On a cool, spring Chicago morning, Steven Fifield instinctively sits cross-legged and assumes a meditation pose on a grassy rooftop at Left Bank at K Station, his firm's newest high-rise apartment community. The impromptu gesture surprised the MFE photographer, but actually makes perfect sense to anyone who really knows the developer. Fifield, chairman and CEO of the Fifield Cos., has earned a national reputation for his perceptive abilities to take a step back and foresee the next great real estate deal.
In fact, from the Left Bank rooftop, Fifield can see his latest—and perhaps biggest—vision, K Station: a $750 million, 8-acre mixed-use, master-planned community under way in Chicago's West Loop. The project will feature six high-rise towers (including Left Bank) ranging from 30 to 43 stories, a total of 2,400 luxury rental units, and 40,000 square feet of commercial space. Thanks to his smart market sense, Fifield bought a portion of one of the West Loop's last available tracts of land back in 2003 when the site was still affordable. He anticipated that the industrial park covered with surface parking lots would one day be the city's next hot spot for residential and commercial development.
“Steve is very astute at reading demographics and job growth and understanding where things are going—seeing the future, if you will,” says Scott Sarver, president of DeStefano and Partners, a prominent Chicago-based architecture firm that has worked with Fifield on a number of projects in Chicago and California. In 10 years, Sarver, too, believes that K Station will be the next big neighborhood in downtown Chicago. “K Station is a predominantly older, industrial area [where] most of the existing warehouses have been converted to lofts, and there are a few 5-, 6-, 7-story buildings around,” he says. Fifield's project is “the next step, where the area goes to high-rises and there will be enough mass to define that as a community in and of itself and regenerate the neighborhood.”
Fifield Cos. is no stranger to redevelopment in Chicago's West Loop. The firm, which Fifield founded in 1977 and was called Fifield Palmer until '82, got its start pioneering office development in downtown Chicago and the surrounding suburbs, including the West Loop. Now, with more than 3.9 million square feet of office space either completed or under construction, the company has lured high-profile projects such as the headquarters for The Quaker Oats Co. (now Pepsico) and the Chicago Transit Authority. “Steve was definitely ahead of the curve in terms of recognizing what the West Loop could become,” says Tracy Larrison, a senior vice president for commercial real estate at Cleveland-based National City Bank, which provides financing for both Fifield's residential and office buildings.
Those same commercial operations, however, faced their fair share of challenges. In the early '90s, Fifield, like numerous developers nationwide, temporarily shut down its operations when the national office market tanked. Fifield revived its business in the mid-90s by buying, renovating, and selling half-occupied office buildings as the market strengthened. Most significantly, the firm paid $19 million to purchase office space on top of Chicago's famous Civic Opera building, renovated the space for $16 million, and then sold it to a REIT for a whop-ping $65 million. Using the money from these deals to fuel its rebirth, Fifield decided to diversify its business and develop both residential and commercial products.
Today, Fifield's portfolio is 70 percent residential and 30 percent commercial with a focus on urban centers with high barriers to entry and constrained supply. (The firm's official operating moniker is Fifield Realty Corp.) The forward-thinking merchant developer stays ahead of the curve by keeping a close eye on market opportunities across the country and adapting its strategy as needed. The result? The firm is developing more than 4,700 residential units in key markets—the K Station apartment communities in Chicago; the ultra-luxury 1200 Club View condos in Los Angeles, where units start at $4 million; and the 35-story Allure Waikiki, a condo project five minutes from Honolulu's famous Waikiki Beach.
EXTRAORDINARY VISION A self-described “deal junkie,” Fifield is always on the lookout for a hot real estate opportunity and uses his vast broker and financial connections to get the projects from pen to paper. “Through his voracious appetite for written material about real estate and his incredible high-level network of contacts, he sees trends before they are apparent to most and is able to really analyze how to best exploit these trends,” says Alan Schachtman, a senior vice president at Fifield, who manages its Chicago and Las Vegas developments.
Case in point: Chicago's K Station (formerly Kinzie Station), where the West Loop meets the River North neighborhood. The site was an amazing find for the firm, both in terms of price and location, Fifield says. The initial land acquisition in 2003 cost $9,000 per unit; now the land is worth more than $40,000 per unit.
