CHICAGO—On Tuesday, GlobeSt.com reported that Chicago-based Urban Innovations, a company with deep roots in the River North neighborhood, had repurchased, at a significantly lower price, several office buildings in the West Loop's Greektown neighborhood that the firm had sold to another investor in 2005. Today, Mike Scilingo, president of Urban Innovations, explains how this came about, and how the commercial real estate markets in River North and Greektown can impact one another.
“We were swimming upstream,” says Scilingo of the time when the company first bought and began leasing 322 S. Green St. and 833 W. Jackson Blvd. about one mile west of the Loop. It was the late 1990's, and the tech bubble was bursting, undercutting the very businesses the loft-style offices were designed to attract. The market eventually stabilized, he adds. Still, the buildings never quite achieved from an investment standpoint what Urban Innovations had thought possible when the boom was on.
But by 2005, the buildings, which share a parking lot, “were marketable from a cash-flow perspective.” And when an out-of-town investor offered to buy both for about $18 million, Scilingo says they jumped at the chance. The purchaser “was looking to get into the Chicago market, and we thought, 'now we can focus on River North,'” the company's historic base of operations. Urban Innovations was one of the pioneering developers that began buying River North property and developing it into office space in the 1970's, when the area still had a scruffy feel.
However, the new owner may have left himself somewhat undercapitalized, Scilingo says, and unable to keep up the common areas and provide proper services. “He was just overextended,” and perhaps more importantly, may not have understood how to fulfill the very special role played by the Greektown office market.
“The tenants tend to be smaller,” Scilingo says, needing about 3,500-square-feet on average. “They're at a difficult stage of the entrepreneurial cycle,” most of them either downsizing or just starting to ramp up and expand, and want to temporarily settle in Greektown's older industrial lofts. “You make money on the renewals, so it's a gamble with each new tenant that they will remain viable and in business.” Therefore, a landlord needs to carefully pick enough tenants that will stick around, at least for awhile. “The ones that are super successful; we'll lose them eventually.”
By the time the bank took over from the former owner, Scilingo adds, the vacancy rate in the buildings had hit 30 percent. But he feels that with their long experience in the city's off-Loop loft-style office market, Urban Innovations can once again successfully lease the buildings. Furthermore, their nine properties in River North should play a key role.
“We view [all eleven buildings] as a portfolio of 750,000-square-feet.” Greektown “is a little less expensive than River North and it's an alternative we want to offer tenants who aren't quite ready for River North.”
Urban Innovations repurchased the properties from Wells Fargo for only $14 million, or about $4 million less than they sold them for in 2005. “We like it when the numbers work in that direction,” Scilingo says.
Scilingo also expects the Greektown buildings will continue to host tenants that have a social mission. “That's part of the company's DNA; that's not going to change.” Current tenants there include CAN TV, a public access station and the Family Health Network, a Chicago-based nonprofit that occupies nearly 24,000-square-feet. Other tenants include the University of Illinois and Incisent Labs Group. Urban Innovations has also just signed 13,000-square-feet of new leases and renewals, raising the total occupancy of the properties to 76 percent.
“We've brought the occupancy up already and we feel we can get it up over 90 [percent] in a year,” he says.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
