Transcript of Hearing, Petition No. 12-17, 2155 Point Boulevard Conducted on July 10, 2017 51

1 a report from the Elgin Development Group? 2 A I did. 3 Q And you know the Elgin Development Group is 4 a group within the Elgin area Chamber of Commerce 5 that works on development activities? 6 A I've worked with them every week. 7 Q And in their report, they ran a CoStar 8 report, and they report on the results of the 9 report. 10 Did you see that when you read the report 11 partially? 12 A I did, but let me say that they didn't run a 13 report. They called CB Commercial and asked CB 14 Commercial to run a report. They're not members of 15 CoStar. They couldn't run a CoStar report. 16 Q Well, maybe you're not aware that the City 17 has a license for CoStar. 18 A Okay. 19 Q We provide them a license for it, so they 20 can run reports themselves directly. 21 A All right. 22 Q You weren't aware of that? 23 A No. 24 Q So they did run a report; right?

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1 A Yeah. 2 Q And you see that there aren't 69 office 3 buildings in Elgin; there's actually 206; isn't that 4 right? 5 A I'm sorry. I don't know. 6 Q You don't know. 7 A No. 8 Q You don't know how many office buildings are 9 in Elgin? 10 A No. 11 Q Do you think there are 69? 12 A You know, I don't know. 13 Q Well, let me go through the 18-sheet report 14 because it includes in that an actual list of all of 15 those buildings. There are 206 of them listed by 16 address and some of their names. 206 office 17 properties in Elgin 4,553,654 square feet. That's 18 in the EDG report. 19 Do you have that available for you to 20 look at? 21 A I do. 22 Q Go to page -- there are several exhibits 23 after numbered page 10. So it starts at page 13 24 with building address 620 Wing Street.

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1 A I'm on page 10. There's a page 16. 2 Q Go to page -- go to the exhibit starting 3 after the number page 10. There is a colored 4 page showing CoStar search results, and then there's 5 a list of 2016 through 2008 of various data, and 6 then we start a long list of building addresses 7 starting with 620 Wing Street. 8 Do you see that now? 9 A I'm sorry. I'm not finding it. I'm just 10 finding the tabulation of information here. I'm not 11 finding any of that. Is it after the Suburban 12 Office Market? 13 Q It's right here. That's what I'm talking 14 about. 15 A Okay. 16 Q Okay. That is a printout of the 206 office 17 properties reported by CoStar in Elgin. 18 Do you see that now? 19 A Yes, I do. 20 Q 206 office properties? 21 A I do. 22 Q So there are not 69 properties; there are 23 actually 206; is that right? 24 A Apparently so.

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1 Q So when you first came to us to try to 2 convince us of this project and told us it was 3 38 percent and 34 percent, that was based on partial 4 numbers from part of the office market in Elgin; 5 isn't that right? 6 A It was based on -- it was based in the same 7 way that I get all my market information from CB 8 Richard Ellis. As I told you at this time, as I 9 said in my report -- 10 Q So my question was is it based on all of the 11 data or some of the data? 12 A It was based on all of the data that I 13 received from CB Richard Ellis. 14 Q And those are your brokers? 15 A Yes. 16 Q So in EDG's report that they restate from 17 CoStar, they report on all of the Elgin market a 18 vacancy rate of 21.2 percent. 19 Do you see that on page 2 of the report? 20 A I saw that, yes. 21 Q They also -- I note in your e-mail that's in 22 City Exhibit 1, you were telling us back in May that 23 Elgin's rate is roughly twice the reported vacancy 24 rate for the Chicago suburbs, and this should be

