It's back. Chicago's commercial real estate market has, on balance, performed well during the last year with declining vacancies and upward pressure on rents.
Weak spots are primarily confined to the sluggish downtown office market and a shake-out of suburban retailers leaving some big, hard-to-fill spots.
The multifamily sector has continued to shine, but investors are having a hard time finding good properties to buy. The downtown hotel market has improved significantly, and suburban occupancy rates have risen as well.
As the economy continues to pump along, the big performer has unquestionably been the industrial sector. "This was a stellar year for industrial," says Stephen R. Kozarits, senior vice president of CB Commercial Real Estate Group, Oak Brook. "We absorbed 47 million sq.ft. marketwide, the highest level ever."
Kozarits notes that 1995 was the second record year in a row for industrial real estate. Big deals of 100,000 sq.ft., or more, are driving the market.
CenterPoint Properties pegs current industrial vacancies at just 3.5%, the lowest in the nation. "Chicago's industrial market continues to show signs of development, growth and vitality," says John S. Gates Jr., chief executive and president of CenterPoint. "With a total of 850 million sq. ft. of space, Chicago clearly remains the nation's largest and most diverse industrial market."
Net rental rates in 1995 increased about 7%, says CB Commercial. Rents for newer high-cube warehouses ranged from $3.50 to $4 per sq. ft. New construction totaled 11.5 million sq. ft. in 1995, up from 6.5 million sq. ft. in 1994. Of the 1995 total, 6.3 million sq. ft. was build-to-suit. The largest concentration of new development was found in Dupage County, with 5.1 million sq. ft.
A report from Colliers, Bennett & Kahnweiler expects industrial lease rates and sales prices to increase modestly in 1996. It states, "There may be some tempering later in the year in anticipation of elections and what impact any political changes may bring to the economy."
Jeanne Rogers, executive vice president, Arthur J. Rogers & Co., Des Plaines, sees a shift in demand from warehouse to manufacturing space. "The machine-tool industry is very active and expanding," she says. On a positive note for building owners, Rogers says older manufacturing facilities in Cook County are selling once again.
Chicago's retail vacancy rate declined only marginally during 1995 from 7.8% to 7.4%, due in part to the exit of some big box users, according to a report from CB Commercial. New development totaled 3.3 million sq. ft. for the year, down from the 4.3 million sq. ft. that came online in 1994.
"Retail is showing signs similar to those that sparked the office market meltdown in the early '90s, overbuilding and poor tenant credit," says Mark H. Tanguay, president of Tanguay-Burke-Stratton Comprehensive Real Estate Services, Chicago. "Retail sales suffered in the second half of the 1995, including one of the poorest holiday shopping seasons in years. Downsizing will continue in an effort to reduce square footage."
Retailers closing locations include: Filene's Basementfour); Silo (24); Handy Andy (nine); F&M Distributors (20); Builders Square (one); Venturetwo); and Warehouse Club (one).
Total retail space available in the "big box" category now exceeds 8.4 million sq. ft., says David Bossy, principal of Mid-America Real Estate Corp., Oakbrook Terrace.
Tanguay doesn't expect a new wave of big retailers to enter the market, but he notes that some niche concepts are gaining a foothold, including baby stores, specialty footwear and children's educational stores.
Investors continue to show interest in retail projects with strong anchors like Target and Circuit City, says Tanguay. Meanwhile, downtown retail along Michigan Avenue continues to astound with new developments, increasing rents and lower vacancies.
In multifamily properties, sales increased 30% in 1995, according to Brian McAuliffe, senior vice president, CB Commercial, Lincolnshire. He says pension fund advisers seeking to diversify their portfolios geographically are investing in Chicago-area projects. He counts nine major transactions of more than 100 units in 1995, for $160 million. "This year should surpass 1995 although there is continued concern about the availability of product," he says.
Ted Amdur, president of Amdur Associates Inc., Arlington Heights, says apartment rental rates have increased 5 1/2% to 7%. Occupancies are about 96% and should remain high since new projects are scarce. "The market is positive and getting better," he says.
Eight suburban apartment projects and five downtown projects are planned for 1996, according to GMAC Commercial Mortgage Corp. Rents should rise 6% to 8% in the next two to five years, GMAC reports.
The downtown office market continues to drag, but suburban space is being absorbed. "The cycles are faster in the suburbs," notes Greg Van Schaack, vice president, Hines, Chicago. "But rents in the suburbs won't go up too much because development is relatively easy compared to downtown."
CB Commercial put year-end 1995 suburban office vacancy at 11.8%, a drop of three points in 12 months. The market has 77.9 million sq. ft.
The suburban Class-A vacancy rate last year dropped to 7%, the lowest figure in 12 years, according to the Rose report from Rose & Associates, Chicago.
