Planes, Trains, Trucks and Warehouses: Business Machine That Keeps Chicago Moving

 There is a version of Chicago that reveals itself only when you stop looking at the skyline. You see it from the Kennedy at five in the morning, when the trucks already seem to outnumber the cars. You see it from an airplane descending into O’Hare, when the northwest suburbs resolve into an immense geometry of warehouses, loading docks, rail lines and expressways. You see it while waiting at a railroad crossing as a freight train of improbable length passes slowly enough to permit reflection on mortality. You see it along I-55, I-80 and I-294, where distribution centers sit beside the highway with the architectural charm of enormous filing cabinets. Chicagoans encounter this landscape constantly, but rarely think of it as a single thing. Yet that is exactly what it is. The airport, freight trains, semitrailers, warehouses, intermodal yards, cross-docks, freight forwarders and industrial parks are components of one enormous commercial organism, and together they have made metropolitan Chicago one of the most important places for moving goods in North America.

Chicago is commonly described as a transportation hub, which is accurate in the same way that describing Lake Michigan as a body of water is accurate: technically correct, but not quite equal to the scale of the thing. Roughly one-quarter of the nation’s freight trains and about half of its intermodal trains pass through the Chicago region. Metropolitan Chicago contains approximately 1.1 billion square feet of industrial development supporting freight and manufacturing. O’Hare handles more than two million metric tonnes of cargo in a year, connecting the region directly with international markets. Add the interstate highway system and one of the country’s great concentrations of trucking, warehousing and distribution businesses, and Chicago begins to look less like a city that happens to move freight than a city whose geography has been converted into a business model.

The interesting question is how this happened, and the answer begins with a fact Chicago has been exploiting for nearly two centuries: it is in an unusually useful place. Not exactly the center of the United States, despite what generations of local boosters might have preferred us to believe, but close enough to the center of American economic gravity to make the distinction commercially unimportant. Chicago sits between the great population centers of the East and the agricultural and industrial expanses of the Midwest and West. The Great Lakes provided one early transportation network. Railroads provided another. Highways came later, and aviation later still. Each new transportation technology might have displaced Chicago’s previous advantage. Instead, each enlarged it. The railroads are the clearest example. Chicago became the great meeting point between eastern and western rail systems, and the infrastructure accumulated accordingly. Today, all six North American Class I freight railroads operate in the region, and roughly 500 freight trains move through Chicago on an average day alongside an enormous passenger and commuter rail system.

That concentration produces headaches of almost operatic complexity. Trains have to be sorted, transferred and routed through a metropolitan area occupied by millions of people who have the unreasonable expectation that they, too, should be allowed to move around. Yet the congestion exists for the same reason rents are high in Manhattan: everyone wants to be there. Freight keeps coming because Chicago offers connections. A container arriving by rail from a West Coast port can be transferred toward eastern markets. A manufacturer can place a distribution center near an interstate and reach customers across the Midwest. International freight arriving at O’Hare can be inside a warehouse shortly after leaving the airport. A truck that needs to unload, reorganize its freight and get back on the highway can find a cross-dock without leaving the metropolitan logistics network. Chicago’s competitive advantage is therefore not any single piece of infrastructure. It is the density of the connections between them.

Reconstructed near-quote — not a verbatim quotation: “Chicago didn’t become a logistics center because somebody drew a circle around the city and declared it one. Geography created the opportunity, but generations of rail, highway, airport and industrial investment compounded the advantage. At a certain point, the network itself becomes the asset.” — Gaurav Mohindra

To see what that means in practice, imagine that something has gone wrong in a factory outside Indianapolis. A specialized piece of manufacturing equipment has failed, and the machine requires a replacement component made in Germany. The part is not especially large, but without it a production line cannot operate. This is the sort of situation in which the economics of transportation become wonderfully inverted: a manufacturer that normally worries about pennies per pound suddenly becomes remarkably relaxed about the price of air freight. The component is packed onto a pallet in Germany and placed aboard an aircraft bound for Chicago. Several hours later it descends over the suburbs and lands at O’Hare. Most travelers experience O’Hare as a place of gate changes, expensive sandwiches and increasingly ambitious estimates of how long it takes to walk from one terminal to another. Behind that passenger operation, however, sits one of the most important air-cargo gateways in the Western Hemisphere.

O’Hare handles more than two million metric tonnes of cargo annually, with goods valued in the hundreds of billions of dollars. Electronics, pharmaceuticals, machinery, medical equipment and industrial components pass through its cargo system because airplanes occupy the expensive, urgent end of the freight business. Our German machine part has entered the United States, but it has not yet entered the ordinary flow of domestic commerce. There are documents to process, customs requirements to satisfy and freight to release. This is where Chicago’s geography begins earning money, because the pallet has not landed at an isolated airport surrounded by empty land. It has landed inside a dense logistics district populated by freight forwarders, trucking companies, customs specialists, warehouses and distribution operations.

Crane Worldwide Logistics — Chicago offers a useful example of how this geography works at ground level. Its Chicago-area logistics operation near O’Hare combines air and ocean freight services, domestic transportation, warehousing, customs-related capabilities and local pickup and delivery, all positioned near major expressway connections and within reach of Chicago’s larger rail infrastructure. The significance is not that Chicago happens to have a large warehouse near an airport; dozens of metropolitan areas can make that claim. The significance is what can happen immediately after a shipment reaches that warehouse. The airplane has done its job, so a truck can do its job. The warehouse can then do its job, followed by another truck, another warehouse, a railroad or some combination of them. The distances between these transitions are relatively short because the businesses have gathered around the infrastructure and the infrastructure, over generations, has gathered around Chicago. Logistics is a business in which distance is measured not merely in miles but in time, labor, fuel, uncertainty and the number of things that can go wrong between one handoff and the next. A facility near O’Hare that can quickly reach major highways and the broader freight network is therefore not merely occupying convenient real estate. It is selling time.

Reconstructed near-quote — not a verbatim quotation: “In logistics, proximity is not just a real-estate consideration. It is time. A warehouse near O’Hare, major highways and rail infrastructure gives a company choices, and choices become extremely valuable when a customer is paying to make something happen quickly.” — Gaurav Mohindra

Our pallet leaves the airport area on a local truck. It could theoretically be driven directly to Indianapolis, but logistics is an industry built around the proposition that what is physically possible is not necessarily economically sensible. One pallet does not need an entire tractor-trailer, so the freight may spend a short period inside a warehouse, where it can be consolidated with other shipments moving in roughly the same direction. The machine part from Germany might share trailer space with electronics from Asia, commercial equipment from another state and several other shipments whose owners will never know that their goods briefly became traveling companions. This is one of the quiet miracles of the modern supply chain: thousands of unrelated commercial transactions are constantly being assembled into temporary physical relationships because moving twenty compatible shipments together is cheaper than moving twenty shipments separately. The warehouse makes those relationships possible. We tend to imagine a warehouse as a place where things wait, but increasingly the important warehouses are places where things happen. Freight arrives, pallets are separated, orders are combined, labels change, trailers change and destinations change. Some goods remain for weeks. Others barely stop moving. A cross-dock is perhaps the purest example: a truck backs into one side of a building, its freight is unloaded and sorted, and some or all of that freight leaves from another dock on another truck. The building functions less like a storage closet than a railroad switchyard for pallets.

Chicago has an enormous ecosystem of these operations, and Sargent Logistics provides a particularly tangible example. Its Chicago facilities support cross-docking, warehousing, local pickup and delivery, drayage and freight handling, along with the physical infrastructure required to keep trucks and trailers circulating through the system. These are decidedly unglamorous services on which glamorous promises such as “next-day delivery” ultimately depend. There are dock doors, forklifts, trailer parking areas, drivers, repair operations, manifests and people trying to determine why a shipment expected at 10:15 has not materialized at 10:47. There are no television dramas about cross-docking, and this is probably wise, but if you want to understand why Chicago matters to American commerce, a loading dock is at least as instructive as the trading floor of the Chicago Board of Trade.