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1 alarming to anyone concerned about maintaining the 2 quality of the Elgin office center. So you're 3 telling us that Elgin's vacancy rate is twice the 4 suburbs. 5 I point you back to the EDG reporting on the 6 CoStar results for the entire Elgin office market, 7 and you'll see that Elgin is reported in 2017 year 8 to date at 21.2 percent is what we previously 9 discussed and the far northwest is at 19.9 percent. 10 Do you see that? 11 A Yes. 12 Q So that Elgin rate is not double that 13 particular suburban rate, is it? 14 A I believe it is. 15 Q Okay. Well -- 16 A I believe it is. 17 Q All right. I'll let everyone else do the 18 math themselves. 19 Let's go to another aspect of this report, 20 and it is at page 12, the numbered pages end at 10, 21 and then there's -- it's the second exhibit, and 22 it's a table. And this is from CoStar as well in 23 the EDG report. 24 Do you have that table in front of you,

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1 Mr. Panichi? 2 A Is this the table that says "Suburban Office 3 Market"? 4 Q No. 5 A Okay. 6 Q This building was built in 2008? The one 7 we're talking about? 8 A Its lease is up in 2017. It was a 10-year 9 lease. It was completed in 2007 and probably 10 started in 2006. 11 Q We have a chart here going back to 2008 12 right after that building was completed and 13 occupied. 14 We have a vacancy rate from the CoStar 15 report in the EDG report of 23.2 percent for the 16 Elgin market back in 2008. 17 Do you see that? 18 A Yes. 19 Q And do you see the vacancy rate here to date 20 for 2017 -- 21 A Yes. 22 Q -- at 21.2 percent? Do you see that? 23 A Yes. 24 Q So according to CoStar, which you've

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1 acknowledged is generally accepted as accurate in 2 the real estate industry, the vacancy percent total 3 right now under this report is lower than it was 4 back in 2008. 5 A Respectfully -- 6 Q Let me just ask you what the report says. 7 A -- I don't -- I don't believe that's true. 8 Q I didn't ask you whether you believed it's 9 true. I'm asking -- 10 A I think CoStar is still showing 33 percent. 11 Q So -- 12 A I don't know why your CoStar report is 13 different from CBRE. 14 Q Well, let me tell you why. 15 A I prefer CBRE's. 16 Q Because your broker cherry picked data. 17 They took 69 buildings -- 18 AUDIENCE MEMBER: I take exception with 19 that, sir. 20 Q They took 69 buildings, and they came up 21 with a vacancy rate of 34 percent; and when you do 22 the whole market, you get 21.2 percent, which is 23 lower than it was 10 years ago. That's what the 24 report says.

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1 A So are you asking me a question? 2 Q Is that what the report says; yes or no? 3 A The report says that, yes. 4 Q Now, it also shows, doesn't it, for 2017 5 year to date a net absorption of 33,883 square feet; 6 is that correct? 7 A Yes. 8 Q Now, in this development -- there was a new 9 building built in this development last year; isn't 10 that right? 11 A That's true. 12 Q And that was immediately to the east of the 13 subject property; is that right? 14 A That's right. 15 Q Is that building occupied? 16 A Yes, it is. 17 Q Do you know the occupancy of that building? 18 A Occupied by the owner, Fabricators & 19 Manufacturer's Association. 20 Q It's 100 percent occupied? 21 A Yes, sir. 22 Q The occupancy, the current occupancy of 23 the -- there's, besides the subject, three other 24 buildings on Point Boulevard that have tollway

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1 frontage -- the subject, the one we just talked 2 about, and then three others. 3 Are you familiar with those buildings? 4 A Yes. 5 Q Okay. So there's a total of five buildings 6 with tollway frontage; is that right? 7 A That's right. 8 Q Do you know what the current vacancy rate is 9 in the market area for this facility for assisted 10 living units right now? 11 A For developed assisted living, I understand 12 it's about 10 percent or a little bit lower. 13 Q Did you have a report prepared by Revere on 14 this, to study the market area for this? 15 A Yes, I did. 16 Q Do you know what they reported as the 17 vacancy rate in that report? 18 A I think it was about 10 percent. 19 Q So you would be surprised to find that it 20 was reported as 20.45 percent when the report was 21 written. 22 A I don't know of any report that says it's 23 20.5 percent. 24 Q So what kind of outdoor recreational