Suburban office product is emerging as the product of choice for investors, according to Shelby E.L. Pruett, vice president, Advantage Real Estate Services, Downers Grove. "Investors are looking for Class-A/B assets suffering from deferred capital improvement as well as poor management that can be acquired and repositioned as high-quality properties," he says.
1995 witnessed 37 commercial building sales transactions totaling about $1.3 billion, up almost 300% from 1994, according to GMAC's 1996 Annual Institutional Investors Report, which analyzes commercial building sales over $5 million. Downtown is still the leader in investment activity, and Class-A office buildings are generating the highest volume, although the office market has not yet fully recovered from its early90s slump.
Chicago's downtown office market continues to stumble. Although small improvements have been made in vacancies, the underlying difficulty of corporate downsizing still haunts the outlook.
"The big picture is good, but we expect unevenness in the market for the next several years," says Hal Ulvestad, executive vice president and Chicago regional manager, CB Commercial. "The future of big companies like AT&T and Quaker Oats will affect net absorption gains downtown."
CB Commercial pegs downtown year-end 1995 vacancy rates at 17.6%, down marginally from 18.2% at the end of 1995. Net absorption for 1996 was 884,536 sq. ft., just more than half of the 1.6 million sq. ft. absorbed in 1994.
Jim Lockhart, senior vice president of Grubb & Ellis, Chicago, thinks Downtown's supply of office space is more manageable but demand is "going south." He says: "Demand for corporate space is diminishing. There's a lot of attention to cost structure and companies are changing their space allocations."
He notes that big companies today are earmarking 200 sq. ft. per employee, whereas in the 1980s the standard amount of space for each person was 300 sq. ft.
Ulvestad of CB Commercial thinks some of the slack will be taken by small and medium-size firms. His research expects good growth in service sectors, especially in the finance and insurance industries.
Although questions remain about the direction of demand, brokers are cheered by the fact that no new spec buildings are under construction.
"Someone asked me the other day if I thought there would be another office tower built downtown in my lifetime," says Goldie B. Wolfe, president, Goldie B. Wolfe & Co., Chicago. "I think there will be new buildings some day, but more of them will be build-to-suits."
Currently, there is one office tower under construction downtown: the 28-story, 880,000 sq. ft. building at Randolph Street and Columbus Drive for Blue Cross and Blue Shield of Illinois. Cushman & Wakefield helped Blue Cross and Blue Shield with site acquisition, as well as financial analysis and other services; Walsh, Higgins & Co. is developing the $200 million project. Ground was broken this past year, and Blue Cross and Blue Shield will occupy the entire building in 1997.
However, the move by the state's biggest health insurer will leave Two Illinois Center, the company's current headquarters, practically vacant. Another building that could be virtually empty because of the relocation of several tenants is 120 S. LaSalle St.
Although overall downtown vacancies remain high, Class-A buildings are faring pretty well with a year-end 1995 rate of 11.4%, according to Mary A. Spellman, senior vice president/general manager, Draper and Kramer Inc., Chicago. "As the Class-A buildings continue to fill, there will be more interest in the well-located, well-maintained-B buildings, many of which currently have large blocks of space available. This 'trickle down' theory will stop short of filling all the Class-C buildings, however, as a portion of these older buildings are likely to become technologically obsolete," she says.
Spellman figures the vacancy rates in Class-B and -C buildings at 18.5% and 22.1%, respectively. She thinks older Class-C buildings may not be able to compete for tenants.
Most brokers agree that downtown rental rates have begun to inch up.
According to the November/December market report from Julien J. Studley, downtown rental rates have risen to $18.20 per sq. ft. "This increase represents a renewed confidence on the part of landlords, but as vacancies begin to climb again further increases in rental rates will be slight as landlords begin to recognize that a complete recovery will be slow in coming," says Jacque Ducharme, executive vice president and manager of Studley's Chicago office.
Lockhart of Grubb & Ellis thinks Class-A building rents in 1996 will increase slowly. He expects the gap between Class-A and -B building rents to widen. Overall gross rents currently range from $13 to $27 per sq. ft. Lockhart adds that Class-B rents won't justify retrofitting buildings or rolling out expensive marketing programs. "The Class-Bs will sit there and slowly fill up, but the rates for the -Bs could actually go down," he says.
Draper and Kramer says typical Class-A net rents are between $7 and $10 per sq. ft., with tenant improvement allowances generally ranging from $30 to $45 on a 10-year term.
High-rise space in downtown office towers is commanding a premium, according to Van Schaack of Hines. He figures rents on upper floors are about $8 to $10 a sq. ft. higher than space on lower levels.There is a group of tenants that want that high-rise space," he says, noting that upper-floor space in Hines' buildings are full.
By location, Chicago's West Loop posted the highest gains in occupancy for the year, according to the last survey from the Building Owners and Managers Association of Chicago (BOMA/Chicago). The West Loop gained 4.26% in occupancy over last year, bringing it to a current level of 83.2%, reports BOMA.