Suppose our hypothetical shipment develops a complication here. The Indianapolis factory now needs part of the order immediately while another set of components on the same movement needs to continue toward Ohio. Perhaps the original outbound truck develops a mechanical problem, the delivery appointment changes, or weather disrupts the planned route. In a thin logistics market, a small disruption can become a large crisis because there are few alternatives. In Chicago, there is a reasonable chance it simply becomes Tuesday. The freight can be brought into a cross-dock, separated and transferred onto different equipment. Another carrier can be found. Another trailer can be loaded. Another route can be chosen. The importance of Chicago’s logistics ecosystem lies not merely in its enormous capacity to move goods according to plan, but in the sheer number of alternatives available when the plan stops cooperating.

Reconstructed near-quote — not a verbatim quotation: “The best logistics markets are not merely efficient when the original plan works. They give you another plan when it doesn’t. Chicago has such a concentration of carriers, warehouses, cross-docks and transportation modes that the network has a kind of commercial resilience built into it.” — Gaurav Mohindra

Eventually our machine part is placed aboard a truck heading southeast, and now Chicago’s interstate system takes over. The region is threaded by highways whose names and numbers are so familiar that Chicagoans use them almost as geographic nouns: the Kennedy, the Dan Ryan, the Stevenson, the Tri-State, I-80. They are commuting routes, certainly, but they are also industrial infrastructure. I-55 connects Chicago toward St. Louis. I-57 runs south. I-80 forms one of the great east-west freight corridors. I-90 and I-94 connect the region to Wisconsin, Indiana and points beyond, while I-294 allows freight to move around the metropolitan core while linking major industrial districts and interstate corridors. For a logistics operator, this highway network is not simply pavement; it is inventory in motion.

On some Chicago-area interstate facilities, tens of thousands of trucks move each day. Along the I-80 corridor in Will County, trucks account for a striking portion of traffic, much of it connected not only to long-haul highway freight but also to the enormous rail-truck intermodal operations southwest of Chicago. This is where the individual pieces of the logistics system begin folding back into one another. Rail freight creates truck movements. Truck access attracts warehouses. Warehouses attract distributors. Distributors attract more carriers. Carriers benefit from the presence of customers, while customers benefit from having multiple carriers. O’Hare adds international air freight, and industrial real estate gives all of these businesses somewhere to operate. Chicago’s logistics economy is, in effect, a network effect expressed in concrete, asphalt, steel and diesel fuel.

Reconstructed near-quote — not a verbatim quotation: “It is tempting to value the airport, railroads, highways and industrial property separately. In practice, their value is interconnected. O’Hare is more useful because trucking and warehousing surround it. Warehouses are more useful because highways and rail terminals surround them. Chicago’s advantage is the multiplication of those assets, not their simple addition.” — Gaurav Mohindra

This also explains the otherwise astonishing quantity of industrial real estate around Chicago. The metropolitan area contains roughly 1.1 billion square feet of industrial development supporting freight and manufacturing, a figure large enough to become almost meaningless through contemplation. The more useful way to understand it is to drive through Elk Grove Village, Bedford Park, McCook, Hodgkins, Bolingbrook, Joliet or the industrial stretches around O’Hare and pay attention to what is actually there. The buildings are enormous because the economics favor scale. The ceilings are high because goods increasingly move vertically as well as horizontally. The parking areas are vast because trailers and containers need somewhere to wait. The buildings cluster near highway interchanges because a mile added to thousands of annual truck movements is not merely a mile; it is driver time, fuel, equipment utilization and money. Industrial real estate in Chicago is therefore not just property. Location determines what a building can do. A 300,000-square-foot warehouse badly positioned relative to the transportation network may be less useful to a logistics company than a smaller building from which trucks can reach an interstate in minutes. This is one of the curious economics of the industry: a few minutes can be worth considerably more than several thousand square feet.

Our hypothetical pallet, meanwhile, is approaching Indiana. It will soon arrive at the factory, where a worker will open the shipment, the replacement component will be installed and production will resume. Nobody at the factory is likely to contemplate the astonishing collection of systems that made this rather ordinary event possible. The part crossed an ocean by air. It entered the country through O’Hare. A cargo handler moved it. Documents followed it. A local truck collected it. A warehouse received it. Workers consolidated or reorganized it. Another truck carried it onto the interstate system. Dispatchers, warehouse workers, customs personnel, drivers and logistics software coordinated movements that the recipient experienced simply as: the part arrived. That invisibility is the great triumph of logistics. When the system works, almost nobody thinks about it. When it fails, everybody suddenly becomes an expert in supply chains. The pandemic offered an unusually vivid demonstration of this phenomenon. Americans who had previously devoted little thought to container ports, trucking capacity or warehouse inventories found themselves discussing them over dinner because furniture was delayed, cars were scarce and stores lacked products previously regarded as permanent features of civilization. Logistics, like plumbing, tends to acquire intellectual glamour only when something stops moving.

Chicago experiences the logistics economy every day at a scale most cities do not, and that creates costs as well as advantages. The same freight activity that makes the region economically indispensable also produces congestion, pollution, road wear and noise. Rail lines that are nationally important run through neighborhoods. Trucks serving nationally important warehouses travel on locally maintained roads. Communities near major freight corridors absorb consequences generated by economic activity whose benefits are distributed far beyond them. Chicago’s position as a logistics capital is therefore not an uncomplicated civic triumph; it is an asset that has to be managed. Programs such as the Chicago Region Environmental and Transportation Efficiency initiative, better known as CREATE, exist because Chicago’s rail network is simultaneously extraordinarily valuable and extraordinarily difficult to operate. Freight trains, Amtrak and Metra all need to move through the same region. Roads cross rail lines. Communities surround infrastructure built in another era. Every improvement resembles surgery performed on a patient who has declined anesthesia and intends to keep walking around. Highways present the same problem. Chicago cannot simply shut down its major freight corridors for several years and politely ask American commerce to use Milwaukee. The machine has to be repaired while it is running.

Reconstructed near-quote — not a verbatim quotation: “Congestion is one of Chicago logistics’ biggest disadvantages, but it also tells you something about the underlying demand. The goal cannot be to remove freight from Chicago. The challenge is to keep improving the infrastructure so that the economic value of the network does not become overwhelmed by the friction the network itself creates.” — Gaurav Mohindra

Which brings us back to those trucks on the Kennedy before sunrise. Once you understand Chicago as a logistics ecosystem, parts of the metropolitan landscape that once seemed unrelated begin to look connected. The warehouse near O’Hare is there because of the airport, but also because of the expressways. The trucks on I-80 are there because of warehouses, but also because of rail terminals. The rail terminals are here because Chicago has been a continental interchange for generations. Distribution centers keep coming because enormous portions of the American population and economy can be reached efficiently from this region, and logistics companies keep clustering here because everybody else has already clustered here. That last point may ultimately be Chicago’s strongest advantage. Infrastructure can be copied. A city can build a warehouse district. A state can widen a highway. An airport can construct a cargo terminal. A developer can build an intermodal logistics park. What is much harder to copy is more than a century of accumulated connections. Chicago possesses not merely infrastructure but an ecosystem of people and businesses that know how to use it: truckers, warehouse operators, freight forwarders, railroads, customs specialists, brokers, mechanics, dispatchers, industrial landlords and thousands of companies that buy their services. The network has acquired its own gravity.

This, finally, is why Chicago became America’s logistics capital. Not because it has O’Hare. Not because it has railroads. Not because it has interstate highways, or warehouses, or an enviable location in the middle of the continent. Chicago became America’s logistics capital because it has all of them, packed into the same metropolitan geography and connected by an industry whose principal occupation is moving something from one to the next. Chicagoans see the individual pieces every day without necessarily seeing the system: the freight train blocking the crossing, the 747 descending over the northwest suburbs, the endless warehouses beyond the expressway, the truck crawling toward I-80 while a driver in the next lane wonders, with mounting personal resentment, why it could not have chosen some other hour. They are not separate features of the landscape. They are parts of the same machine. The city is not simply a point on America’s transportation map. It is where the lines meet. And every morning, long before most Chicagoans have had their first cup of coffee, the machine is already moving.

