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Lucky Buck

John Buck, founder, chairman and CEO of The John Buck Co., has a lot to brag about these days, but boasting just doesn't seem to be his style. Instead, the soft-spoken Chicago developer prefers to let his firm's work speak for itself. “We're conservative,” he said. “We don't take big risks.”

He may not be a gambler, but Buck is certainly a nimble player. His company, which marks its 20th anniversary this year, has managed to complete a string of successful projects and start its own investment fund to expand operations just as the economy started to slide.

In 2000, Buck finished the massive redevelopment of the nine-block North Bridge area, portions of which stretch along Chicago's famed Michigan Avenue. The project includes office buildings, hotels and the Shops at North Bridge, a retail center anchored by a 260,000 sq. ft. Nordstrom store.

Also, Buck's UBS Tower, a new 1.3 million sq. ft. skyscraper, is nearing completion downtown at One North Wacker Drive. The first tenants will move in this summer.

Little wonder Buck has been named developer of the year each of the past two years in a row by the Greater Chicago Food Depository Commercial Real Estate Awards.

But Buck's company hasn't restricted its activity only to development. In a notable strategy shift last year, the firm launched the JBC Acquisition & Development Fund I. And plans are under way to assemble another fund in 2001. The funds are being used to acquire and develop properties in the Chicago area. But other major markets, especially in the Northeast, are being targeted as well. Obviously, the funds give the company a leg up — a big source of cash at a time when other expansion-minded developers struggle with cautious lenders and uncertain capital markets.

“John Buck has really taken the company to the next level,” said J. Frank Franzese, senior director at the Chicago office of New York-based Cushman & Wakefield Inc. “Buck has picked his assignments. He has a logical and strategic plan in place.”

The secrets to success

So why has the firm been successful?

With an easy laugh and a slight southern drawl still noticeable although he left Texas decades ago, Buck said he's not sure exactly what he had in mind when he started the company. But, he said, the intention was to create a vertically integrated firm that could handle transactional work as well as develop projects either on a fee basis or as an owner.

Buck started the firm in 1981 with just a handful of employees. It now employs about 400 people. The privately held company, which has developed a total of about $2.5 billion worth of property in the Chicago area, is owned by 40 of its executives (The firm declined to provide revenues.).

The company is headquartered at the Sears Tower in Chicago's Loop. It was Buck's leasing team that successfully marketed a large amount of vacant space there after Sears, Roebuck & Co. relocated to suburban Hoffman Estates in the late 1980s. Even so, The John Buck Co. is best known for its development work. Its first notable project, completed in 1984, was AT&T Plaza at 1111 W. 22nd St. in west suburban Oak Brook. The building is now owned by Chicago-based Equity Office Properties Trust.

Buck also has developed a number of high-profile downtown office buildings, including 200 S. Wacker Drive, the Leo Burnett Co. headquarters building at 35 W. Wacker Drive, and 190 South LaSalle St. The company has completed several mixed-use projects, including a few high-rise apartment buildings with a retail component. Buck has expanded its capabilities over the years, too. In addition to development, the full-service firm now offers property management, marketing and leasing, and advisory services.

What's striking about the low-profile firm is its solid reputation. A local competitor said the company has been blessed lately with a golden touch. But Buck himself hasn't completely avoided controversy, getting into several high-profile flaps with local preservationists.

The most notorious dispute involved the North Bridge project. Original project plans called for the demolition of 520 N. Michigan Ave., a 1930s Art Deco building that preservationists believed should be saved. Buck had wanted to replace the building with a new retail center anchored by Nordstrom.

After a lengthy public battle, a rather complicated compromise was reached. Buck got his retail center, but the Nordstrom store was located just off Michigan Avenue. Meanwhile, the old building remained in place, though Buck agreed to dismantle and repair its facade.

New horizons

With big projects such as North Bridge and the UBS Tower essentially complete, Buck now needs new projects. Those will probably flow from the firm's newest business venture, its acquisition and development funds.

The first fund, which closed at the end of last year, raised $88.6 million, of which $36 million has been committed to several projects. The firm hopes to raise $300 million for its second fund. Properties purchased by the fund will be held three to seven years.

“The fund gives us more flexibility to put deals together,” noted Vice Chairman and CFO John Q. O'Donnell, who joined the company in 1982. “It's a big advantage.”