"Once again, the West Loop led all downtown submarkets in net absorption," notes Robert Six, Compass Management and Leasing's vice president of leasing and marketing for Chicago. "Our expectation is that will continue because it is the preferred location for corporate users.
Fourth quarter '95 did see a deceleration in market activity, Six notes, and that fall-off continued into the first quarter of '96.
"One wild card for us all," he continues, "is the fact that, because the suburban markets are so healthy, we hope to benefit from any future reverse migration. However, if development picks up in the suburbs, it won't bode well for continued recovery downtown."
In the West Loop, Sears Tower leased another 100,000 sq. ft., according to Draper and Kramer. Leases there included: General Reinsurance (50,000 sq. ft.) and ING Derivatives (30,000 sq. ft.).
In the West Loop, 225 N. Michigan Ave. (part of the Illinois Center complex) was sold and also gained Arthur Andersen & Co. as a tenant. The giant accounting firm announced that it will shift 1,200 employees from two other Loop locations into 200,000 sq. ft. in the building, also known as Boulevard Towers North. A partnership including New York investment banking firm the Blackstone Group announced it will buy the 25-story, 900,000 sq. ft. building from Prudential Insurance Co. of America, the lender. Andersen is vacating large chunks of space at 69 W. Washington and One North State St. The move should take place later this year, or early in 1997.
The Amoco Building leased nearly 400,000 sq. ft. in 1995, according to agent LaSalle Partners, Chicago. Advertising agency DDB Needham relocated to the Amoco Building from Three Illinois Center, leaving 235,000 sq. ft. vacant there. Another big tenant relocating to the Amoco Building in February was LaSalle Partners, taking 109,000 sq. ft.
Other big downtown leases for the year included: Lasalle National Bank (500,000 sq. ft. at 135 S. Lasalle St.); Kemper Financial Services (328,000 sq. ft. at 222 S. Riverside Plaza); and First Chicago Building Corp. (sublease for 83,010 sq. ft. at Gateway IV).
Property values are returning, according to Ulvestad of CB Commercial. "Values have dropped 40% since they peaked in the late 1980s," he says. "But investment activity reflects belief in the market."
In one of the biggest sates in some time, a Singapore pension fund bought the 60-story AT&T Corporate Center and the adjoining 34-floor headquarters of USG Corp. - a total of about 2.5 million sq. ft. The sale price was $540 million, or $216 per sq. ft. Brokers say this price is well above what other downtown buildings have brought.
The 1 million sq. ft. Chicago Title & Trust Tower was sold to Chicago investor Sam Zell's Equity Office for a reported $115 million, or $115 per sq. ft. The building at 161 N. Clark was completed in 1992 and was 40% leased when it was taken back by the lender. By early March of this year, Equity Office had raised the occupancy to about 55%, according to Chris Wood, vice president of leasing for Equity's Central Region. So far, all leasing activity has occurred in the low- and mid-rise portions of the
With 345,000 sq. ft. of space available in the tower, the building has the last contiguous block of high-rise Class-A space in the city, but Wood says he doesn't see speculative office development downtown in the near future.
In another large sale, First National Bank of Chicago purchased Gateway IV, a 1 million sq. ft. building at 300 S. Riverside Plaza. The company will consolidate employees from downtown locations. The sale was arranged by Draper and Kramer.
Last August, BGK Realty, Santa Fe, N.M., bought 200 S. Michigan Ave., a 358,000 sq. ft. office high rise which serves as headquarters for the Borg Warner Corp. The asking price was $16.5 million. The sale was arranged by CB Commercial.
In possibly the first of Chicago's office buildings to be converted into apartments, the 15-story Chicago Motor Club Building at 68 E. Wacker Place is due to be sold to Markwell Properties. The building, 90% occupied, will be converted into condominiums selling for about $1.3 million each. The 4,400 sq. ft. units would take up an entire floor. The building is owned by TA Realty, a Boston real estate investment trust.
In another conversion, an affiliate of Chicago-based Golub & Co. purchased 40 East Delaware Place, a 17-story, 77-unit apartment building. The building, which was operated as a hotel until 1983, will be turned into condominiums.
Brokers are concerned about additional foreclosures. The owner of One Magnificent Mile, Sheffield Properties Inc. of California, filed for Chapter 11 protection. The company's largest debt is a $55 million mortgage on the commercial portion of the building, held by Teachers Insurance and Annuity Association, New York.
One foreclosure was averted when the $93 million mortgage on the Transportation Building at 203 N. LaSalle St. was restructured. The owners include Chicago developer Stein & Co.
While the downtown office market remains somewhat lackluster, there's nothing dull about retail.