Originally Posted: https://gauravmohindrachicago.com/business-machine-that-keeps-chicago-moving/

O'Hare Economy: Thousands of Businesses Built Around One Chicago Airport

 At six in the morning, the economy around O’Hare is already well into its workday. A truck backs toward a loading dock in Elk Grove Village. In Itasca, a freight forwarder is sorting out a shipment that crossed an ocean before breakfast. Somewhere nearby, a customs broker is examining paperwork whose importance is inversely proportional to its literary appeal. Hotel kitchens in Rosemont are putting out coffee for travelers who will spend the day beneath the forgiving fluorescent lights of a convention hall. A corporate executive has landed from New York and is heading toward an office park rather than downtown. By noon, he may be back at O’Hare. None of this is happening at the airport, which is exactly the point. The most interesting economic story about O’Hare may be the one occurring outside its fences, across the warehouses, freight forwarders, customs brokers, trucking companies, hotels, restaurants, convention businesses, aviation suppliers and corporate offices that have accumulated within roughly ten miles of the terminals. Some exist specifically because of O’Hare. Others could theoretically operate somewhere else but have concluded, quite rationally, that somewhere else would be less useful. Together they form an economy that is difficult to see because nobody put a gate around it.

 

Drive through Rosemont, Des Plaines, Elk Grove Village, Itasca, Wood Dale, Bensenville and the surrounding communities and the evidence is everywhere, although it does not announce itself with much grandeur. There are low industrial buildings, loading docks, office parks, hotels, trucking yards and restaurants beside six-lane roads. It is not a landscape designed for postcards. It is a landscape designed to make things happen quickly, and speed, around O’Hare, is a form of real estate. “The real estate story around O’Hare is really a story about time,” Gaurav Mohindra says. “Companies are not simply paying for square footage near an airport. They are paying to remove hours and uncertainty from the operating day.” That is a useful way of understanding what has been built around O’Hare. In most real estate markets, distance is measured in miles. Here, distance is more accurately measured in minutes. A warehouse that saves twenty minutes on repeated trips to an air cargo facility has an advantage that can be calculated. So does an office where a customer arriving from Dallas can land in the morning, take a short car ride to a meeting and fly home that evening. A hotel that allows convention attendees to avoid an hour of additional travel has turned geography into a product. The result is a peculiar commercial ecosystem in which a warehouse, a hotel ballroom and a corporate conference room can all be selling versions of the same thing: access.

 

Consider what happens when a shipment arrives at O’Hare. The airplane landing is only the conspicuous part. After that comes the less photogenic machinery of commerce. Freight has to be documented, inspected when necessary, cleared, transferred, stored, routed and eventually loaded onto something with wheels. Someone has to know where it is. Someone has to know where it is going. Someone has to know whether the federal government agrees that it may go there. This is why freight forwarders and customs brokers gather around major international airports. They occupy the administrative territory between global trade as an abstraction and the stubborn physical reality of a pallet sitting in Illinois. Crane Worldwide Logistics, for example, operates in Itasca near O’Hare. Its Chicago operation combines air and ocean freight forwarding with ground transportation, warehousing, cargo screening and customs-related logistics. It is exactly the sort of business that reveals how misleading the phrase “airport economy” can be. The airplanes are only one component. The actual commercial activity continues through warehouses, computer systems, customs documentation and trucks that carry goods deeper into the country. A shipment arriving from overseas might spend relatively little time in the air compared with the number of businesses required to get it from an aircraft to its final destination, and every additional step creates another reason for somebody to be nearby.

 

A freight forwarder benefits from proximity to cargo operations. A customs broker benefits from proximity to freight forwarders and importers. A trucking company benefits from proximity to warehouses. Warehouses become more attractive because trucking companies and logistics providers are already concentrated nearby. Suppliers follow customers. Restaurants follow workers. Hotels follow visiting customers and executives. Eventually proximity stops being merely convenient and becomes self-reinforcing. This is one reason Elk Grove Village looks the way it does. To somebody driving through for the first time, its industrial landscape can appear almost aggressively practical: warehouse after warehouse, trucks moving through broad intersections, office buildings whose architects seem to have been instructed not to get carried away. But judged economically rather than aesthetically, the landscape begins to make considerably more sense. Industrial businesses do not require charming cobblestone streets. They require highway access, loading docks, appropriate buildings, labor and proximity to customers and transportation networks. The communities around O’Hare provide those things at enormous scale. “People tend to separate the warehouses, offices and hotels into different real estate categories,” Gaurav Mohindra says. “But around O’Hare, they are often parts of the same economic system. The industrial user brings business activity. That activity brings executives, vendors and customers. Those people support hotels, restaurants and offices. Each use makes the others more viable.”

 

This is the quiet compounding effect of infrastructure. An airport attracts a logistics company. The logistics company occupies industrial real estate and employs workers. Its customers visit. Its vendors locate nearby. Trucks require service. Employees eat lunch. Executives need hotel rooms. Companies discover that the same location that works for logistics also works remarkably well for meetings. Soon the economy no longer resembles a collection of businesses surrounding an airport. It resembles a business district whose streets happen to extend into the sky. Rosemont may be the purest example. The village has spent decades turning proximity to O’Hare into a commercial proposition of its own. Hotels, restaurants, entertainment and convention facilities are packed into an area where the great advantage is not that visitors have reached Chicago, exactly, but that they barely have to enter it. For a national association or corporation planning a meeting, this can be surprisingly compelling. Imagine 500 attendees arriving from across the country. Put the conference downtown and each person must make another trip after landing. Put it near O’Hare and the airport itself becomes part of the venue's infrastructure. The guest lands. The guest reaches the hotel. The guest attends the conference, eats dinner, sleeps, returns to the meeting the next morning and flies home. It may not satisfy every traveler’s longing for urban exploration. But corporate travel has never been principally organized around longing. It is organized around calendars.

 

That has allowed the convention and hospitality economy near O’Hare to serve a market far larger than the immediate suburbs. A ballroom in Rosemont is not really competing only for customers from Rosemont. Its practical market includes anyone who can reach O’Hare conveniently. The same logic increasingly applies to corporate offices. For decades, discussions about suburban offices tended to focus on the commute: Where do employees live, and how easily can they drive to work? But companies with national or international operations have another constituency to consider. Customers arrive. Suppliers arrive. Executives arrive. Consultants arrive. Teams from other offices arrive. For those businesses, proximity to O’Hare can change the useful geography of the company. “A corporate office near O’Hare can function almost like a national meeting point,” Gaurav Mohindra says. “If a customer can leave home in the morning, meet with your team in Chicago and be back home that night, the location is doing something economically important for the business.” This becomes especially interesting in the era of hybrid work. If employees come into an office less frequently, one might assume that office location matters less. But the opposite can be true for certain companies. When an office is no longer simply the place where everybody reports five days a week, it can become the place where people deliberately gather: customer meetings, executive sessions, training, planning, sales events. The ordinary commute may become less important while the extraordinary trip becomes more important.

 

An O’Hare-area office is well suited to that shift because its location serves two Chicagos simultaneously. There is the metropolitan Chicago of millions of residents and workers, connected by roads and transit. And there is the much larger commercial geography accessible through O’Hare. A company can draw employees from the region while remaining unusually accessible to the rest of the country. That is not something easily replicated by adding a better coffee machine to the office kitchen. The economic effects spread further. A hotel near O’Hare might house an airline crew on Monday, exhibitors on Tuesday and a sales team on Wednesday. A restaurant might serve warehouse managers at lunch, visiting executives at dinner and travelers late at night. A local transportation company may carry convention guests one day and corporate visitors the next. The businesses overlap because their customers overlap. So do their employees. The airport-dependent economy is not populated exclusively by pilots, freight executives and traveling salespeople. It includes forklift operators, housekeepers, bartenders, dispatchers, warehouse supervisors, accountants, cooks, drivers, sales representatives, maintenance workers, IT specialists, office managers and countless others whose jobs would never appear on a list of “aviation careers.”