“If you sat in a helicopter above downtown Chicago, there are only two holes in the market—one near the lake called Lake Shore East and K Station,” he says. “Everything else is filled in with high-rise and mid-rise buildings. There is very little land left.”
Fifield Cos. wasn't afraid to jump in, unlike other developers who shied away from the complex site, which has multiple train and bus lines running nearby. (For more information on the complexities of K Station, see “A Train Runs Through It,” right). “We tackle projects that others may not be willing to tackle,” says Rick Cavenaugh, who joined the firm in 2003 as president and COO to help run the company's apartment division. “Our national experience gives us a perspective that offers different ways of solving problems.
“For the most part, our competitors are regional players. There are very few national players other than the REITs,” adds Cavenaugh, who was previously president of two major apartment development firms.
The company's watchful eye has led to other smart investments across the country, where it has taken leaps of faith to introduce a new product type or bring its signature product to these untapped territories. The firm enjoys a strong financial network with some of the country's top banks and institutions, so finding financing is not a problem. “Our financial relationships with our partners is something that allows us to chase opportunities with the knowledge that our projects will be able to be structured in a way that we can get the deal done,” says Tim Connelly, a senior vice president at Fifield.
Next month marks the highly anticipated debut of Allure Las Vegas, a sleek, 41-story luxury condo tower located on Sahara Avenue, just west of The Strip. Allure is the first high-rise to be built north of the Sahara—a bold move that cast many inquisitive eyes toward Fifield Cos. “We came in and everybody said, ‘You are going north of the Sahara?'” Fifield recalls. “We said that if we build something big enough and nice enough with good amenities and a presence, people will come.”
And he was right. The 428-unit community, which is a five-minute drive from the strip, is 93 percent sold as of July 15. Its biggest competitor, Sky Las Vegas, is still around 80 percent, according to Fifield. “The project has done very well and sales are strong,” says Herbert Kolben, senior vice president and chief real estate investment officer at the Washington, D.C.-based Union Labor Life Insurance Co., which has financed about 10 projects for Fifield, including Allure Las Vegas. Other developers are now following Fifield's lead, as a handful of smaller-scale projects have joined the landscape.
Fifield never doubted the strength of Vegas' residential market, despite numerous high-profile condo projects that never got off the ground. In fact, he plans to build additional product to capitalize on the city's strong fundamentals: a small inventory of new development coupled with 96.6 percent employment and close to 100,000 people moving to the city annually. “We have been looking at more sites there because Las Vegas long-term is probably the highest growth market in the United States,” Cavenaugh says.
Just to the west, in the Golden State, the firm's market insight also is paying off. The Californian on Wilshire, an ultra-luxury high-rise in L.A. that opened last year, features the largest unit sizes in the area. Condos range from 2,600 square feet to as high as 6,700 square feet. (A handful of buyers did purchase and combine two units.)
“We took a leap of faith when we analyzed the buildings there and picked up just the hint of the trend of people wanting to buy larger units,” Fifield says. The company went with its gut instinct and, though the building was zoned for 110 units, opted to build 74 larger-sized units that met market demand. The tactic worked, and the building sold out in less than 90 days. For its next L.A. project, the 35-unit 1200 Club View, the firm went a step further designing condos more than 8,000 square feet in size.
Fifield Cos.' decisions, however, don't always pan out as expected. Back in the '90s, the firm jumped into the conversion business and transformed warehouses in the West Loop into condo properties. Fifield quickly discovered that, unlike new construction, conversions are riddled with unknown costs and hidden construction challenges. The firm had almost completed one of its loft buildings when an inspector announced that all stairways had to be replaced because they were 3 inches short of the code-required width. Fifield didn't easily forget the $1 million hiccup and now sticks to new construction.
BIG CHANGES As Fifield Cos. continues to evolve and adapt to the ever-changing national real estate market conditions, it is unveiling a number of new strategies. Today, the firm has its eye on major urban and infill markets across the country where housing demand is predicted to remain strong. To capitalize on opportunities in Phoenix and Orlando, for instance, Fifield is extending its project type from strictly high-rise developments to a lower-density wrap product. “Fifield has really made a name for itself on urban high-rises both office and residential,” says Connelly of Fifield. “But [high-rises] are not a solution for every location. You have to keep in mind your resident base and respond to that.”
