At the crossroads of I-294 and I-90, the O'Hare submarket is in the center of all of Chicagoland's suburban marketplaces. In our latest Market in Motion video, Jason Streepy covers the current condition of the O'Hare/Rosemont submarket, why companies want to be here, the impact of Blackstone's proposed purchase of GE's real estate portfolio, and the changes ahead.
On Wednesday, June 17th, NAI Global hosted the 2015 Global Market Outlook at The Westin Chicago River North, featuring distinguished panelists Dr. Peter Linneman, NAI Global Chief Economist, and Sam Zell, Chairman of Equity Group Investments. The event was moderated by Jay Olshonsky, NAI Global President.
Here is the list of the Top Ten Quotes/Insights:
10. The US in the early phase of recovery which is taking a little longer than average post WWII recovery. “Things feel good now, compared to 2007 when it was great.” Peter Linneman.
9. US past success in economic recoveries has been based on growth but our current growth is actually a redistribution of wealth. This source of growth needs to be reversed. US corporations have more cash on the balance sheets today and these companies are increasing expenses on lobbyists as a response to increased regulations. This type of corporate investment does not make sense for the US economy.
8. The US dollar is doing better in the recovery than most of the world as foreign currencies are down. To paraphrase the colorful Sam Zell analogy “The US is best player on the worst baseball team in the league.”
7. The anticipated shifting of the political landscape provides a glimmer of hope. The currently appointed fed’s policy of intervention will shift to less interventions over the next couple of years. We elected “a radical with a different perspective who is an ideologue. A real estate developer would make a better president than an ideologue as a developer knows how to negotiate and transact to get the deal done. We need to elect a president in 2016 that embraces the free market.” Sam Zell
6. Real estate asset class observations:
- Office: every renewal in the past 24 months has been for less space. Suburban office is generally a tough business, hard to generate cash flow, tough with capital expenditures.
- Retail: big malls are doing well, the local retail strip centers are doing okay but everything in between is obsolete.
- Residential: showing signs of improvement but only halfway there with 750,000 construction starts today compared to 1.5 million at the height of the market.
5. The relationship of supply and demand will tip the real estate market according to Linneman, who predicts 3 more years to go in this cycle. Zell questions if we know our tipping point as a global influence such as Greece, ISIS, Iran, Ukraine, etc. could make an impact.
4. Technology companies are and have been a big demand driver. Current balance sheets of such companies are improved from 2000 but not great. Zell cautions that tech companies are thriving on the availability of capital used to cover expenses. “If the credit of the tenant is still zero, you shouldn’t sleep at night.” Sam Zell
3. The evolving use of technology will continue to bring about underestimated changes. “The impact of artificial intelligence is moving exponentially…” Future consumers will no longer be placing orders at a McDonald’s drive thru with a person but through a computer. Additionally, “the use of algorithms replacing white collar workers and the impact on real estate is underestimated.” Sam Zell
2. The single biggest demographic shift is the deferment of marriage by millennials. Historically the US economy benefited from young married couples who bought houses in the suburbs, bought diapers, etc. The economic impact of delayed marriage and the start of families is causing major cities to become denser. Gentrification in these cities has shifted from 40% to 80%, forcing a generation of low income residents to move to the suburbs. Concern is growing as these suburban communities are not equipped to deal with this influx and the associated issues.
1. Predictions for Chicago’s future within the next 2-4 years is largely dependent how the city responds to and resolves its current financial challenges. From a real estate perspective, there is unlimited land in Chicago with no barriers to entry. The new supply of office space is “stealing tenants” from existing buildings. The city still needs tenants of significant size for growth. The prediction for US real estate is three more years of rent and occupancy growth. Supply is still lagging and there is a lot of debt capital flowing. An increase in interest rates could cause pain but pain is important. If you are in the market long-term, it’s a good time to buy. If you are a flipper, it’s a dangerous time. Zell recommends selling anything that is not a high quality asset.
The Sitex Group, a private equity firm that specializes in industrial real estate, has just acquired an 87,219 square-foot warehouse and distribution facility located at 350 S. Church St. in suburban Addison. And Sitex principal Cary Goldman tells GlobeSt.com that this new addition to its portfolio is a “one of a kind product” that stands out from everything else in the submarket. The price was not disclosed.