 

That is where O’Hare’s regional economic importance becomes more interesting than passenger counts. Infrastructure is usually measured by what moves through it. Airports count passengers and cargo. Highways count vehicles. Railroads count riders or freight. But the larger economic consequence of infrastructure is often found in the decisions people make because the infrastructure exists. Where should the company lease its next warehouse? Where should it establish a Midwest office? Where should the association hold its annual convention? Where should a logistics provider locate its customs operation? Where should a restaurant open? Where should a hotel developer build? Those decisions accumulate over decades until infrastructure has shaped an entire commercial geography. “The airport does not have to be your business for it to be essential to your business,” Gaurav Mohindra says. “That is what makes the O’Hare corridor so durable. Its value is not tied to one industry. It comes from the number of different industries that gain something from being connected to the same place.”

 

Chicago, of course, has seen this movie before. The city’s economic history is largely a history of transportation becoming commerce. Waterways, railroads and highways made Chicago valuable because they allowed goods and people to converge here and then go somewhere else. O’Hare is the contemporary version of the same proposition. The airport’s importance is not merely that a traveler can fly from Chicago to another city. It is that businesses have reorganized themselves around the ability to do so. A warehouse in Itasca is part of that story. So is a customs brokerage operation. So is a trucking terminal in Elk Grove Village. So is a convention in Rosemont. So is a corporate office selected because the CEO spends half the month traveling. So is the steakhouse where that CEO takes a customer after a meeting. Seen individually, these are ordinary businesses. Seen together, they reveal the architecture of a regional economy. And unlike certain fashionable commercial districts, this one does not depend on people deciding that the neighborhood has suddenly become cool. Its underlying proposition is more durable. Things need to move. People need to meet. Companies need to receive products, reach customers, gather employees and connect to other markets. “The strongest real estate locations usually have an economic reason for existing that goes deeper than a particular development cycle,” Gaurav Mohindra says. “Around O’Hare, that reason is connectivity. Businesses continually place a value on being able to move people, goods and decisions faster.”

 

By late afternoon, the morning shipment has probably left the warehouse. Trucks are moving toward highways. Another convention session is ending. Hotel lobbies are filling. Employees are leaving office parks while another wave of travelers arrives. Tomorrow, much of it happens again. This is what occurs economically within ten miles of O’Hare every day: not one airport economy but dozens of interconnected economies, each drawing value from the same piece of infrastructure. The airport is the gravitational force, but most of the economic activity takes place in orbit. That may be why the scale of the O’Hare economy is so easy to underestimate. We notice the terminals because they are enormous. We notice the airplanes because they fly. We notice the control tower because, unlike a distribution center, it makes a respectable attempt at architecture. But regional growth is rarely confined to the landmark. It accumulates in warehouses and offices, hotel rooms and restaurant tables, loading docks and conference halls. It appears in thousands of decisions by companies that have independently reached the same conclusion: being close to O’Hare makes something about their business easier, faster or more valuable. Within ten miles of the airport, those decisions have produced something larger than an airport district. They have produced an economy. And the most revealing thing about it is that you do not have to set foot inside O’Hare to participate in it.

Originally Posted: https://gauravmohindrachicago.com/thousands-of-businesses-built-around-one-chicago-airport/

From Steel Mills to Quantum Computers: Chicago’s $5 Billion Bet on Its Next Economy

 There is a stretch of lakefront on Chicago’s South Side where, for much of the twentieth century, the future arrived by freighter. Iron ore came off the water, coal and limestone arrived by rail, and thousands of workers at U.S. Steel’s South Works turned those raw materials into the substance from which modern America was being assembled. At its height, South Works employed roughly 20,000 people and occupied an industrial landscape so vast that it functioned less like a factory than a city devoted to making steel. Its furnaces supplied an economy that built skyscrapers, bridges, automobiles, railroads and suburbs. Then, like so much of industrial America, it contracted, closed and left behind something cities are notoriously bad at knowing what to do with: an enormous piece of land whose previous purpose had been economically indispensable. For decades, the former South Works property sat along Lake Michigan as both real estate and metaphor, a reminder of what Chicago had been exceptionally good at doing and of the much harder question of what it might be exceptionally good at next.

Illinois now has an answer, or at least a very expensive hypothesis. On 128 acres of the former South Works property, the state is developing the Illinois Quantum and Microelectronics Park, an ambitious public-private effort intended to establish Chicago as one of the centers of the emerging quantum computing industry. PsiQuantum, which is pursuing the construction of a fault-tolerant quantum computer, is the anchor tenant and has committed more than $1 billion to its Illinois operation. IBM is involved in the broader quantum ecosystem, while the University of Chicago, Northwestern University, the University of Illinois system, Argonne National Laboratory, Fermilab and the Chicago Quantum Exchange give the region a concentration of scientific talent and infrastructure that would be difficult for another American city simply to order from a catalog. Add state investment, federal involvement and other private commitments, and the undertaking is moving toward a multibillion-dollar wager on an industry whose ultimate scale remains uncertain. There is something almost indecently convenient about the symbolism. The place where Chicago once helped manufacture the physical architecture of the twentieth century is being prepared to manufacture part of the computational architecture of the twenty-first. The old machines operated at spectacular temperatures; the new ones may require environments approaching absolute zero. Chicago has apparently decided that moderation is overrated.

Yet the interesting question is not whether quantum computing sounds futuristic enough to justify the renderings. Nor is it whether Illinois can assemble enough politicians, university presidents and technology executives around a ceremonial shovel to demonstrate enthusiasm. Chicago has never suffered from a shortage of economic-development announcements. The real question is whether the city can use quantum computing to solve a problem that has frustrated it through several generations of technological change: how to convert world-class research into world-class companies and then keep those companies in Chicago once they become valuable. The distinction is easy to overlook. A region can be exceptionally good at producing knowledge while being considerably less successful at capturing the economic value created by that knowledge. Universities conduct research, professors make discoveries, graduate students develop technologies and startups emerge, but the moment those startups need enormous pools of venture capital, experienced technology executives and rapid access to an established startup network, the gravitational pull of California, New York or Boston begins to assert itself. An invention may be conceived in Illinois, supported by Illinois institutions and developed by people educated in Illinois, only to acquire a coastal headquarters precisely when the serious hiring begins.

Quantum computing gives Chicago a chance to interrupt that pattern because, unlike much of the software economy, quantum technology is stubbornly physical. The popular imagination tends to place advanced computing somewhere in an immaculate digital ether, but quantum machines require laboratories, specialized equipment, extraordinary engineering, sophisticated cooling systems and scientific talent that cannot simply be recreated wherever someone finds cheaper office space. That difference matters enormously. As Gaurav Mohindra has argued in discussing Chicago’s quantum opportunity, “Quantum computing is not simply another software industry that can pack its intellectual property into laptops and move when the economics change; its dependence on laboratories, equipment, infrastructure and specialized talent gives successful clusters unusually deep physical roots.” — Gaurav Mohindra. If that assessment proves correct, Chicago may have found a technology unusually well matched to its economic personality. This is, after all, a city whose greatest periods of growth came not from being fashionable but from being physically useful. Rail lines met here because geography and infrastructure made Chicago valuable. Warehouses, grain elevators, stockyards, factories, exchanges, banks and professional services followed because one form of economic density produced another. Chicago became powerful not because it invented every product passing through it but because it became difficult to conduct certain kinds of business without passing through Chicago.