Michigan Avenue is red hot, brokers and merchants say. According to a survey from Northern Realty Group Ltd., Chicago, retailers seeking space on North Michigan Avenue can expect to pay 71 % more per sq. ft. than they would have a year ago. The study says vacancies have dipped to 3.7% and the average asking rent soared to $56.52 per sq. ft. from $33.02 per sq. ft. the previous year.
It's the epitome of supply and demand economics," says Northern president Bruce A. Kaplan. "In last year's survey, we found virtually all of the available store space was on the upper levels of the vertical malls. That remains the case, but there is even less of it on the market this year."
The street now has 2.6 million sq. ft. of retail space Last year, the building formerly occupied by 1. Magnin was reopened with several new tenants including Filene's Basement and Border's Books & Music.
Another new retailer on the north end of the street is Victoria's Secret.
Developer John Buck demolished the 600 block of North Michigan Avenue and is in the process of building another shopping complex there. Expected to open later this year, the 230,000 sq. ft. mall will include Viacom, Eddie Bauer, Marshalls, LinensN Things and a 2,500-seat, nine-screen Cineplex Odeon theater.
Buck has drawn heat over his plans to raze the art-deco-style McGraw-Hill building at 520 N. Michigan Ave. He hopes to use the site for a $211 million Nordstrom-anchored shopping complex. The city's Landmarks Commission has recommended saving the McGraw-Hill building. The Chicago City Council hasn't made a final decision on the project, but reports say the city is balking at the plans which would alter the property behind the proposed development.
Thomas J. Klutznick Co. has proposed a retail development at Michigan and Chicago avenues, now occupied by a McDonald's restaurant. Real estate sources say the project will be anchored by Polo Ralph Lauren Corp. It is reported that developer Klutznick is still trying to consolidate
The retail portion of the Hancock Building on Michigan Avenue underwent a sizable redevelopment after Bonwit Teller vacated a big chunk of space there in 1985. New York-based clothier Paul Stuart opened a 27,000 sq. ft., bi-level store; The Cheesecake Factory took 15,500 sq. ft.; The North Face, an outerwear retailer took 15,500 sq. ft.; L'Appetito, a gourmet deli leased 3,000 sq. ft.; and Aveda Lifestyle Esthetique took 1,000 sq. ft.
The other downtown retail market - State Street/Wabash Avenue - could get a big boost from plans now taking shape to redevelop the North Loop into an entertainment district. In January, Livent Inc., Toronto, announced plans to reopen the Oriental Theatre, the old movie palace at 20 W. Randolph.
Walt Disney Co. recently signed an agreement to operate the nearby Chicago Theatre for the next four years. And real estate sources say Disney wants to create more shopping and entertainment destinations along North State Street. This could include properties near the Chicago Theatre, some of which are owned by the city or are in condemnation. Disney should announce its redevelopment plans in April.
The $24.5 million de-malling of State Street has also begun. Upon completion, a nine-block area of the street will be re-opened to cars and taxis. Sidewalks will be narrowed and historical street lights and new landscaping will be planted. The hope is that narrower sidewalks will help draw more customers into retail shops along the street.
Northern Realty Group says vacancies along State Street/Wabash Avenue have been declining. In 1990, vacancies were 27%, but have now dropped to an "astonishing" 2.6%. The current retail asking rent there is $25.91 per sq. ft.
Questions still remain about the notorious "Block 37" - a vacant site bounded by State, Dearborn, Randolph and Washington streets. The city had been trying to lure Nordstrom to the spot, without success. Sears, Roebuck and Co. has also been mentioned as a possible tenant. JMB Realty Group controls the site.
Just across the River, Marina City has received the go-ahead to remake the commercial portion of the complex, known for its corncob towers, into an entertainment and dining center focused on blues music. The $70 million redevelopment by new owner John Marks will include a 30-foot-high cone structure that will rise over a two-story atrium and restaurant. The House of Blues, a growing national chain of blues clubs, hopes to open in the theater this fall.
Future plans also call for a $38 million redevelopment of the complex's 15-story office building into a 400-room, blues-themed hotel.
In general, downtown hotels are experiencing boom times. According to a report from Ted Mandigo of BDO Seidman LLP, Chicago, properties recorded a strong 2.4% increase in occupancy, bringing the average to 69.5%. Average daily rates jumped to $107.37.
Mandigo says the market is still recovering from the overdevelopment just before the last recession when about 6,000 first-class hotel rooms were added to the downtown market.
David Sims, vice president of Geller & Co., a Chicago advisory and investment banking firm for the hotel industry, thinks 1996 will be another strong year for downtown hotels. "Given that there are no new hotels under construction, the upward trend should continue."
Four hotels are on the drawing boards, but only one is nearing construction: the Hyatt Regency McCormick Place. The project is being financed through municipal bonds which have already been issued. The 800-room, 600-car development should break ground later this year.