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1 facilities will this facility have for the 2 residents? 3 A The kind that are typical for this type of 4 facility. We'll build something like an enclosed 5 garden where people will have the opportunity to 6 walk, sit on benches. 7 Q Now, that's not shown on your site plans; 8 correct? 9 A No, it's not. 10 Q So for what you've submitted and are seeking 11 approval tonight, you don't have an outdoor 12 recreational area like that, do you? 13 A We intend to do something like that -- or we 14 have to do it in order to market the facility. 15 Q Where would that go? 16 A It would go somewhere on the north side of 17 the building. 18 Q And obviously, somewhere in the parking lot. 19 You have a parking lot immediately north of the 20 building. 21 A Yes, sir, we do. 22 Q Now, you talked extensively about the office 23 market, and we've had a brief discussion about that 24 here. The development is by all accounts a PORI.

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1 So it has a list of permitted and conditional uses, 2 as Mr. Bazos referred to. 3 Are you familiar with that? 4 A I am. 5 Q And you're generally familiar with the 6 concept of noncumulative zoning where if something 7 is listed as permitted or conditional, it's an 8 authorized use in the district; but if other uses 9 are not listed, that they're not authorized? 10 A Yes. 11 Q And those groups of uses, they come with 12 presumptions under the zoning. For instance, 13 they're presumed to be compatible so that you don't 14 need particular permission. They're available to 15 you as permitted uses as a matter of right because 16 the corporate authorities have classified them 17 together. These are compatible uses in this area. 18 A I'm generally familiar with the zoning 19 ordinances. I'm not -- I'm not up to date on the 20 technical aspects of them. 21 Q So under a zoning ordinance, if something is 22 not listed as a permitted conditional use, it does 23 not come with the presumption of compatibility 24 because it's been excluded.

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1 Do you agree with that? 2 A That's why we have the zoning hearings. 3 Q So you've talked about the office market, 4 and Mr. Bazos talked about how many -- you know, 5 there are other uses allowed here in a mixed-use 6 district of a business park. 7 Do you recall his statements about that? 8 A I do. 9 Q And he went through a number of those uses. 10 Are any of those uses residential uses? 11 A Yes. 12 Q Which ones are residential? People are 13 living there? 14 A The hotel is often used as a residential 15 use. 16 Q Temporary accommodation. I mean residential 17 where people have their permanent living quarters 18 there. 19 Are any of them like that? 20 A Sometimes for months at a time. 21 Q But other than a hotel, is there anything 22 that's of a residential quality? 23 A No. 24 Q Somebody living in a dwelling unit.

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1 A No. 2 Q And the gravamen of your testimony tonight 3 is that this has become impossible for continued 4 office uses. 5 How many other uses are currently permitted 6 in this PORI District that come with a presumption 7 of compatibility? 8 A Excuse me. I don't think I said it was 9 impossible for continued office use. I'm sure I 10 didn't say that. 11 Q Okay. 12 A How many other uses are there? 13 Q Yeah. How many other uses are there? 14 A I don't know the PORI ordinance by heart. I 15 know that we can do all sorts of things there, 16 everything from blacksmithing to hair cutting to day 17 care centers with approval. 18 MR. COGLEY: I don't have any further 19 questions at this time, Mr. Chairman. 20 CHAIRMAN SILJESTROM: Anyone else in the 21 audience who has a question or a comment for 22 Mr. Panichi? 23 (No response.) 24 CHAIRMAN SILJESTROM: Mr. Bazos, would you,

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1 please, call your next witness, sir. 2 Thank you, Mr. Panichi. 3 MR. BAZOS: I would now like to call 4 Mr. Mark C. Smith, please. 5 (PETITIONER Exhibits 4 and 5 marked for 6 identification.) 7 While he's coming up, I would like to 8 hand out the next Petitioner's Exhibit. While 9 you were typing, Ms. Stenographer, I gave you the 10 two tenant letters that Mr. Panichi handed in as 11 his exhibits, and those, I believe, would be 12 Petitioner's Exhibit 4. 13 So this would be Petitioner's Exhibit 5, 14 and it is the professional profile of Mark C. 15 Smith. 16 CHAIRMAN SILJESTROM: Mr. Smith, sir. 17 MR. SMITH: Hi. Good evening. 18 CHAIRMAN SILJESTROM: The microphone and the 19 podium are yours. Tell us a bit about yourself. 20 MR. BAZOS: I'm going to ask him, if I may, 21 Mr. Chairman, a few questions. 22 CHAIRMAN SILJESTROM: Yes, please. 23 MR. BAZOS: Then I would like to then ask 24 him to extemporize on his own.

