE:BX)‘s deal to acquire the famous and former world-record-holding Willis Tower in Chicago. The Wall Street Journal first reported the sale at a reported $1.3 billion, which is the highest single-asset office deal ever for a non-Manhattan real estate market. The trophy office property, built in 1973, was last sold in 2004 to an ownership consortium consisting of Joseph Chetrit, Joseph Moinian, and American Landmark Properties for about $841 million. In 2013, the famous skyscraper was appraised at $1.22 billion. The 108-story, approximately 450,000-SF property, rakes in about $10,000 of operational income per hour, reports Crain’s, but despite its impressive operating revenue, the building actually sold for about $340/SF, according to reports, which makes this a very reasonable investment by the high standards of its Chicago submarket.
But today I don’t simply want to focus on this prominent office high-rise but rather talk about tall buildings in general–not simply as structures but as community and urban planning concepts. Let’s think first about why developers build very tall buildings in the first place. Without getting overly theoretical, here are three basic advantages of developing a building that’s very tall:
Adapting to spacial constraints: in densely populated and densely built urban areas (Manhattan, San Francisco, Boston, Chicago, and other international markets to an even greater extent), land is at a premium, as is space. Developers and architects must build a great deal more per acre than builders/designers in less constrained areas. Though air rights and the added cost of building tall raise the price considerably, the limited footprints of buildings in dense urban areas necessitate such construction.
Prestige: attracting a high-profile, deep-pocketed commercial entity to anchor a property or occupy its top floors often necessitates building a structure with great views and a prominent position on the skyline. Likewise, if everyone else is building tall, any developer with ambition must follow suit.
Efficiency: adapting to spacial constraints is one important requirement, but in a dense city, space in general must be used more efficiently. Like the mixed-use real estate concept, tall buildings allow a great deal of different potential functions within one plot of land (e.g. retail on the ground floor, office, hotel, residential, or a combination of these on higher floors; some particularly large buildings may accommodate all four functions).
When we consider tall buildings and urban areas, we usually associate these properties with office space–admittedly, very expensive office space–since a city’s most densely built area is typically associated with commercial activity (hence the term Central Business District). But in many parts of the world and in many cities, some of the most beautiful skyscrapers are in fact dedicated to residential and not commercial functions.
Consider the SkyScraperCenter’s list of the top 100 largest all-resi buildings (the tallest of which are generally in the UAE and East Asia). While prestige and nice views are certainly factors in the development of these properties, we would be remiss to assume that this was the full extent of tall buildings’ implications in modern urban living. In fact, as this Commercial Property Executive article explains, tall buildings in both the U.S. and abroad are being reimagined as public/private residential structures complete with strategically placed communal spaces and other features that essentially rework traditional city planning on a vertical plane. It’s pretty cool.