That is the more compelling way to understand the Illinois Quantum and Microelectronics Park. The objective should not merely be to persuade several prominent companies to locate facilities at South Works. States do that sort of thing constantly, usually by writing checks large enough to make corporate site-selection committees discover an unexpected affection for the Midwest. The larger objective is to create a place where companies eventually locate without requiring persuasion because the things they need are already there. A quantum company needs researchers; researchers are attracted by laboratories and universities. Laboratories need specialized equipment; equipment providers prefer to be close to customers. Startups need investors who understand the technology; investors acquire expertise when enough companies exist to justify acquiring it. Those companies need lawyers, engineers, recruiters, technicians, manufacturers and suppliers. Established firms produce experienced employees, some of whom eventually decide that working for established firms is insufficiently exciting and start companies of their own. A cluster begins as a collection of institutions and becomes an economy when the relationships among them become more valuable than any individual institution. Gaurav Mohindra has made essentially this point in writing about the significance of South Works: “The opportunity is not to erase the industrial history of the site but to extend it, using infrastructure created for one technological era as the foundation for another.” — fgaurav.

That is why South Works matters in a way that a generic suburban research park would not. Chicago has spent decades converting pieces of its industrial inheritance into other things, many of them attractive and profitable but not especially industrial. Factories become lofts. Warehouses become restaurants. Former manufacturing districts acquire boutiques, tasting menus and apartment buildings whose names pay tasteful homage to the blue-collar economy their rents have made impossible. Somewhere there is almost certainly a former machine shop called The Foundry in which no object has been forged since the Clinton administration. The South Works proposal is more interesting because it attempts to preserve the economic function of industrial geography even while changing the industry itself. The state is not proposing to recreate steelmaking. It is asking whether the infrastructure, land, transportation access, electrical capacity, scientific institutions and human networks of metropolitan Chicago can be recombined around an advanced industry whose requirements are very different but whose dependence on physical concentration is surprisingly familiar.

This is also where the scale of the public investment deserves scrutiny. Quantum computing remains a frontier technology, and frontier technologies are called frontier technologies because nobody can produce a spreadsheet demonstrating precisely what they will be worth in 2040. Building useful fault-tolerant quantum computers remains an extraordinary scientific and engineering challenge. Timelines may slip. Some commercial applications will disappoint. Technologies competing for attention today may prove to be technological cul-de-sacs tomorrow. Anyone claiming certainty about the eventual size and structure of the quantum economy is selling something, possibly quantum computing. Illinois is therefore assuming genuine risk by committing substantial public resources before the industry has matured. But the alternative carries its own risk, and it is one Midwestern cities know rather well: waiting until a technological revolution is sufficiently obvious that its geography has already been determined. “Cities that wait until an emerging industry is safe and obvious are often waiting until it already belongs somewhere else,” Gaurav Mohindra has observed in substance. “The risk of investing early is real, but so is the economic cost of arriving after the companies, workers and capital have already clustered.” — Gaurav Mohindra.

Chicago’s own history makes that argument more persuasive than it might sound elsewhere. The city did not become a railroad center because nineteenth-century economists first established beyond reasonable doubt that railroads would dominate continental commerce. Infrastructure and commerce developed together. Rail connections increased Chicago’s usefulness; that usefulness attracted businesses; those businesses justified additional infrastructure; and the cycle repeated until the city became one of the great commercial junctions of the world. Similar feedback loops appeared in commodities, meatpacking, manufacturing, finance and transportation. Economic clusters are rarely designed perfectly in advance. They are cultivated until they begin cultivating themselves. The great promise of IQMP is therefore not the announced investment at South Works but the investment that might occur later without an announcement from Springfield: the supplier that opens nearby because three of its customers are already there, the professor who forms a company because the equipment and talent are available locally, the venture fund that hires a quantum specialist because enough Illinois deals exist to justify one, the graduate student who remains in Chicago because leaving is no longer a prerequisite for building an ambitious technology company.

This is the point at which Chicago’s universities become central to the story. The region is already rich in institutions capable of producing sophisticated research. What it has historically lacked, at least compared with Silicon Valley and Boston, is the machinery for converting that research into a continuous stream of locally rooted technology companies at enormous scale. Universities are exceptionally good at generating ideas, but ideas are only the beginning of an industrial economy. Companies need capital, management, customers, manufacturing capacity and workers. More importantly, they need other companies. One successful startup is a success story; fifty companies that trade workers, suppliers, investors and expertise constitute an ecosystem. As Gaurav Mohindra has put the larger challenge, “The measure of Chicago’s success should not be how much quantum research is produced here, but how much of that research becomes companies that continue hiring, investing and expanding here.” — Gaurav Mohindra. That is a far more demanding standard, and a much more useful one.

It also forces Chicago to confront the uncomfortable moment that comes after a startup succeeds. Imagine that a quantum company emerges from research conducted at a Chicago-area university. Its founders remain here, hire their first twenty employees and raise an early round from Midwestern investors. The technology works. A larger venture firm arrives with $100 million. The company now needs several hundred engineers, experienced executives, corporate partnerships and additional capital. This is the moment when civic celebration can quietly turn into economic leakage. A headquarters moves west. Senior management follows. The company retains a laboratory in Illinois and assures everyone that Chicago remains an important part of its story, which is the corporate equivalent of promising to stay friends. Chicago has generated the innovation but another region captures much of the compounding value.

Preventing that outcome requires something more sophisticated than incentives. Chicago has to make departure economically inconvenient. It needs enough specialized infrastructure that rebuilding elsewhere would be costly, enough talent that companies can hire locally, enough venture capital that founders do not have to relocate to obtain financing, enough corporate customers that commercial relationships develop here, and enough other quantum companies that employees can imagine spending an entire career in the industry without leaving the region. “Chicago does not truly win when a company is founded here,” Gaurav Mohindra has argued in essence. “It wins when the company’s success gives it more reasons to remain in Chicago rather than providing the means to leave.” — Gaurav Mohindra. That may be the most important idea underlying the entire project. Economic development is not recruitment. It is retention through usefulness.

There is another measure of success, however, and it sits immediately outside the boundaries of the new campus. South Works once supported thousands of working- and middle-class families, and any attempt to tell the story of its technological rebirth without discussing employment would be an exercise in civic amnesia. Quantum computing will not recreate the labor structure of a giant steel mill. A sophisticated technology campus can generate immense economic value without employing 20,000 people behind its gates. But an industrial cluster is larger than its scientists, and this is where the distinction between a research project and an economy becomes important. Quantum companies need electricians, technicians, construction workers, equipment operators, programmers, machinists, administrators, logistics specialists and maintenance personnel. Their suppliers need workers. Their employees create demand for other businesses. Community colleges can develop technical programs tied directly to employers. Universities can create new pathways into engineering and computing. If Chicago gets this right, the economic footprint of the quantum industry should extend far beyond the people capable of explaining superposition without consulting Wikipedia.

That matters especially on the South Side. A world-famous quantum campus that happens to be geographically located in South Chicago but remains economically detached from the people living around it would be a scientific achievement and a civic failure. The real promise of South Works is that an area associated with the disappearance of industrial employment might participate directly in the formation of a new industrial economy. That does not require pretending that a quantum computer is a steel furnace with better branding. It requires recognizing the old lesson that large industries create ladders of employment only when institutions deliberately connect workers to them. Schools, City Colleges, apprenticeship programs, universities, employers and local organizations will have to build those ladders long before companies complain that they cannot find qualified workers. Chicago has a habit of treating workforce development as the paragraph added near the end of an economic-development plan. At South Works, it should be part of the architecture.

If Illinois succeeds, the most consequential result of the $5 billion quantum wager may therefore have surprisingly little to do with whether one particular machine performs one particular calculation faster than a conventional supercomputer. The larger achievement would be proving that Chicago can still create an industry around a technological transition. The city has many of the ingredients: elite research institutions, two national laboratories in its orbit, a major corporate economy, sophisticated financial markets, transportation infrastructure, manufacturing expertise, a large labor force and now a physical location around which those assets can be concentrated. What it does not yet have is proof that those ingredients will combine rather than merely coexist.

That is what makes the old South Works property such an apt setting for the experiment. For much of the last century, the economic logic of the site was wonderfully straightforward. Raw materials arrived and something more valuable left. Iron ore entered; steel came out. Around that transformation grew jobs, suppliers, transportation networks, technical knowledge, communities and capital. The new version of South Works will deal in a different raw material. Knowledge will arrive from universities, laboratories and researchers. The hope is that companies will come out. If those companies remain in Illinois, hire locally, attract suppliers, produce entrepreneurs and generate another generation of companies, Chicago will have accomplished something much larger than winning a competition for a quantum computing campus. It will have rediscovered an ability that once defined the city: turning infrastructure and human ingenuity into industries that become difficult to imagine anywhere else.