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1 BY MR. BAZOS: 2 Q Would you give the Commission your name and 3 address, please. 4 A Mark Smith, 550 North Ashland Avenue in Park 5 Ridge. 6 Q Mr. Smith, what is your education? 7 A College, University of Dayton. 8 Q What is your current employment? 9 A I have been with CBRE now for 37 years. 10 Q Is CBRE -- what's the full name of the 11 company? 12 A Now, it's legally CBRE. We've gone through 13 gyrations. We were CBRE. Before that we were CB 14 Richard Ellis, before that we were CB Commercial, 15 and before that we were Coldwell Banker Commercial. 16 It's a long story, but we're the same company. 17 Q How long have you been with that company? 18 A Again 37 years. 19 Q What is your current position? 20 A I'm kind of a senior leasing guy. I do both 21 corporate relocation work and building leasing. 22 Q So your leasing activities are all 23 commercial leasing; you're not doing residential 24 leasing; is that right?

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1 A No, all office. 2 Q What would you say the volume of your 3 leasing transactions have been in the last several 4 years, and I would point out that it's in your 5 curriculum vitae on the second paragraph. 6 A Well, I've leased or sold 3 million square 7 feet in the last three years. The total, I guess, 8 over my career has been in excess of 40 million 9 square feet. 10 MR. BAZOS: And I'd like to offer Mr. Smith 11 as an expert, if there's no objection, in the field 12 of commercial real estate brokerage. 13 CHAIRMAN SILJESTROM: You may do so. 14 Q Mr. Smith, is Pancor and the Randall Point 15 Business Park one of your accounts? 16 A It is. 17 Q Would you please -- are you familiar, 18 Mr. Smith, with this two-story building we're 19 talking about this evening -- 20 A Of course. 21 Q -- at 2155 Point Boulevard? 22 A Yes. We've been trying to lease it for the 23 last 10 or so years. 24 Q Would you, please, give your own remarks to

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1 the Plan Commission as to the office market in your 2 eyes, the either same demand or change in demand 3 over recent years, and prospects for continued 4 leasing of Class A space in the suburbs. 5 A Well, demand for the suburban office space 6 has definitely gone down. I've got a historical 7 perspective in case you want to pass this out, 8 Peter. 9 That will give you a history of the 10 northwest suburban market. I've been keeping it 11 since I came from my downtown office and opened up 12 in a Schaumburg office in 1982. 13 (PETITIONER Exhibit 6 marked for 14 identification.) 15 MR. BAZOS: This is Petitioner's Exhibit 16 No. 6. 17 MR. SMITH: This gives you a good history of 18 what's happened with the office market over the 19 years as we're moving from a manufacturing economy 20 to a service economy. And, in fact, I feel like a 21 victim of the market myself because I just saw my 22 new Oak Brook office for the first time today. 23 We are -- we used to have four Chicago 24 suburban offices, and we are now consolidating

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1 everybody to Oak Brook. I do all my work northwest 2 of this, so it's no good for me; but we have now 3 decided to go into an open work environment, 4 paperless, where there would be probably a table 5 like this. There would be three on one side and 6 three on the other side where, like you mentioned 7 before, about how people work. We come in and plug 8 into a computer, and that's to say one square 9 footage. It's kind of the trend. 10 I guess the move downtown is to attract 11 millennials. I'm not a big millennial fan myself, 12 but I think that trend may kick back at some point, 13 but who knows when. 14 BY MR. BAZOS: 15 Q Mr. Smith, do you discuss office trends 16 among your own work group on a periodic basis? 17 A All the time. 18 Q What has some of the discussion been in 19 recent months or with respect to your peers on 20 office leasing and vacancies? 21 A I think we are always -- for the last couple 22 years, it's always been -- it's been what do we -- 23 what can we do with this office building? What 24 other use will suffice?

