CHICAGO—The market for the smaller and older industrial properties that populate much of suburban Chicago has improved greatly in the past few years, especially for buildings that stabilized as the local economy righted itself.

Chicago Properties LLC, for example, has just sold a six-building industrial portfolio that includes industrial and flex properties throughout the Chicago suburbs. The company hired Transwestern to provide leasing services at the two single- and four multi-tenant assets, and since late 2012, it succeeded in significantly raising the occupancy rate. Chicago-based Clear Height Properties acquired the 146,342 square foot portfolio for an undisclosed amount and also decided to retain Transwestern.

"In December 2012, a lot of the tenants were just hanging on, and were mostly interested in short-term leases," Transwestern executive vice president John Coleman tells GlobeSt.com. The low lease rates back then were also causing deferred maintenance. "We were happy to get in there and turn it around in a few years."

The company implemented a number of significant upgrades to the properties, including new HVAC systems, dock doors and parking lots, that Coleman says substantially impacted leasing momentum.

Many of the users in these suburbs, including Aurora, Elgin and the towns around O'Hare, only need between 5,000 and 7,000 square feet. To cast a wide net , Transwestern assembled three leasing teams that would each focus on just one or two of the buildings. "No one team was overwhelmed by the assignment," Coleman says, and the group achieved a nearly 85% renewal rate with remaining viable tenants and raised the total occupancy from 74% to 92%.

The portfolio now includes 21 tenants. Transwestern secured several new leases and extensions with local companies including Pace Suburban Bus Service, Stanley Black & Decker, Veltri Inc., Claridge Products, Red Barcode Planet Inc. and ECL Products LLC.

Transwestern's managing director Gary Nussbaum led the investment sales team, which included senior associate David Matheis, principals John Joyce and Justin Lerner, senior associate Ryan Phillips and director Joe Karmin. Senior vice president Nancy Russell leads the management services team.

"This type of investment is not for everybody," Coleman adds. Many investors, especially the big institutional players, are still out chasing possible investments in top class A product. But Clear Height is "raising capital for the express purpose of buying smaller, class B product," and in fact already has a sizable portfolio of similar buildings. "They like to grow local tenants within their own portfolio," which has given Clear Height the market knowledge and expertise needed to operate these buildings.

"We identified the specific potential buyers that we felt would be a good fit," says Coleman. This group eventually included between 40 and 60 companies throughout the Midwest that had an interest in Chicago-area industrial buildings, "but did not want their investment to cost $60 million." The portfolio hit the market in May, the call for offers was ready by June, and by the end of August Transwestern had negotiated the contract.

The portfolio includes:

• 600 Northgate Pkwy. in Wheeling – 31,726 square feet; multi-tenant

• 3847 Exchange Ave. in Aurora – 30,000 square feet; single-tenant

• 921 – 927 State St. in Elgin – 27,600 square feet; multi-tenant

• 3121 Tollview Dr. in Rolling Meadows – 22,644 square feet; single-tenant

• 72 – 92 N. Lively Blvd. in Elk Grove Village – 20,000 square feet; multi-tenant

• 2130 Oxford Rd. in Des Plaines – 14,372 square feet; multi-tenant

Such deals are becoming more common, Coleman says. "Even Prologis has a class B portfolio on the street right now." And the reasons for this activity are simple. "Cap rates are going to higher than you see with the class A properties, and even though the risk is higher due to the local tenants, if you know what you're doing you can make money. And many investors are using the class B market as a way to gain a foothold in the Chicago market."

"The purchase of class B product has gained momentum, especially when there is value-add opportunity, though there is a substantial gap in purchase price as class A facilities remain favorable among investors and attract the highest premiums," according to the most recent Chicago Industrial Market Monitor by Avison Young."Cap rates have reached pre-recession levels, averaging 6.5% at the mid-year mark. However, in select submarkets buildings are trading at 5% or below. These low cap rates predict that investment into industrial product should continue through the remainder of the year."