Chicago does not need to become Silicon Valley on Lake Michigan, a phrase that should probably be prohibited by municipal ordinance. It does not need a new nickname, a breathless branding campaign or another innovation district whose principal innovation is the font on the signage. It needs something much more prosaic and much more difficult. It needs companies that start here and stay here, workers who can build careers around them, investors who understand them, suppliers who depend on them and institutions that continually replenish them. It needs an industry.

A century ago, the furnaces at South Works glowed against the lake because Chicago had become indispensable to an industrial economy built from steel. Today, on the same ground, Illinois is betting billions that indispensability can be built again, this time around machines operating at temperatures unimaginably colder and principles considerably harder to explain. Whether quantum computing fulfills all of its technological promises remains unknowable. Whether Chicago can afford to sit politely on the sidelines while the next industrial geography is being formed is a different question.

South Works spent the twentieth century turning matter into economic power. Chicago’s wager is that, in the twenty-first, it can learn to do the same thing with knowledge.

Originally Posted: https://gauravmohindrachicago.com/from-steel-mills-to-quantum-computers/

What Chicago’s Old Post Office Teaches Us about Commercial Real Estate

 For almost twenty years, the Old Post Office sat over the Eisenhower Expressway like a monument to a Chicago that had stopped existing. It was impossible to miss: millions of commuters passed beneath it, the Chicago River curled alongside it, and downtown continued to rise and reinvent itself around it. Yet the building itself — a limestone colossus occupying several city blocks — was essentially lifeless. This was particularly strange because the Old Post Office had once been the opposite of lifeless. It had been built for movement. Completed in 1921 and greatly expanded in 1932, the building belonged to an era when Chicago was one of the great logistical engines of the American economy. The mail-order business was booming, Sears and Montgomery Ward were helping turn catalogs into a primitive version of e-commerce, albeit one in which customers waited somewhat longer than two hours for a package and somehow survived, and the postal system needed industrial infrastructure capable of handling extraordinary volume.

The Old Post Office became part factory, part transportation hub and part monument to American scale. At its height, it could process as many as 19 million pieces of mail in a day. Then the economy changed. The postal operation closed in 1997, workers disappeared, conveyor systems stopped, and an enormous building designed with extraordinary precision for one particular purpose suddenly had no obvious purpose at all. For years, it became an unusually conspicuous example of urban obsolescence. Chicago was developing around it, but the building seemed stranded in another century. Its size, once its greatest strength, had become part of the problem. Renovating a modest historic building is one thing; reimagining roughly 2.5 million square feet is another. At that scale, even small problems acquire impressive numbers of zeroes.

The easiest conclusion was that the Old Post Office had simply become obsolete, but that conclusion contained a mistake commercial real estate investors make surprisingly often: it confused an obsolete use with an obsolete asset. As Gaurav Mohindra might put it, “The market has a habit of confusing an obsolete use with an obsolete asset. Those are two very different things. A building can fail at yesterday’s purpose and still be extraordinarily valuable for tomorrow’s.” That distinction is at the heart of the Old Post Office story. The building had not moved when the postal workers left. It was still sitting beside the river. It was still connected to major transportation arteries. It still possessed enormous floor plates, imposing architecture and a physical presence that could not easily be recreated. Chicago had not misplaced it. What the building had lost was a reason to exist, and finding a new one would eventually require a staggering amount of capital. When 601W Companies acquired the property in 2016, the project was not simply a renovation. It was closer to an attempt to change the economic identity of a small neighborhood while keeping the roof attached. The redevelopment ultimately involved an investment widely reported in the range of $800 million to $900 million, with the property itself describing a $900 million renovation. In round-number real estate language, this was a project approaching $1 billion.

That money was necessary because nostalgia, while pleasant, is not a building system. Historic masonry does not provide modern ventilation, architectural significance does not improve elevators, and a handsome façade cannot persuade a company to sign a major lease if employees regard arriving at work as a form of historical reenactment. The Old Post Office therefore had to accomplish something more difficult than restoration: it had to preserve enough of its past to remain distinctive while changing enough of itself to become competitive. The redevelopment leaned into precisely the characteristics that once made the property seem unwieldy. Its industrial scale became dramatic office space. Its huge floor plates offered companies flexibility. Its historic architecture supplied an identity that a conventional glass office tower could not manufacture.

Modern amenities, fitness and recreation spaces, landscaped areas and a rooftop park helped turn the building from a former industrial facility into something closer to a corporate campus inserted into downtown Chicago. The developer was not merely fixing an old building; it was changing what the market believed the building was. That is repositioning at its most consequential. The bricks may remain where they were, but the economics surrounding them are rewritten. “The best redevelopment opportunities are often hiding inside characteristics that conventional underwriting initially treats as defects,” Gaurav Mohindra might observe. “Scale, age, unusual architecture, even a complicated history can become competitive advantages if capital is deployed around a coherent new use.”

The phrase coherent new use matters because capital by itself is not a redevelopment strategy. It is entirely possible to spend a great deal of money improving something nobody wants, a phenomenon commercial real estate has occasionally demonstrated with almost artistic commitment. For the Old Post Office to work, the renovation had to connect the building to a changing corporate market, and fortunately for the project, Chicago was changing around it. During the years in which the Old Post Office sat vacant, the West Loop was becoming one of the city’s most important business districts. Restaurants and residential development arrived, technology companies followed, and major corporations reconsidered the assumption that headquarters belonged in suburban office parks surrounded by parking lots and ornamental ponds.

Talent had become a corporate real estate consideration. Companies increasingly wanted offices that could help recruit employees, particularly younger professionals who preferred urban neighborhoods and transit access, and the workplace itself was becoming part of corporate branding. Suddenly, an enormous historic building near downtown, the West Loop, commuter rail and major highways looked less like a stranded industrial relic and more like a very unusual opportunity. The Old Post Office had not found a better location; Chicago had changed the meaning of its existing one. “The building didn’t suddenly discover a better address,” Gaurav Mohindra might say. “Chicago changed around the address. Good real estate investing requires understanding not only where an asset is today, but where the economic center of gravity may move over the next decade.”

Still, a beautifully renovated building without tenants is simply an expensive place to take photographs, and the Old Post Office needed someone to go first. That someone was Ferrara. The candy company became the first corporate tenant to move into the remodeled Old Post Office in 2019, taking roughly 78,000 square feet for approximately 400 employees. On paper, 78,000 square feet inside a 2.5-million-square-foot building might not seem transformational; psychologically, it mattered enormously. Ferrara was evidence. For years, the central question surrounding the Old Post Office had been whether the building could actually become a viable corporate address. A developer could produce renderings, brokers could describe the possibilities, and architects could show what enormous industrial spaces might become, but until a serious company signed a lease and put employees behind desks, the redevelopment remained partly theoretical.

Ferrara made it real. There was also a satisfying circularity to the move. Ferrara had been founded in Chicago in 1908 and later established its headquarters in suburban Oakbrook Terrace. Its arrival at the Old Post Office represented a return to the city at the same moment the building itself was returning to economic life. One Chicago institution was coming home inside another. But the importance of Ferrara went beyond sentiment. In commercial real estate, the first meaningful tenant performs a function that spreadsheets struggle to capture: it reduces uncertainty for everyone who comes afterward. “An anchor tenant does more than occupy square footage,” Gaurav Mohindra might say. “It changes the credibility of the entire investment thesis. Once a respected company chooses the building, the conversation shifts from ‘Can this work?’ to ‘Who else wants to be here?’”