Most of the older hotels that line Michigan Avenue have finished a round of upgrades. The Drake, Whitehall, Tremont, Barclay, Sheraton Plaza (now Radisson Suites) and Knickerbocker have all been refurbished.
Some hotels have changed hands too. Regal Hotels International of Englewood, Colo., purchased the 250-room Knickerbocker Hotel for $27 million last October. The new owners are spending an additional $8 million to finish the renovation. The sellers were KB Holdings Corp., an affiliate of West Palm Beach, Fla.-based Ocwen Financial Corp.
The north suburban office market has continued to tighten. Draper and Kramer figures the vacancy rate in multistory buildings was 13.27% at the end of 1995. In single-story properties, the vacancy rate was 8.85%.
The Northbrook/Tri-State sub-market had about 1.2 million sq. ft. in leasing activity for the year, the greatest share of suburban transactions, according to Cushman & Wakefield of Illinois. About 87% of the total leased was Class-A space.
Much of the increase can be attributed to one of the largest transactions of the year: Hewitt Associates, an international benefit consulting firm, agreed to lease Two Overlook Point, a 321,000 sq.ft. build-to-suit project at Lincolnshire Corporate Center. Cushman & Wakefield says the building is currently under construction and will be completed in 1996. It will be linked to a 298,000 sq.ft. building that Hewitt fully occupies.
Two other build-to-suits being planned in the north suburban market tire: PNC Mortgage is developing a 200,000 sq.ft. office building, and Caremark is building a 60,000 sq.ft. single-story office building.
Draper and Kramer estimates rental rates in Class-A properties from $15 to $17 net. Construction allowances are $25 to $30 per sq. ft.
There has been investor interest in north Suburban office buildings. CB Commercial arranged the investment sale of a single-story, 85,000 sq. ft. office building located at 565 Lakeview in Continental Executive Park, Vernon Hills. The seller was Collin Equities, Inc., Denver. The buyer was Great Lakes REIT, Oak Brook, Ill. The asking price was $5.5 million.
The John Buck Co. arranged the sale of the 5215 Old Orchard Road building in Skokie. The 209,616 sq. ft. office building was acquired by O'Connor Realty Advisors for a major public pension fund. The seller was Equitable Life Assurance Society of the United States.
North of Highland Park, Stein & Co. was selected to redevelop the 110-acre historic district at Fort Sheridan, owned by the Army. Stein teamed up with LR Development, Chicago, and Red Seal Development, Northbrook, to win one of the area's most sought after residential deals. The 300-acre tract south of the fort's historic district is earmarked for residential units.
Work has finished at Village Square of Northbrook, a 335,000 sq. ft. shopping center located at the southeast comer of Lake Cook Road and Skokie Boulevard. Most of the stores have already opened and include: Linens `N Things, Today's Man, The Sports Authority, Circuit City, Marshalls, Fresh Fields and Nordstrom Rack. The shopping center is a development of ORIX Real Estate Equities Inc. and TMK Development Ltd. Tanguay-Burke-Stratton handled leasing.
HSS Real Estate Inc. said it will build a $20 million, 89,000 sq. ft. retail shopping area at Golf Road and Skokie Boulevard, Skokie. It will be adjacent to Old Orchard Shopping Center and will include Linens `N Things, and Marshalls. The project should be complete this fall.
Like many regional malls in the metro area, Old Orchard Shopping Center, Skokie, has completed its renovation. The expansion added 600,000 sq. ft. including a Nordstrom. A new Bloomingdale's opened last fall. It is owned by Zell/Merrill Lynch Real Estate Opportunity Partners, Chicago, and Urban Retail Properties Co., Chicago.
In Evanston, The John Buck Co. is building a 283-unit, 24-story luxury rental apartment development at the corner of Chicago Avenue and Church Street. The project will include a 34,000 sq. ft. Whole Foods Market. "This corner has all the elements for a successful retail location," says Kim McGuire, senior vice president of Northern Realty Group, who arranged the lease. "It's at the center of a vibrant downtown and adjacent to both the Northwestern University campus and a dense, upscale residential neighborhood."
Industrial development has been most active in Lake County. As of the fourth quarter of 1995, Cushman & Wakefield reported that 13 projects totaling 407,800 sq. ft. are under way. The newest project to break ground is a 197,000 sq. ft. warehouse/distribution facility at Green Oaks Business Center. Leasing activity in 1995 totaled 1.5 million sq. ft., 18% lower than 1994 levels.
Northern Cook County saw no spec industrial construction because of high property taxes and less available land. Questions remain, though, about the fate of Glenview's 700-acre Naval Air Base, which has been shut down, but is still owned by the government. The town of Glenview is reviewing plans for the site, which include residential and commercial development, along with a sports complex.