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1 This goes back about -- I want to say about 2 seven, eight years ago there was a single story 3 complex over by the Daily Herald building out on 4 Arlington Heights Road and the tollway, and they 5 couldn't lease that building. There was just too 6 much of a glut of space. Right not in the northwest 7 suburban market, as that report or exhibit says, 8 there's about 6 million square feet of vacant space. 9 If you look at the absorption trend over the last 10 few years, it's hard to believe it's ever going to 11 be filled. 12 And, you know, to that end, you know, we've 13 got to repurpose some of these buildings. Along 14 Meachum Road in Schaumburg, it used to be that you 15 could not have anything but office buildings on the 16 west side. As those buildings, you know, went and 17 changed hands, it turns out that the land was more 18 valuable as -- for restaurants and, you know, 19 restaurant franchises because the mayor had changed 20 the zoning to allow that. And now, the land was 21 more valuable than the buildings. 22 That trend has continued, especially with 23 Class C buildings. And the City attorney mentioned 24 this CoStar report, and I'm pretty sure that we ran

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1 the initial report. What I do typically when I run 2 these for clients, we take out the Class C segment 3 of that report. 4 So I want to make sure that if you're 5 looking at the whole market, we're not going to 6 include maybe a house, a little house that's been 7 converted for an Allstate agent, which some, you 8 know, CoStar, you know, kid driving by might say, 9 Okay, that's office and write down the address. 10 So we're going to fine tune that to what is 11 really a competitive set. So that I think is 12 probably the difference there. And I'd have to go 13 back and look at the larger set, but I'm pretty sure 14 that's -- and that happens all the time. We run 15 reports for clients, and we know that this certain 16 segment is just not competitive with the market 17 we're competing in. 18 Q So you're -- I was going to ask you. 19 Is what you just said the difference between 20 the 69 buildings in the report from CBRE versus the 21 206 -- 22 A Right. 23 Q -- that Attorney Cogley was referring to was 24 because you filtered and used only comparable

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1 buildings to the one in question? 2 A Yes, yes. 3 Q And what would you -- 4 A Well, competing with all the buildings in 5 our park. You know, we've got single-story 6 buildings, and a couple have been, you know, sold at 7 auction, you know, recently. A third one -- I think 8 I have those pictures here. In fact, the top one is 9 actually 50 percent leased, not 100 percent leased. 10 So anybody that could rent, you know, Class 11 B or Class A space, that was -- you know, those were 12 the buildings. I think if I wanted to decide in 13 favor on Pancor, I would have cherry picked buildings, 14 and that was certainly not the intent. It was what 15 we would reasonably do for any client. 16 Q What is CBRE's belief as to the vacancy or 17 the availability factor, vacancy factor here that's 18 relevant to this discussion in Elgin? 19 A Okay. As you saw in that historical vacancy 20 report, right now I think the overall vacancy is 21 23.8 percent, if I'm not mistaken. Yeah, 23.8 22 percent, and that's at the end of the second 23 quarter. And the other thing I had, which was on 24 the report I initially ran, which was a 30 percent

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1 range as far as the vacancy in Elgin, those 2 buildings that would reasonably compete for a 3 corporate tenant. 4 MR. BAZOS: I have no more questions. 5 CHAIRMAN SILJESTROM: Further comments? 6 MR. SMITH: One more thing here to maybe 7 hand out. This is something from the National -- 8 from NAIOP. It's the National Association of 9 Industrial and Office Properties. 10 Again, when I knew I was going to come here 11 tonight, I Googled this and found this report. 12 That's also something that's a trend in the 13 industry. I thought I'd hand it out. 14 CHAIRMAN SILJESTROM: We want to hear every 15 reasonable comment that you have to make. 16 MR. SMITH: I appreciate that. Thank you. 17 (PETITIONER Exhibit 7 marked for 18 identification.) 19 BY MR. BAZOS: 20 Q Petitioner's No. 7, would you explain what 21 you believe this report from NAIOP says. 22 A This is just the industry trends. You know, 23 it's square feet occupied by employees. So 24 companies are trending to go with configurations

