NAPERVILLE-Holliday Fenoglio Fowler has secured $31.7 million in financing and joint venture equity to recapitalize the four-building, 418,000-square-foot Naperville Corporate Center complex here. Jaime Fink and Mike Kavanau with HFF worked on behalf of Transwestern Investment Co. to secure a $23.4 million adjustable-rate loan with Prime Finance Partners.
The two men also tapped Dallas-based private equity firm TriGate Capital for $8.3 million in joint venture equity for the property’s recapitalization. With the infusion of capital, developers are paying off an existing first mortgage at a discount and providing capital for future tenant improvements and leasing commissions at the property. Asking rates at the complex run about $20.50 per square foot.
“The location of this property within the submarket is very strong as it benefits from direct access to the tollway in both directions,” said Jeffrey Yarckin, managing member of TriGate Capital, in a statement. “Also, we believe leasing will benefit from the amenities at the property and in the adjacent new Freedom Commons retail center.” The center also completed a $2.7-million renovation in 2009.
With a soft market expected to prevail in Chicago’s suburbs in the coming quarters—and with Fitch Ratings estimating $2.3 billion in troubled CMBS loans coming due in the next six months—recapitalization could be the saving grace for many office projects in Chicago and beyond.
“We are seeing recapitalizations increase,” Fink tells GlobeSt. “There’s a stronger demand to work on deals for properties with a value-added nature that need recapitalization. The Naperville Corporate Center is a value-add opportunity because it’s only about 65 percent leased.”
The overall vacancy rate in Chicago’s suburban office markets, including sublease space, climbed to 25.4 percent in the second quarter, up from 25.2% in the first quarter, according to Jones Lang LaSalle. That marks the highest vacancy rate in more than 10 years. Fred Ishler with Transwestern says the building is holding its own in an ultracompetitive leasing market where landlords are making deep concessions. The recapitalization comes at the heels of five lease signings of almost 28,000 square feet earlier this month.
Ishler tells GlobeSt.com he expects leasing momentum to continue at the center on the new basis, a competitive advantage on expenses, a prime location, strong amenities and low occupancy costs. In a suburban Chicago market with several phantom buildings, Ishler said the recap helps assure tenants that the project is financially stable.
“We’re competing with vacancy in every building out here. The recapitalization has put the Naperville Corporate Center on rock solid financial footing,” Ishler said. “Now we have the additional firepower to chase deals and we get more competitive by meeting market concessions. We’ve seen an uptick in leasing inquiries since the recapitalization was announced. Tenant demand is starting to pick up.”
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