The 21 million sq. ft. northwest suburban office market accounted for more than one-third of all suburban absorption during 1995, according to CB Commercial. Absorption totaled 1.1 million sq. ft. last year, dropping the vacancy rate during the 12-month period to 13% from 17.4%.
One large block of space will be returned to the market when Sante Fe Pacific Corp. relocates it headquarters from Two Century Centre in Schaumburg to Fort Worth, Texas. According to Cushman & Wakefield, the 82,200 sq. ft. space is the largest contiguous Class-A block in the market.
Draper and Kramer is optimistic about the northwest market based on its decreasing vacancy rate. Continental Offices Limited Realty announced plans to develop a fourth office building in their Rolling Meadows office complex on Gold Road Quoted rental rates for this 1996 construction are at $18 net. Other Class-A buildings are at $13.50 to $15.50 net.
Also in Continental's Rolling Meadows complex, Tanguay-Burke-Stratton completed a 46,000 sq. ft. relocation assignment for the national headquarter offices of Transamerica Commercial Finance Corp. and Transamerica Business Credit Corp. The company took 32,000 sq.ft. at the 1701 Golf Road building.
Tanguay-Burke-Stratton also arranged a lease renewal for SAFECO Insurance of America for 45,500 sq. ft. in northwest Hoffman Estates. SAFECO will remain the largest tenant in the 12-story office building at 2800 W. Higgins Road.
CB Commercial arranged the sale of The Landings Professional Center, a 91,914 sq. ft. office and retail complex in Park Ridge. The seller was John Hancock Mutual Life Insurance Co. Boston. The buyer was a private trust that plans a major capital improvement program for the three building complex. The asking price was $3.8 million.
The expansion of super-regional Woodfield Shopping Center, Schaumburg, was completed, bringing its total square footage to 2.7 million. Nordstrom was added as an anchor tenant there.
Also in Schaumburg, Inland Real Estate investors of Oak Brook bought Nantucket Square Shopping Center. The 121,000 sq. ft. property was in foreclosure; the asking price was $4.8 million.
Motorola has purchased about 80 acres in far northwest Elgin for the eventual development of several million square feet of office/tech space, mostly for the company's wireless division, says Draper and Kramer.
U.S. Robotics, Skokie, announced plans to house a $26 million networking equipment plant in a largely vacant 500,000 sq. ft. Am International Inc. warehouse in Mount Prospect. Cushman & Wakefield says this transaction represented 28% of all fourth quarter 1995, industrial leasing activity in Northwest Cook County, which totaled 1.8 million sq. ft.
On Chicago's Northwest Side, Cotter & Co., the wholesaler for True Value Hardware stores, relocated 600 employees to 165,000 sq. ft. at President's Plaza, 8600 W. Bryn Mawr. Another 175 employees were transferred to 1224 W. Van Buren.
Suburban Westchester is home to the only big-scale speculative office development in the entire metro area. Podolsky and Associates L.P. has completed the fifth and final tower at Westbrook Corporate Center. The 221,000 sq. ft. building was finished in 11 months.
Town and Country Homes, a large home builder, took 33,000 sq. ft. in the building for its headquarters. In May, 3M plans to take 29,000 sq. ft. there, relocating their Chicago sales center from Hinsdale.
The 1995 year-end report from CB Commercial says supply constraints slowed absorption of west suburban office space to 420,917 sq. ft. Vacancies declined to 10.6% from 11.8%.
Draper and Kramer says overall vacancy levels can be expected to decline in the East-West corridor, based on the strength of the Oak Brook area. Vacancy increased in the Naperville/Lisle sector because AT&T vacated 308,000 sq. ft. at 263 Sherman Plaza.
Rents range from $14 to $16 net for Class-A buildings, according to Draper and Kramer. Tenant improvements range from $10 to $15 for existing space.
Tanguay-Burke-Stratton negotiated a lease for USF&G in Oak Brook. The company will take 24,000 sq. ft. at Oakbrook Regency Towers. In another sizable transaction, Allstate Insurance Company leased 25,502 sq. ft. at The Crossings at Oak Brook. The company is centralizing several suburban operations in the move.
Oakbrook Terrace Tower, the 31 -story Helmut Jahn-designed office building is reported to be for sale. The tallest building in the suburbs is currently owned by a joint venture between affiliates of Chicago-based developer Miglin-Beitler Inc. and General Electric Pension Trust. The asking price for the west suburban landmark is $129 million. Rents in the 670,000 sq. ft. building average $18 to $19 a foot. Tenants include DeVry Institute of Technology and Chrysler Systems Leasing operations.
Other office buildings are selling in the west suburban market. CB Commercial arranged the sale of a 44,000 sq. ft. office facility in Oak Brook to Great Lakes REIT, which plans to relocate its headquarters there. The seller was Brauvin Estate Fund II, a Chicago-based limited partnership. The asking price was $2 million.
