Gatto: My sense is the Chicago office market today is really driven by the pursuit of labor and employees. The downtown is one of the few in the country with a 24-7 live-work scene, and the city is continuing to grow as a collecting pot of graduates from big schools throughout the Midwest. Upon completing their degrees, they are attracted to residency in the downtown, and the employers are taking advantage of that.

The whole story to today’s Chicago office market is what happened with the residential downtown, started by former Mayor Daley and now through Mayor Emanuel. Daley made the city vibrant with the Millennium Park redevelopment and Navy Pier, and now you have the apartments being built all over the city, on Ontario, Halsted, Lake and Roosevelt, there’s more than $1 billion under construction. This is all for that University of Michigan graduate who wants to live in an urban environment, probably getting married and having children much later than we did, and they’re also looking at a housing market where home ownership may no longer be the end-all goal.

GlobeSt.com: We’ve seen a number of companies from the suburbs looking to locate downtown, when it used to be the other way around. How has that had an impact?

Gatto: The other aspect that’s changed, it used to be a company would place executives in the city but keep processing or other administrative functions in suburbs like Naperville or Schaumberg. Now those positions have gone off shore, and the technology has changed – before when a 52-year-old engineer would work in a lab in the East-West Corridor, now it’s more likely a 28-year-old doing more computer-orientated work who wants to bring his dog to his job.

In the downtown vs. suburbs attraction of labor, the downtown is winning more so than I’ve ever seen in the history in Chicago, I’ve never such diversity relocating from the suburbs to the downtown. There are many reasons for this, such as the mayor transition and his pro-business stance. When you get down to it, it’s starting to be that you’re getting fewer suburb residents taking the western trains in compared to those who just take the ‘L’ from the northern part of the city or walk to work from one of the downtown apartments or condos.

GlobeSt.com: What do you make of these new offices being announced for the River North area?

Gatto: Historically, the river and the train lines north of Lake Street were an impediment to office and residential, it was an industrial pocket. Also, 10 years ago, River North was a submarket of loft buildings specializing in design, such as the Merchandise Mart, and entertainment-orientated places. Most offices didn’t move north of the Chicago River, when IBM did it, it was a big deal. Now you’re seeing more of the mainstream companies moving there, especially the new technology firms such as Groupon at Halsted and Chicago.

Hines’ Wolf Point has the potential to change the dynamic of that whole River West area. Just a few decades ago you had the whole Cabrini Green pocket that people who lived on the north side avoided – you just never used Division, you blanked it out. That’s all changing, from Chicago Avenue to Division down to the river, that whole pocket is the new Gold Coast. You’re seeing $4 million to $6 million homes going up, you never saw that type of residential before. Wolf Point will add that corporate complexion, and then you’re going to see retail follow, with a larger grocery store and the Target and Best Buy stores looking to get a presence.

GlobeSt.com: Your company has been trying to get an anchor for your 20-story new tower plan at 625 W. Adams. Will these new towers hurt that plan?

Gatto: Our building is also on the outskirts of the CBD, though ours, at 400,000 square feet, is something that could be successfully financed with one tenant in the 100,000 to 150,000 square foot range. If you look at the overall office market downtown in that range, you really don’t have more than a dozen choices, and about half of them are in the Northeast Loop where the traditional corporate and legal tenants don’t usually go. That’s more of the communication and advertising market up on Michigan Avenue. However, it’s going to be easier for a building such as ours to land one large tenant than for a large, one-million-square-foot office to get what it needs to start, probably two-to-three large tenants. Hines is taking a bold move by going speculative on River Point, but they’re also likely to be successful, as by default they’re going to be the only building up and available.

GlobeSt.com: What do you think a typical office tenant wants in a office building today?

Gatto: I think where some of the recent suburb-to-downtown user choices are surprising people, they’re going in areas not traditional office corridors, such as Sara Lee’s planned redevelopment of a warehouse at 400 S. Jefferson for its North American Meats division. This is also true of Google (which having just purchased Motorola’s cell phone business, is looking at office space in Chicago), they don’t want to necessarily be in a building on Wacker Drive mingling with business people in suits.

The tenants looking now will want modern space with larger floor plates and a stronger technology capacity. Also, you have to consider the current corporate America trend of reducing rentable square feet per employee. Five or six years ago, these concepts such as telecommuting and hoteling or sharing offices were just concepts, now many corporations are catching on to how to use the workplace. And if you’re going to reduce square feet and occupancy, you usually want to move to a newer facility that you can create from scratch.

GlobeSt.com: The new building trend is sooner than expected, and it’s not clear how supported it is by fundamentals. Will we see blowback, do you think?

Gatto: It’s true we’ll likely head back to the overbuilding part of the cycle, but regardless of job growth or lease rates, the valuation of buildings are gaining confidence. You have office buildings being sold for $600 per square foot, and companies such as Google coming in, and they’re looking more at if they can get a good building with high-tech space that’s attractive to good employees, they want those things more than worrying about rent being higher than the rest of the market. Those leases will help drive rents as the valuations grow, this and the rest of the attractiveness of the downtown is what is making us a world-class city.