What's more, the current economy has led the firm to switch its residential development strategy from a mix of condos and rentals to strictly rentals—unless an unbelievable condo opportunity arises, that is. K Station shows the strategy at work: Due to the high demand and limited supply of rental units in downtown Chicago, the remaining five buildings under construction are all planned as rentals with the option to go condo. “Because we got the land at a very good basis [value] we can afford to build apartments [versus condos],” Cavenaugh says.
Fifield's new development strategy is fueled by a recent joint venture with Pacific Life Insurance Co., a Newport Beach, Calif.-based insurance and investments product provider. Their goal for the next two years is to create a pipeline worth up to $400 million in apartment projects for urban and suburban markets including Chicago, California, Washington, D.C., southeast Florida, and Phoenix. “We like doing condos, but we like doing apartments a whole lot,” Fifield says. “There is consistent long- term demand for them. [We can] really make the commitment because we can consistently turn out a good volume of business there.”
The firm is making one more strategic change: It is transitioning from being strictly a merchant builder, which sells each building after its lease-up, to an ownership model, retaining one-third of its product for the longer term. The move allows the firm to use the properties' depreciation to offset cash flow and pay lower capital gains taxes when they sell the buildings.
BUILDING ICONS As Fifield Cos. grows and expands, the firm is also dedicated to delivering projects that stand out architecturally from their competitors while still making a timeless, lasting impression on neighborhoods. To date, the company appears to be right on target. The Chicago Architecture Foundation's river cruise lists the firm's Left Bank project, designed by DeStefano and Partners, as an architectural sweet spot alongside such icons as the Sears Tower, Chicago Sun-Times Building, Civic Opera, and Chicago Mercantile Exchange.
Fifield points to 1200 Club View, the high-end L.A. condo community, as another example of his projects' architectural excellence. The building, designed by Pasadena, Calif.-based Keating Khang Architecture, will feature a post-modern design—a crystalline exterior of glass and white stone with a modern cornice at the top of the building—that sharply contrasts the dated architecture of surrounding '70s and '80s era properties. It will offer what Fifield predicts to be a “timeless design.”
Allure Las Vegas also boasts a distinct look with a huge stainless steel mesh crown atop the building. Even Fifield wondered if the décor was going one step too far, but his team quickly learned that there's no such thing as too much glitz in Vegas. While this type of high design often adds to the bottom line, the price is recouped through increased buyer and rental demand, says Fifield, who is extensively involved in the design process. “If you saw the reading material on the side of my bed you would think I was an interior designer,” he jokes. “I am reading Progressive Architecture and Interiors.”
Fifield predicts that many of his firm's buildings will one day become city icons. In fact, the mayor of San Francisco already touted T h e Californian on Rincon Hill, a condo community under construction, as the city's next landmark. It seems Fifield just might be right—after all, he does have a knack for seeing the future.
FIFIELD COS.
- Founded: 1977
- Headquarters: Chicago
- Employees: 47
- 2006 Revenue: $546 million (residential and commercial operations)
- Units completed in 2006: 525
- Units under construction: 1,361 (as of July 1)
- Geographic coverage: Florida, Washington, D.C., Chicago, Las Vegas, San Francisco, Los Angeles, Orange County, and Honolulu
LEADERSHIP LESSONS: STEVEN FIFIELD
- Age: 60
- First job: Financial analyst
- Favorite quote: “Do, or do not.” —Yoda
- Favorite recently read book:Looming Tower, on the origins of Al-Qaeda
- Best business decision: Struck out on my own in 1973
- Greatest challenge: Delegating more. I love the details.
- Best advice someone gave you: Think strategically and see the bigger picture
- Person you most admire: Leonardo da Vinci—a true Renaissance man
- Number of children: Seven
- Community involvement: Church, local school, children's hospital
For More on Fifield Cos. See Related Article: A Train Runs Through It