“There are few existing buildings in all of Northeast DuPage County that feature the modern image and amenities of 350 South Church St.,” he says. Addison is a mature market with inventory that mostly dates to the 1970’s and 80’s, but this building was originally built in 1995 and subsequently expanded in 2007.
Furthermore, the area has no available land for new construction and a vacancy rate hovering near 5%, he adds. The company expects that buildings like this “will see rent and value growth over the next several years” as tenants continue demanding facilities with a range of modern features.
350 S. Church St. includes a precast exterior, 13 exterior docks, 27’ clear ceilings and T-5 lighting. It also offers 1-2,000 amp/480 volt service and 1-1,200 amp/480 volt electrical service – ideal for distributors or manufacturers, Goldman says.
But he considers the location its top-selling point. With proximity to I-55, I-290 and I-294, drivers can access the property from all directions. It also provides excellent visibility from Fullerton Ave., he adds.
NAI Hiffman’s Kelly Disser and Dan Leahy represented the seller, Standfast Group, in the sale. Standfast will leaseback the facility for three months before moving to a new, 378,443 square-foot building in nearby Carol Stream.
Distribution Realty Group and F. Greek Development announce 182,875-square-foot spec distribution center in I-55 corridor
A joint venture was announced between Chicago-based Distribution Realty Group and East Brunswick, New Jersey-based F. Greek Development in acquiring 11.16 acres located at 990 Veterans Parkway in Bolingbrook, Illinois.
The Partnership plans to develop a 182,875-square-foot Class A distribution facility which will feature a 32’ ceiling clear height, corporate quality glass storefronts, ample dock loading, and the ability to demise for multiple tenants.
“The I-55 corridor is one of the most dynamic industrial markets in Chicago,” James Love, Managing Partner of Distribution Realty Group, said. “We have seen over 2.5 million square feet of gross absorption so far this quarter, and the activity level remains high. Bolingbrook’s pro-business reputation, high quality amenities, and favorable location along I-55 continue to attract a wide variety of industrial companies.”
“Chicago is one of the country’s Tier-1 markets. With over 1.3 billion square feet of industrial inventory, it is a critical link in the U.S. supply chain,” David Greek of F. Greek Development, said. “We are excited to be expanding our presence here.”
The overall Chicago-land industrial vacancy was 7.8% at the end of the first quarter according to NAI Hiffman. Adam Roth of NAI Hiffman represented the buyer in the transaction. Steve Caton of Caton Commercial Real Estate represented the seller.
NAI Hiffman is pleased to announce it has recently added four new associates to its brokerage team (pictured left to right): Kailey Boyd, Joe Bennett, Michael Freitag and Alex Sutterer.
Kailey Boyd joined the Office Services group, working with Perry Higa, concentrating on tenant representation in the East-West submarket. Kailey previously worked as an Industrial Capital Markets intern at JLL. She is a 2015 graduate of Indiana University’s Kelley School of Business where she earned her degree in Finance-Real Estate with a minor in Spanish.
Joe Bennett joined the Industrial Services group, working with Joe Bronson, focusing on the O’Hare and West Cook submarkets. Joe is a 2015 graduate of The University of Illinois where he received a Bachelor’s Degree in History and was a member of the Alpha Sigma Phi fraternity.
Michael Freitag has also joined the Industrial Services group, working with Kelly Disser and Eric Tresslar, targeting the Central DuPage and Chicago submarkets. Michael previously was a Business Analyst intern with The Harp Group where he specialized in underwriting major commercial transactions. He is a 2015 graduate of Plymouth State University with a Bachelor’s Degree in Finance and a minor in Economics.
Alex Sutterer joined the Industrial Services group as well and works with Chris Gary on the Southern Chicago and Northwest Indiana suburban industrial markets. Alex was previously an Associate with Newmark Grubb CBI in Honolulu, Hawaii where he specialized in industrial and mixed use sales and leasing. He is a graduate of Purdue University where he majored in Business Management with a concentration on Finance.