CHICAGO—The well-publicized migration of many firms into the CBD, especially hot neighborhoods like River North and the West Loop, can obscure the importance of the suburban real estate to many Chicago-area corporations, according to the November market report by MB Real Estate. And some investors apparently believe that even though the economic collapse may have left many suburban properties with high vacancies, underlying fundamentals may help return many to health.
The firm cites a recent study by the Brookings Institution that found that in the Chicago area “68.7% of the jobs are located more than 10 miles from the CBD making it the second most decentralized city in America behind Detroit. While Chicago has seen several companies move to the CBD, nationally it appears the trend is to move outside the city limits.”
Therefore, although much of the suburban area has had a vacancy rate of over 20% for years, some investors feel many of these areas are a good bet. “The suburbs have been overlooked by investors, so we feel there are great opportunities to buy at high cap rates and a low price per square foot,” said Ariel Bentata, co-founder and managing member of Beacon Investment Properties LLC. Bentata's firm just purchased the 210,774-square-foot Park Plaza building in suburban Naperville for about $24 million, or about $114 per-square-foot. The property has top-rated tenants such as Travelers Insurance, the anchor tenant, which occupies about 112,000-square-feet.
Furthermore, MBRE also pointed out that a joint venture of GlenStar Properties LLC and Walton Street Capital LLC recently acquired an empty 206,000-square-foot building in Lisle. And earlier this year, the same partners purchased the Continental Towers, a 910,796-square-foot office complex in suburban Rolling Meadows which was about 40% vacant. Rand Diamond, a GlenStar principal, told GlobeSt.com that Continental had “been a successful property for most of its life,” but then hit an unusual run of bad luck. “This last cycle in 2007 and 2008 when the world blew apart, a lot of its largest tenants were mortgage companies, and that started a downward spiral.”
No matter how many companies set their sites on the CBD, some must remain in the suburbs. Abbott Laboratories, for example, has about four-million-square-feet in a sprawling suburban campus in North Chicago. “Given that there are only nine buildings with blocks of contiguous space greater than 300,000-square-feet, it would be extremely challenging, at the moment, to place an operation of this size in one downtown location,” MBRE researchers said.
And many companies still find suburban, campus-like developments attractive for other reasons. The manufacturer Sunstar Americas, Inc., has just bought nearly 80 acres in unincorporated Cook County for a 300,000-square-foot North American headquarters and manufacturing facility that will replace their operations on the city's Northwest Side. The company's goal was a “trophy” headquarters set on about 20 acres of green space, said Greg Wright of Paine/Wetzel/TCN Worldwide, who represented Sunstar in their search for a new home.
And Middough Inc., an international engineering services company, just signed an early extension of their existing lease, originally set to expire in 2018, for 68,748-square-feet at 700 Commerce Dr. in Oak Brook, another town that has avoided the suburban doldrums. Oak Brook has “all the attractions of being in the suburbs in terms of cost,” according to Robert Sevims, the executive managing director of Studley's Chicago office, who represented Middough. “You're not far from Chicago, you're not far from the airports,” he added, and the highly-educated workforce needed by Middough is just at hand.
“Companies looking for large campuses at a lower price per square foot should consider setting their sights on the suburbs,” MBRE concluded.
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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.
