Q&A with Paul Shadle: DLA Piper; Partner, US Real Estate Practice

Paul Shadle is one of the guiding attorneys for the 2021 DLA Piper Global Real Estate Annual State of the Market Survey released in tandem with DLA Piper’s 16th Global Real Estate Summit. The survey examines expert outlook and trends shaping the commercial real estate (CRE) market. During the accompanying summit, icons in real estate and private equity shared newsworthy insights and analysis on the evolution of the CRE markets in the wake of the global pandemic, continued technological innovation and shifting political forces.

Paul Shadle is a partner in DLA Piper's Development, Land Use and Government Affairs practice group in Chicago. He concentrates his practice in the areas of general real estate development transactions, corporate real estate services, land use and zoning, public-private finance and incentives, historic preservation, and government affairs. Paul advises owners, developers, investors, lenders, retailers and a variety of entrepreneurial and institutional clients in complex real estate, private and public financing, annexation, zoning and government-related matters for corporate, office, industrial, retail, residential and mixed-use development projects.

1. As a co-chair of DLA Piper’s global real estate survey and summit, what CRE trends are you closely following and why?

Our 2021 survey confirmed the underlying strength of the CRE industry, which was apparent prior to the pandemic. We’re anticipating a continued focus on logistics and life sciences and also elevated expectations and prospects for multi-family and the future of hospitality, where the survey found an uptick in confidence levels. According to the survey, logistics and warehousing are the most attractive risk-adjusted opportunities in the US for real estate investors in the next 12 months at 61 percent, followed by life science/biotech at 57 percent. Multi-family gained significant momentum from our 2020 survey as an attractive risk-adjusted opportunity at 49 percent, up from 35 percent. The survey showed that housing weathered the pandemic well across the board, including increased confidence in affordable housing and senior housing.

2. DLA Piper’s 2021 Global Real Estate Summit featured insights from some of the industry’s largest icons. In your opinion, what were the most significant takeaways from the event?

During this year’s summit, our speakers – such as Jonathan Gray, President and COO of Blackstone Group, and Nathalie Palladitcheff, President and CEO of Ivanhoe Cambridge – noted infrastructure as being essential to the return to normalcy and vital to sustaining a vibrant economy. I agree with that sentiment and believe infrastructure – especially in light of potential federal legislation – will be an area of great investment in the years to come, creating jobs and supporting both domestic and local economies and related real estate markets.

The speakers also reinforced the value of having people work together to generate new and innovative ways to respond to consumer needs and demands. Interestingly, our survey this year also indicated a desire by many to return to work. Our survey found that respondents are optimistic about the pace of return to work with 60 percent anticipating roughly three in four office workers will be back in their offices full-time one year from now. It’s clear from the summit speakers and DLA Piper’s research that in-person working environments can translate to value for real estate entities and those who use them. This was identified as a factor that will support major urban centers, centers of creativity, and the office market.

3. The DLA Piper 2021 State of the Market Real Estate Survey uncovered a resurgence of optimism in the market. What do you believe drove respondents to feel so bullish after an uncertain 2020 and do you share this outlook?

In our 2021 survey, the optimism among real estate professionals showed a dramatic shift in sentiment from bearishness in the 2020 survey to prevailing bullishness this year. In fact, 74 percent of respondents anticipated a bullish CRE market in the next 12 months in this year’s survey, up from 21 percent in the 2020 survey – a 53 percentage-point increase, and on par with pre-pandemic levels indicated in the 2019 survey.

Based on our results and findings, we believe this outlook was driven by a combination of pent-up demand, the creation and distribution of COVID-19 vaccinations, and a desire for people to work in a shared environment. These factors, mixed with strong underlying real estate fundamentals that existed prior to the pandemic, helped to showcase the resiliency of the CRE market. This is supported by new infrastructure policies and other expected investments that are essential to CRE.

4. Are there any results from this year’s survey that were surprising to you? If so, which findings stood out the most?

I was surprised that roughly half of the respondents indicated a somewhat slow return to pre-pandemic GDP (18 months), given general bullishness and anticipated economic activity in the nearer term. However, this disconnect was confirmed by the growth reported by the US Dept. of Commerce for Q1 of 2021. Other responses to different questions showed greater optimism. For example, the survey demonstrated confidence in the CRE market due to pent-up demand, with 35 percent attributing their optimism to an abundance of capital still chasing deals.

In addition, the wide range of opportunities identified in CRE, including even hospitality – despite uncertainty about how we will emerge from the pandemic – stood out as a positive reinforcement for the market’s endurance. The survey uncovered that 22 percent of respondents see the hospitality sector as attractive for investment, a 16-percentage point increase from the 2020 survey, surpassing pre-pandemic optimism for that asset class. We believe hospitality is poised to begin to recover as travel and leisure activity continue to increase.

5. What are the greatest opportunities in the Chicago CRE market and what are the challenges?

The Chicago metropolitan area is a strong and resilient market, and will benefit from CRE activity in logistics, biotech/life sciences, multi-family housing, and other leading sectors. Chicago may also be regarded as a sleeper location, given that it is a major US metro area with broad-based underlying strength that also has the creative class, technology, and other attributes identified by Survey respondents and Summit speakers as drivers of real estate activity, investment and long-term success.

Chicago and the State of Illinois will have to address some market uncertainty about taxes and the overall fiscal condition, along with a somewhat cumbersome project approval process, especially for multi-family housing. This is a challenge, but I am confident the Chicago market will overcome these obstacles given the city’s underlying strength, which includes quality of life, competitive cost of living, an educated workforce, existing infrastructure, and other assets and advantages.