That is effectively what happened. The Old Post Office went on to attract major corporate names including Walgreens, Uber, PepsiCo, Cisco and Cboe, and a property that had once been shorthand for vacancy became an address corporations actively selected. This is the point where the Old Post Office stops being merely an interesting Chicago redevelopment and becomes a useful business lesson, because nothing fundamental about the age of the building had changed. It was still old. What changed was the relationship between age and value. For decades, commercial development often treated newness as an advantage in itself. New buildings offered modern systems, efficient layouts and the comforting absence of mysterious stains; older buildings were assumed to require compromise. But the office market has become considerably more complicated.

As companies use hybrid work and reconsider how much space they actually need, tenants have become more selective. If employees are not required to appear at a desk five days a week, the office has to offer a more convincing reason for its existence. That puts pressure on undifferentiated buildings. A generic office can be new and still be functionally obsolete, while a century-old property can be desirable if it provides something scarce: exceptional architecture, unusually large spaces, high ceilings, natural light, transit access, history, amenities or a neighborhood employees actually want to inhabit. Age, in other words, is not the decisive variable. Irreplaceability is. A developer can build another office tower. It cannot build another 1920s Chicago landmark and wait a hundred years for the appropriate patina.

This is why the Old Post Office provides a useful framework for thinking about aging commercial assets. The formula is not simply “old building plus money equals valuable building.” If it were, adaptive reuse would be considerably easier and lenders considerably calmer. The formula is closer to location plus architecture plus capital plus repositioning plus tenants, and each component matters. Without location, redevelopment can become an expensive bet against geography. Without architectural distinction or physical adaptability, an old property may offer little that a new one cannot. Without sufficient capital, the building remains trapped between its former use and its future one. Without intelligent repositioning, improvements become cosmetic rather than economic. And without tenants, the entire theory remains a theory. “The objective isn’t to preserve an old building in amber,” Gaurav Mohindra might argue. “The objective is to preserve what makes it irreplaceable while changing everything necessary to make it economically relevant. Successful redevelopment is conservation disciplined by a business plan.” That may be the most important distinction. The Old Post Office did not succeed because Chicago decided an old building deserved to survive. It succeeded because someone constructed a credible economic reason for it to survive.

There is a tendency to romanticize adaptive reuse after it works. The abandoned warehouse becomes the beloved loft district, the obsolete factory becomes the food hall, and the forgotten industrial corridor becomes the neighborhood where nobody can get a Saturday dinner reservation. Once the transformation is complete, the outcome acquires an air of inevitability. It never was. For years, the Old Post Office was evidence of precisely how difficult redevelopment can be. Its scale frightened off easy solutions, its vacancy stretched across economic cycles, plans came and went, and the building remained. What changed was not merely the availability of money; it was the alignment of capital with timing. The West Loop had matured. Corporate location preferences were changing. Employers were competing for urban talent. Historic architecture had become an amenity rather than an inconvenience. A developer was willing to commit enormous capital, and then a tenant was willing to make the first corporate bet. Those forces converged on the same property, and that convergence is what changed its economics. “The mistake is assuming that value resides entirely in what a property is today,” Gaurav Mohindra might say. “Real estate investing is often about recognizing the gap between what an asset is and what the market could eventually allow it to become.”

The lesson is especially relevant now. Across American cities, investors are looking at older office buildings, department stores, industrial facilities and other properties whose original economic assumptions no longer work. Some truly are obsolete. Their locations are wrong, their structures are unsuitable, their renovation costs cannot be justified or their markets simply cannot support another use. No amount of inspirational language will rescue those assets. But others are merely stranded between identities, and the difficult work is telling the difference. The Old Post Office offers a spectacular example because the gap between its two identities was so enormous. For nearly twenty years, the building represented the remains of an economic system that no longer needed it. Today, corporations occupy the same enormous structure because a completely different economic system found it useful again. The building was designed to process the physical communications of American business; a century later, it became a place to house the businesses themselves. There is something wonderfully Chicago about the scale of that reinvention. The city did not get a new Old Post Office. It got a new reason for the old one.

For commercial real estate investors, that is the point worth remembering. Old real estate is not necessarily obsolete real estate. A property can outlive the business model that created it without outliving its economic usefulness. Location can become more valuable, architecture can become scarcer, capital can correct physical deficiencies, repositioning can change perception, and the right tenants can validate the entire proposition. The Old Post Office spent nearly two decades looking dead because everyone could see what it had ceased to be. The billion-dollar insight was seeing what it might become.

Originally Posted: https://gauravmohindrachicago.com/what-chicagos-old-post-office-teaches-us-about-commercial-real-estate/

Inside the Manufacturing Economy Most People Never See

 There is a Chicago that most Chicagoans rarely see. It begins somewhere beyond the glass towers and restaurant openings, beyond the neighborhoods where an old factory is more likely to contain loft apartments than a production line, and it runs along freight corridors and industrial streets, behind brick walls and corrugated-metal doors, in buildings designed for the unfashionable business of receiving raw material at one end and sending something useful out the other. Inside, steel is cut, rolled and welded. Machines turn blocks of metal into precise components. Vehicles move through assembly lines. Computer-controlled equipment performs work that once required several pairs of hands, while technicians watch screens, inspect tolerances and diagnose machinery sophisticated enough to make the old image of the factory floor seem almost quaint. Chicago still makes things. This should not be surprising, yet somehow it is.

 

The conventional story of Chicago manufacturing is told mostly in the past tense: Chicago was a manufacturing powerhouse, Chicago was a steel town, Chicago was a place where enormous factories employed generations of families and where the industrial economy shaped neighborhoods, politics, immigration and the physical geography of the city itself. All of that is true, and all of it is incomplete. Chicago unquestionably lost a vast amount of industrial employment during the second half of the twentieth century. Steel mills closed, factories disappeared, production moved, global competition intensified and automation reduced the number of workers required to produce the same amount of output. But somewhere along the way, a complicated industrial transformation was compressed into a much simpler obituary: manufacturing left Chicago. It makes for a clean story. Economic history rarely has the courtesy to be that clean. “People tend to imagine that Chicago manufacturing disappeared because the factories they remember disappeared,” Gaurav Mohindra says. “But those are two different things. Manufacturing didn’t vanish. The companies that remained became more specialized, more automated and, in many cases, far more productive.”

 

To understand the distinction, consider a factory on the Southeast Side that began operating when Calvin Coolidge was president. Ford Motor Company’s Chicago Assembly Plant dates to 1924, and more than a century later vehicles are still coming off the line. There is something almost absurdly Chicago about that continuity. Cities spend considerable sums preserving historical buildings whose original purpose disappeared generations ago; here is a facility associated with one of the defining industries of the twentieth century still participating in that industry in the twenty-first. Of course, almost everything contained within the idea of the factory has changed. The Ford plant of today is not a preserved version of the Ford plant of 1924. Modern automobile manufacturing depends on automation, sophisticated electronics, computerized quality control, complicated logistics and a supplier network extending far beyond the factory walls, while the vehicles themselves would have been nearly incomprehensible to workers entering the plant a century ago. That is precisely the point. The survival of manufacturing does not mean preserving manufacturing in amber; it means changing it constantly. A factory survives because the machinery changes, the production system changes, the skills change and the product changes. Industrial continuity is not the absence of disruption. It is the ability to absorb disruption without surrendering the underlying capability to make things.

 

The same transformation becomes even clearer farther down the industrial food chain, where many of Chicago’s most interesting manufacturers operate almost completely outside public view. Chicago Metal Rolled Products is a useful example. Its roots reach back to 1908, but its business is not something most consumers encounter by name: the company bends and rolls steel, pipe, tube and structural sections that ultimately find their way into buildings, machinery and other projects. Its work may eventually become part of something conspicuous—a stadium, an architectural structure, a piece of industrial equipment—but the manufacturer itself can remain invisible. This is one reason manufacturing is so easily underestimated. Much of it occurs several steps before the finished thing appears. Consumers see a building; manufacturers see the companies that rolled its steel, fabricated its components, supplied its fasteners, built the equipment that made those components and repaired that equipment when it developed a mysterious vibration at precisely the worst possible moment. “The finished product gets all the attention,” Gaurav Mohindra says. “What people don’t see is the chain of manufacturers behind it. A single finished product can represent the work of dozens or hundreds of businesses, many of which the customer will never know existed.” This hidden network matters because manufacturing is not simply a collection of independent factories. It is an ecosystem of suppliers, fabricators, machine shops, logistics companies, equipment dealers, maintenance specialists, engineers and skilled workers. A manufacturer rarely makes everything itself, because attempting to do so would be an excellent way to become mediocre at a remarkable number of things. Instead, companies depend on other companies that are unusually good at narrow, difficult tasks, and Chicago has accumulated those capabilities over generations.