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1 that will cram more people into space. We used to 2 have a rule of thumb that you had a parking 3 allocation of about four parking spaces for 4 1,000 square feet, and those are being pushed much 5 higher by corporations now. Just as my company is 6 doing, cramming more people into less space. 7 CHAIRMAN SILJESTROM: 1871 and Merchandise 8 Mart? 9 MR. SMITH: Yeah. Exactly. Exactly. Yeah, 10 you're right. And you're seeing it all over. We're 11 seeing call centers now where they won't consider 12 you unless you can provide a 10 per 1,000 parking 13 ratio. In fact, I think Lending Solutions, a tenant 14 in the park, is very dense in their layout. 15 BY MR. BAZOS: 16 Q Mr. Smith, let me ask you what efforts have 17 you been making to lease this building and describe, 18 if you know, what efforts Pancor has been making and 19 how cooperative their staff has been in trying to 20 lease this building. 21 A Okay. This was one comment that I heard 22 earlier, that we were not interested in leasing 23 anything but a full floor, and that's very far from 24 the truth.

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1 We -- you know, we had so many other options 2 in the park. If somebody needed 5,000 square feet, 3 if they really wanted to be in that building, we're 4 going to have to lease it; but we had other options 5 with some existing conditions which would result in 6 a lower price, which most tenants were focused on, 7 I'd say, over the last six years, you know. 8 We just see now -- because business is 9 better and companies are competing for employees, 10 we're seeing them willing to spend a little more 11 money to attract employees and keep employees. You 12 know, but certainly during the recession, the focus 13 was on savings. 14 So we've done everything we can to lease 15 this building. We have mailers. We have broker 16 incentives. We have -- every two weeks something 17 goes out to the brokerage community telling them 18 what our availabilities are. We constantly update 19 CoStar. Unlike our competitors, we have current 20 information as far as what the taxes and expenses 21 are. 22 Margie Barry, who is an employee of Pancor, 23 personally goes out and hands out fliers, and she'll 24 let me know or let Richard know when she finds

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1 somebody who might have a need. He calls me, and 2 we're on top of that immediately trying to get -- I 3 don't know how many times we've called people and 4 invited them over for lunch at Cafe Roma, telling 5 them how good the food is there, you know, tell them 6 to bring their entire company for a free lunch if 7 they'll just look at the space. 8 So I think we've done everything we can. 9 It's just the market is not there. The activity is 10 not there. And honestly, the velocity is not there 11 anywhere in the suburbs right now. 12 We had a meeting regarding that today that I 13 came from in Oak Brook, and there's plenty of 14 buildings like Office Max and, you know, Lucent 15 Technologies and the old Navistar building, 16 McDonald's, the old AT&T building in Hoffman Estates 17 and so on and so forth. 18 It's kind of a scary time, you know, to be 19 in the business from a leasing standpoint. Although 20 our fees have gone up, our fees have gone up for a 21 reason. It's probably because the tenant rep 22 brokers can charge more fees because the tenants are 23 in such demand, but it's still tough. 24 CHAIRMAN SILJESTROM: Thank you, Mr. Smith.

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1 Would you remain there for just a moment, please. 2 MR. SMITH: Sure. 3 CHAIRMAN SILJESTROM: Mr. Cox, any comments, 4 thoughts, or questions for Mr. Smith? 5 MEMBER COX: I only have one question for 6 you. 7 MR. SMITH: Yes, sir. 8 MEMBER COX: During your presentation, you 9 mentioned -- you said our office park. 10 Are you part owner in this, or are you just 11 taking a figurative ownership? 12 MR. SMITH: Oh, no, no, no. Did I say our 13 office park? Again, I worry about it as much as the 14 owners do. I mean, I wake up at 3:00 in morning 15 worrying