Colleagues agree. “The investment fund gives Buck the ability to control its destiny,” said Kevin Olson, senior vice president, U.S. Bank Corp., St. Louis. The bank has provided debt financing for a number of Buck projects, including the recent purchase of an office complex in suburban Chicago.

Kent A. Swanson, a principal at Buck who helps manage the investment fund, believes it's the right approach considering the challenges of today's real estate market.

“The fund makes us a different kind of buyer,” noted Swanson, who feels the old approach was unwieldy. “We were perceived as a weaker buyer because we didn't have capital lined up. But the fund strengthens our position to act swiftly. And we have the ability to capture a greater percentage of the opportunities we see.”

Managing its investments

As in the past, joint-venture partners are an important part of Buck's strategy. “We have maintained good relationships with our institutional partners and that's been the key to success,” Buck said. Past partners include Travelers Insurance Co., Morgan Stanley Dean Witter & Co., Teachers' Pension Fund and Lend Lease Corp.

The timing is right for an opportunity fund, according to Charles R. Beaver, a principal at the firm who handles acquisitions for the fund. “Competition is relatively limited,” said Beaver, who worked at New York-based Lend Lease for 27 years before joining The John Buck Co. Fully allocated pension funds, foreign buyers and REITs are largely absent on the buyer side. And sellers, motivated to dispose of their properties for various reasons, are being forced to sell at discounts due to lack of buyer demand.

“The good news is there's limited competition for properties,” Beaver said. “The bad news is there's not a lot of product available.”

Even so, the fund has made several key acquisitions so far. A deal that represents the kind of opportunity sought by the fund was the recent purchase of 333 W. Wacker Drive, a downtown skyscraper that fronts the Chicago River. Lend Lease is the joint-venture partner.

“We recognized the opportunity to upgrade the building,” Beaver said. The building had been owned by Overseas Partners of Bermuda, which was forced by the IRS to liquidate its property portfolio. The building was purchased for $140 million, about 70% of its replacement cost.

Unlike many investment funds that don't manage properties, Buck intends to actively manage its assets. “We've owned the building six months, and have increased the average rent by 10%,” Beaver noted. Several million dollars are being spent to upgrade the building's HVAC system and lobby areas.

Another project involves plans to develop a new 800,000 sq. ft. downtown office tower. Buck's investment fund recently purchased 111 W. Wacker Drive, a sought-after piece of land viewed as a desirable development site. “This acquisition could not have been done under our old structure,” Swanson noted. “I don't think we could have arranged the capital, and the seller (Manulife Insurance Co. of Toronto) would not have treated us with the same confidence.”

The sale price of the land, which has a parking garage on it, can't be disclosed, according to CFO O'Donnell. But he will say the property was purchased at an “opportune price, much less than it would have cost in the 1980s. It was time to buy the land now. With the most opportune schedule, we will deliver the building in 2003.”

Others believe it might take longer. Equity partners and debt financing are hard to find nowadays without substantial pre-construction commitments from tenants. Buck might need as much as 40% of the building pre-leased to credit tenants before construction could begin. “It would be tough to go ahead with these plans anytime soon,” said a local developer, who asked not to be named.

O'Donnell acknowledges the new office building won't be a spec development like Buck's UBS Tower, which is almost fully leased. But, he said, “We will get tenants.”

That's the job of Andrew Nieman, a principal at Buck and head of its marketing and leasing team. Nieman believes the building needs to be 30% pre-leased in order to move forward. And he thinks that number is quite possible, even in today's rather sluggish leasing market.

Nieman points to the fact that the new building will be technologically advanced. It also has been designed with a large floor plate so office space layouts are more efficient than those in old buildings. “Tenants don't feel the urgency they felt 18 months ago to make a quick decision,” Nieman said. He has met with prospective tenants that control about 5 million sq. ft. of space. However, no tenants have made a commitment yet.

Uncharted territory

Meanwhile, the company has plans to enter other markets. Portions of the investment fund are earmarked for properties outside Chicago. “We have to reach outside the Midwest,” Buck said. “We need some geographic diversification.” He expects to purchase a property in the Northeast within the next 18 months.

But can Buck recreate its solid performance on less familiar turf? “Our challenge is to export our expertise,” said fund manager Swanson. “Our success has been to understand real estate as real estate professionals, not just as investors. We don't want to be everywhere. But we want to be good in more places.”

Jane Adler is a Chicago-based writer.

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