Chicago-based Golub & Co. purchased two building's in Oak Brook's International Office Center complex. The seller was Inland Property Sales Inc. The two three-story buildings contain a total of 100,000 sq. ft.
In multifamily properties, CB Commercial arranged the sale of Chantecleer Lakes, a 304-unit luxury garden-style apartment in Naperville. The complex has 16 two-story buildings and 124 units. The seller was Prudential Insurance Company of America. The buyer was MIG Realty Advisors Inc., West Palm Beach, Fla.
The RREEF Funds acquired the 224-unit Lincoln Oaks apartment community at Route 83 and 63rd Street in Willowbrook. CB Commercial represented the seller, Aetna Life Insurance Co.
Cantera, a 650-acre, mixed-use development in west suburban Warrenville is the site of two residential projects. Concord Homes is developing a 160-unit townhome project and Village Green Cos. is developing a 343-unit apartment complex. Both projects will have units available this summer.
Also at Cantera, the site's first spec building, a 97,000 sq. ft., multitenant, mixed-use facility will be completed this June. Power Trends Inc. will be the lead tenant with 30,000 sq. ft. Two build-to-suits have also been added: Ellison Machinery & Robotics with a 22,800 sq. ft. facility, and Amoco which will have a 200,000 sq. ft. building.
In retail, Market Square shopping center in Bolingbrook was sold to a private partnership. The 187,168 sq. ft. center is anchored by a Wal-Mart. The center also includes Aldi Foods, Fannie May and Jo-Ann Fabrics. The asking price was $15.5 million.
Houston-based Pappas Restaurants Inc. purchased a five-acre parcel in Westmont for two new restaurants: Pappasito's Cantina and Pappadeaux Seafood Kitchen. The free-standing facilities will range in size from 12,000 to 15,000 sq. ft.
In Aurora, Opus North Corp. and Du-Page Properties announced plans to develop Butterfield, a 900-acre, 17 million sq. ft., multi-use park. Phase I will include 2.2 million sq. ft. of high-cube, rail-served distribution space on a 140-acre site. Construction will begin this spring on a 250,000 sq. ft. spec warehouse. Colliers, Bennett & Kahnweiler Inc. is exclusive agent for the property.
Other west suburban activity includes:
* MTI Construction Services, Inc. was selected to build a new 120,000 sq. ft. headquarters for Flinn Scientific Inc. in Batavia.
* Opus North Corp. will design and build a new facility in Westmont for Citizens Utilities Co. of Illinois. The company will move 85 employees from Addison.
* Trammell Crow Co. is developing a 261,500 sq. ft. spec facility in Corporate Crossing Business Park, Bolingbrook. The warehouse/distribution center will be finished in May.
* Also at Corporate Crossing, Fresh America Corp. leased 72,600 sq. ft. to expand its food distribution center. Corporate Crossing is a project of Industrial Developments International Inc. (IDI).
* Columbus, Ohio-based Pizzuti Commercial Real Estate is expanding into the Chicago metro market with 62 acres under contract in Bolingbrook that it has targeted for speculative warehouse development.
Demand for office space in the O'Hare submarket during 1995 was the highest it has been in six years, says the year-end report from Cushman & Wakefield. About 464,000 sq. ft. of office space was absorbed last year. The vacancy is at 16.2%, a drop of 5.1% from the fourth quarter of 1994.
Draper and Kramer says most buildings have increased their quoted rental rates by $0.50 to $2 per sq. ft., making the average rate for Class-A buildings in the range of $12 to $13 net per sq. ft., and Class-B buildings $8 to $ 1 0 per sq. ft. Discounts average about 15%.
Ameritech leased 78,128 sq. ft. at Columbia Centre III in Rosemont. In the same building, Comdisco Disaster Recovery expanded and now occupies 52,557 sq. ft.
Household International Inc. subleased 77,699 sq. ft. of office space at two sites in Itasca: 32,393 sq. ft. at One Pierce Place and 45,307 sq. ft. at 250 E. Devon Ave. CB Commercial handled negotiations.
Susan Rosen and Marilyn Lissner of Cushman & Wakefield arranged the sale of 100 Northwest Point in Elk Grove Village, a five-story, 234,000 sq. ft. office building on 15 acres. The property was sold by Digital Equipment Corp. to Automated Data Processing (ADP). Frain, Camins & Swartchild represented ADP.
The O'Hare industrial market in 1995 saw leasing activity of about 7.65 million sq. ft., according to a report from Ronald Behm and David Bercu of Colliers, Bennett & Kahnweiler. The current vacancy rate is 9.5%, but true vacancy (empty buildings) is about 4%. The report adds that low vacancies have prompted several developers to announce plans for new high-cube spec buildings in the Thorndale corridor. Land prices there are approaching $5.75 per sq. ft.