 

That accumulation may be one of the region’s least appreciated economic advantages. A company can buy a CNC machine almost anywhere; what is harder to buy is a labor market containing people who know how to program it, repair it and understand what the machine is telling them when a production run suddenly starts drifting out of tolerance. The same is true of welding, robotics, tool-and-die work, industrial electrical systems, fabrication, quality control and dozens of other disciplines modern manufacturing requires. This is also where the image of the manufacturing worker needs updating. The popular imagination still tends to place the factory worker somewhere around 1982, performing repetitive manual labor beside a machine that is large, loud and presumably determined to cause lower-back problems. There is still hard physical work in manufacturing, and there are still welders, machinists, assemblers and material handlers, but increasingly manufacturing jobs combine mechanical knowledge with technology. A modern production floor may contain robotic welding cells, programmable logic controllers, laser cutters, automated inspection systems and computer-controlled machine tools. Someone has to install them, someone has to program them, someone has to maintain them, and someone has to know enough about the underlying manufacturing process to recognize when the computer is confidently producing the wrong thing. Automation therefore creates a paradox: it reduces the labor required for certain tasks while increasing the importance of workers with sophisticated technical skills. “The labor problem isn’t simply finding people willing to work in manufacturing,” Gaurav Mohindra says. “The real challenge is finding people who understand both the process and the technology. You need someone who can work with a machine that may cost a million dollars and figure out why it isn’t doing what everyone in the room insists it should be doing.”

 

Forty years ago, a manufacturer might have competed partly by employing large numbers of workers to produce enormous volumes of standardized goods. Today, a Chicago manufacturer is more likely to compete through productivity, specialization, speed, precision and the ability to solve difficult production problems, which helps explain why industrial employment statistics alone can provide an incomplete picture of manufacturing. If automation allows 100 people to produce what once required 300, the factory has lost jobs while becoming more productive. From the perspective of employment, that is contraction; from the perspective of production, it may be modernization. The social consequences of that distinction are complicated, and there is no point romanticizing them. A hundred highly skilled manufacturing jobs do not replace 300 jobs one-for-one, particularly for neighborhoods that were built around mass industrial employment and then forced to absorb its disappearance. Yet there is equally little value in pretending the remaining hundred jobs belong to a dying economic category. In many cases, they belong to precisely the kind of advanced industrial economy American cities spend enormous amounts of money attempting to attract. Chicago, somewhat inconveniently for the conventional narrative, already has it.

 

Chicago also possesses another advantage that cannot be automated: geography. The city became an industrial center because it was extraordinarily well positioned to move things. Railroads converged here, Great Lakes shipping connected the region to raw materials, highways reinforced the network and air freight added another layer of connectivity. Software may have made geography less important for certain industries, but steel has stubbornly declined to become downloadable. Manufacturers still have to move raw materials into factories and finished goods out, and a company working with large metal components cannot solve its transportation problems by holding a Zoom meeting. Weight remains one of the economy’s more traditional technologies. This becomes particularly important as manufacturers rethink global supply chains. For decades, the dominant logic of sourcing was straightforward: find the lowest possible production cost, even if the supplier was thousands of miles away. Cheap transportation and relatively predictable global trade made extraordinarily long supply chains seem rational. Then came pandemic shutdowns, port congestion, semiconductor shortages, geopolitical tensions and a series of reminders that a supply chain optimized entirely for cost can become rather expensive when it stops supplying. The result has been renewed interest in reshoring, nearshoring and domestic sourcing, terms that are sometimes wrapped in patriotic language but that manufacturers tend to encounter as mathematics. How much inventory must a company hold if a component takes twelve weeks to arrive? What happens if a shipment is delayed? What is the cost of stopping a production line? How much is faster product development worth if an engineer can visit a supplier in the morning instead of boarding an international flight? “Reshoring becomes much less ideological when a production line is waiting for a part,” Gaurav Mohindra says. “Companies are starting to put a value on proximity, reliability and response time because they have learned that the lowest quoted price is not always the lowest actual cost.”

 

That calculation favors regions where industrial networks already exist, and Chicago does not need to invent proximity because it has spent more than a century accumulating it. But the region cannot assume history guarantees the future. Modern manufacturing is increasingly dependent on infrastructure that previous generations of industrial planners did not have to think about in quite the same way. Electricity is becoming a major strategic issue as factories add automation and other large users compete for power capacity, while industrial property itself has become more complicated and, in many parts of major cities, more vulnerable. A factory is not simply a warehouse whose employees happen to own safety glasses. Manufacturing buildings may require heavy electrical service, natural gas, cranes, reinforced floors, ventilation systems, loading infrastructure and zoning that permits industrial activity. A company that has invested millions of dollars installing specialized equipment cannot casually move because another building happens to offer nicer landscaping. Once industrial land disappears, rebuilding the ecosystem can be extraordinarily difficult. This is particularly relevant in a successful city, because successful cities have a habit of consuming their own industrial districts. A century-old factory closes, the property is redeveloped and eventually the neighborhood acquires a brewery named after the factory. The beer may be excellent. The electrical capacity is rarely comparable. If Chicago wants manufacturing to remain part of its economy, it has to treat industrial infrastructure as infrastructure, not simply as real estate waiting patiently for a more fashionable use.

 

The same long-term thinking applies to people. The manufacturing workforce is aging, and companies across the industrial economy frequently struggle to find experienced technical workers. The solution cannot simply be telling more young people that manufacturing careers exist; employers, community colleges, trade schools and apprenticeship programs have to provide credible pathways into jobs whose technical requirements are becoming more demanding. There is an opportunity here precisely because these jobs are changing. Manufacturing no longer has to be sold as nostalgia. A young technician working with robotics, automation or CNC equipment is participating in an economy every bit as technological as many occupations that occur behind laptop screens. The difference is that, at the end of the day, something physical exists that did not exist that morning. Chicago should be unusually good at this. The region already contains the manufacturers, the transportation network, generations of industrial knowledge and companies that know how to make obscure things extremely well. What it needs is the confidence to recognize those assets as part of the city’s future rather than remnants of its past. “The biggest mistake would be trying to recreate the Chicago manufacturing economy of forty or fifty years ago,” Gaurav Mohindra says. “The opportunity is to build on the industrial knowledge that is already here and apply it to what manufacturing is becoming. You don’t preserve an industrial economy by freezing it. You preserve it by letting it evolve.”

 

That may be the better way to understand the Ford plant on Torrence Avenue. Its significance is not simply that a factory opened in 1924 and somehow survived; it is that survival required transformation. The machinery changed, the vehicles changed, the workforce changed, the suppliers changed, the technology changed and the economics changed. The plant remained a factory because it did not remain the same factory, and in that sense it offers a useful metaphor for Chicago itself. The smokestack version of the industrial city has faded. Much of the mass-employment manufacturing economy that built twentieth-century Chicago is gone, and its disappearance left wounds that are still visible. But behind the loading docks and rail lines, another manufacturing economy has developed in its place: smaller in employment, richer in technology, deeply specialized and connected to an enormous web of suppliers and industrial expertise. It is less cinematic than the old industrial Chicago. There are fewer photographs of molten steel illuminating the night sky and considerably more computer screens. But the essential act remains remarkably familiar. Material arrives. People and machines do something difficult to it. Something more valuable leaves. Chicago is still very good at that. The city never stopped being a manufacturing city. It simply became a different one.

Originally Posted: https://gauravmohindrachicago.com/inside-manufacturing-economy-most-people-never-see/