CHICAGO—The industrial market in the Chicago metro area has lagged behind some of its counterparts such as New Jersey and Southern California, but recent good news has even perked up interest in portfolios filled with largely B product. The Brennan Investment Group's recent purchase of 23 properties scattered throughout the region for $164 million is a good example, but the deal was not a standard purchase of real estate. Rosemont-based Brennan joined forces with New York-based Goldman Sachs to acquire Mirvac Industrial Trust, an Australian public REIT, and these properties, which total about 4.68-million-square-feet, were what remained in its portfolio.
“They bought these properties from CenterPoint years ago,” Michael Brennan, chairman and managing principal of the Brennan group, tells GlobeSt.com. And the deal itself was a two-step process. First the partners bought the outstanding shares of Mirvac, and then the company was delisted from the Australian Stock Exchange and its remaining properties were bundled into a more traditional property portfolio.
Brennan calls the properties, mostly spread out between Southeast Wisconsin, Lake, and DuPage counties, class B to A-minus, but adds that the burgeoning industrial market, both for the US in general and the Chicago market in particular, gives him a great deal of confidence that demand will remain robust. Business spending is trending up, and “absorption has outpaced new construction and new supply.” Furthermore, the tenants generally consider these buildings “mission critical” and have spent a good amount of money on upgrades. “We sit in a very good spot.”
“We think he got a really good deal,” Steve Disse, a principal at Colliers International, tells GlobeSt.com about Brennan's purchase. Colliers was not the broker and Disse had no involvement in the transaction, but he has studied the former Mirvac portfolio and is familiar with it. He confirms information in other public documents that the total price was $164 million. “It's probably the lowest price on a per-square-foot basis for any comparable deal.”
He attributes the competitive price to the possible complications involved in buying an entire corporate entity like Mirvac, instead of just the properties. “There is a little bit of a risk; this is not what real estate buyers usually do.”
Furthermore, “Mirvac wanted to do a deal quickly,” and that also may have lowered the price. Other factors which helped the deal get over the finish line were Goldman's obvious sophistication in complex transactions and Brennan's detailed knowledge about local market conditions. “The B product market is just coming back so he probably understood that timing.”
“That market has changed a lot in the last six months,” he adds. Although the recovery in the metro area has lagged somewhat behind coastal markets like New Jersey and Southern California, it now has a great deal of private equity coming in. “There is a huge new capital source for B product.”
Investors realize they can make money in the area's B properties, Disse says. Cap rates in those coastal markets are still significantly lower than in Chicago, with California product generally below 5%. And there is still a gap between Chicago's A and B product of about 150 bps, down from about 250 bps two years ago.
“We're just bullish on the industrial market in Chicago,” he says. “We just had a great year, with about 16-million-square-feet of net absorption. And the capital is watching.”
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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.