CenterPoint Properties acquired a 520,621 sq. ft. distribution facility in Des Plaines. CenterPoint issued a convertible first mortgage to La Grou Distribution, the building's tenant. CenterPoint also completed the purchase/leaseback of Montgomery Ward's 677,000 sq. ft. O'Hare distribution facility in Franklin Park.
The south suburban office sector has never been strong and seems to be getting weaker, according to a study by Tanguay-Burke-Stratton. The report says rental rates in the 2 million sq. ft. market have dropped 29% since 1993 to about $9 per sq. ft. Overall vacancy rates are about 21.4%. "We believe the worst is likely to come for this market," said Michael Bishop, vice president at Tanguay-Burke-Stratton. "Even with the incentive packages and low rents, there's little evidence that large users will be entering the market."
In retail, Tanguay-Burke-Stratton completed the sale of The Shoppes at ill Creek, a 102,433 sq. ft. retail center Palos Park. The asking price was 12.5 million.
Evergreen Plaza on Chicago's far South Side, has completed its renovation and is courting new tenants. Property manager Provo Group hopes to attract a bookstore and more non-apparel stores like Bath & Body Works.
Two outlet malls are being planned for the southwest suburbs. In Morris, Teplitz Development Group, Ltd. of Peoria announced plans to build a 450,000 sq. ft. outlet mall on a 60-acre site. And Muskegon, Mich.-based HGI Realty Inc. has begun soliciting tenants for a mall it plans at Interstate 55 and Weber Road in Romeoville.
The south suburban industrial market continues to be active with a base of about 9.5 million sq. ft., according to Colliers, Bennett & Kahnweiler.
Average lease rates are a little more than $3 per sq. ft. and sales prices are about $19 per sq. ft.
Four new spec warehouse buildings were completed in Will County during the last quarter of 1995, according to Cushman & Wakefield. This caused a 60% increase in available space, which now stands at 1.1 million sq. ft.
Notable south transactions include:
* CenterPoint Properties purchased a 559,000 sq. ft. warehouse in Alsip. Tenants are Universal Furniture and Dart Warehouse.
* Also in Alsip, First Industrial Realty Trust, Inc. acquired a bulk warehouse facility for $4.35 million. The 204,586 sq. ft. building is leased to Plastipak Packaging Inc. and Blue Line Distributing Inc.
* Harper Leather Goods, represented by Jim Planey of Bennett & Kahnweiller, purchased a 303,800 sq. ft. building on 13.5 acres in Bedford Park near Midway Airport for more than $3 million. Cushman & Wakefield's Phil Wegele represented the seller, Chesebrough-Pond's Inc.
* Also in Bedford Park, First Industrial Realty Trust Inc. acquired a 310,752 sq. ft. manufacturing facility for $5.4 million. The building is fully leased to The Form House, a graphic arts business.
* Advantage Real Estate Services arranged the sale of Santa Fe Warehouse Properties' industrial campus in Hodgkins. The property includes 23.5 acres and four industrial buildings totaling 563,000 sq. ft. Aetna Life Insurance Co. purchased the property from Mutual of New York.
* The Chicago Sun-Times is negotiating to buy a 28.7-acre Southwest Side site from the city for its new $60 million printing plant. The site is the former home of Sears, Roebuck and Co.'s catalog distribution center. The Sun-Times would build a 300,000 sq. ft. facility ready for occupancy the second half of 1997.
Predictions for 1996
1995 witnessed 37 transactions totaling about $1.3 billion, up almost 300% from 1994, according to GMAC Commercial Mortgage Corp. in its 1996 Annual Institutional Investors Report, which analyzes commercial building sales over $5 million during 1995 in the Chicago metropolitan area. The compilation of information for this report resulted in the following conclusions and predictions:
Pricing of buildings will continue to rise 5% to 10% due to falling interest rates and capitalization rates.
Commercial property taxes will be addressed in the upcoming year as Chicago's taxes are the highest in the Midwest. State sales taxes, special levies and metropolitan assessments will be considered to attack the tax differentiation between counties.
Office properties will continue recovering. Occupancy rates, sales and construction of office space will all increase in 1996 as evidenced by the sale of two downtown Chicago office buildings for over $100 million each.
New multifamily projects will be built to accommodate the tight rental markets. Eight suburban apartment projects and five downtown projects are planned for 1996. Rents should rise 6% to 8% in the next two to five years.
The trend in industrial properties is toward consolidation. Investors are buying and pooling properties at record levels, which eventually will be sold off in portfolios.
As for retail, a wait-and-see attitude prevails. Investors watch cautiously to see which will profitably survive in light of changing consumer confidence.
More investors are discovering the asset class of hotels because of favorable economic conditions and soaring occupancy levels. The O'Hare area and western suburbs are feeling pressure to construct new facilities as virtually no hotels were built this decade.
Jane Adler writes about real estate issues from her home in Wilmette Ill.