Is the O’Hare Market Ready for Take-off?

December 20, 2011

As seen in RE Journals
By Adam Marshall
NAI Hiffman Industrial Services Group

Chicago’s O’Hare industrial market houses a diverse mix of distribution and manufacturing companies in one of the largest concentrations of industrial property in the Midwest. Surrounding O’Hare International Airport, the O’Hare industrial market is comprised of Elk Grove Village, Des Plaines, Rosemont, Franklin Park, Bensenville, Wood Dale and Itasca. During the economic downturn, this market suffered greatly and still shows signs of high vacancy rates, historically low rental rates and sale prices. What signs can we look for to forecast the future of the O’Hare industrial market?

It is hard to find consistent and clear data to predict future trends, but two good sources of local information provide an insight into this market. First, the Chicago Department of Aviation collects monthly air cargo volume figures based on freight tonnage at O’Hare International Airport. Second, the Federal Reserve Bank of Chicago tracks Midwest manufacturing output in Illinois, Indiana, Iowa, Michigan and Wisconsin. Reviewing these two indicators tells a great story of where this market has been and where it is going.

In the heart of this market, air cargo volume at O’Hare can be used as a leading indicator for distribution space demand in this area. Using a regression model on O’Hare air cargo tonnage and the O’Hare industrial vacancy rate over the past ten years, the effect of cargo tonnage is statistically significant and negative. This means when air cargo tonnage increases or decreases, there will most likely be a lagging opposite effect on vacancy rate. As an example, in 2009 we experienced the lowest cargo volume recorded over the past ten years and a 14% decrease from 2008. The vacancy rate in the first quarter of 2009 was 11.22%. It increased to its highest reading in the past 10 years to 12.59% in the first quarter of 2010 representing a 12% increase in the vacancy rate within 12 months. We soon witnessed the opposite effect with a dramatic 24% increase in cargo tonnage during 2010 which paralleled a 7% drop in the vacancy rate from the first quarter of 2010 to the first quarter of 2011. Currently cargo tonnage through the third quarter of 2011 has decreased slightly by approximately 4% versus the same period in 2010 with a corresponding 10.8% vacancy rate.

The importance of air cargo distribution in the O’Hare market is exemplified by a few recent deals. The largest transactions in the market this year were logistics companies leasing modern distribution space. CEVA Logistics leased 232,000 square feet and Hegele Logistics leased 207,000 square feet in the 439,000 square foot ProLogis owned building at 855 N. Wood Dale Rd in Wood Dale. Companies like these that rely on expediting time sensitive products through O’Hare Airport drive much of the space demand in this market.

The volatility of 2009 and 2010 is behind us. We now see a stabilization of air cargo volume at O’Hare over the past twelve months. With no new speculative property development in this market, we should see demand continue to slowly reduce current vacancy rates.

Another pulse to watch in this market is the Chicago Federal Reserve Midwest Manufacturing Index. While broad in its scope of coverage across the Midwest, it uses “hours worked” data to measure monthly changes in regional manufacturing activity. The height of this index achieved a reading of 101.3 in January of 2008. The lowest point recorded a 68.3 in June of 2009, representing a 33% decrease from the peak. The September 2011 index was 85.2 which is a 25% recovery from the bottom in 2009. This reading is also the highest level in three years since posting an 86.5 in October 2008. The current index is only down 7% from the 10 year average of 91.3 although it has remained relatively flat over the past six months.

The Chicago Federal Reserve Midwest Manufacturing Index is not a leading indicator for industrial demand in O’Hare. However, it is a general gauge for local production which directly impacts the supply chain and movement of goods through this area. While our economy shifts towards distribution, manufacturing is still dominant in the O’Hare market. One of the largest manufacturing deals in O’Hare this year was the relocation of Toyo Ink America to 108,000 SF at 1225 N. Michael Drive in Wood Dale which doubled their capacity.

Relative to the air cargo volumes at O’Hare, the Chicago Federal Reserve Midwest Manufacturing Index corresponds to the variability seen over the past couple of years. Keep a watchful eye on these important statistics as they will likely determine future demand in the O’Hare industrial market. While both data sources show improvement from the bottoming out of these indexes in 2009, neither set indicates substantial growth in the near future. The stabilization in these latest figures should allow for a slow but smooth take-off to recovery in the O’Hare market.

Follow these statistics at www.ChicagoIndustrialist.com

Adam Marshall, CCIM, is an industrial real estate broker at NAI Hiffman and specializes in the O’Hare and surrounding markets.

Posted by NAI Hiffman | Filed Under Adam Marshall, Industrial

Oak Brook re-establishes two village committees

December 20, 2011

As seen in the The Doings Oak Brook

After asking for ideas for commercial revitalization within Oak Brook, Village President Gopal Lalmalani and trustees have re-established two committees to work on economic growth.

During their Dec. 13 meeting, trustees established a streetscape committee and a commercial revitalization committee.

The new committees will meet on an as-needed basis, be advisory to the board and include residents and business community members.

The two committees were originally created in 2005 by the village board and approved two plans.

The Streetscape Plan was adopted in 2006 and the Commercial Areas Revitalization Plan was approved in 2008, but both were never fully implemented due to economic concerns.

“The purpose (of the streetscape committee) is to provide advice and recommendations to the village president and the board regarding implementation of the Oak Brook streetscape plan,” Lalmalani said. “The purpose (of the commercial revitalization committee) is to advise and make recommendations to the board regarding priorities of the implementation of the commercial revitalization plan.”

Oak Brook resident and former village trustee Jeff Kennedy will chair both committees.

The streetscape committee will consist of resident Harry Peters, Jeff Shay of Jones Lang LaSalle, Dan Wagner of Inland Real Estate Group, Oakbrook Center General Manager Chuck Fleming, Linda Hunt of White Lodging Services and resident Kathy Manofsky.

The commercial revitalization committee will consist of residents Peters, Bob Sanford and Raj Lal. Also serving will be Plan Commission Chairwoman Marcia Tropinski, Zoning Board Chairman Champ Davis, Greater Oak Brook Chamber of Commerce CEO Tracy Mulqueen, Joe Endress of McDonalds Corp., Dennis Hiffman of NAI Hiffman, Shay and Fleming.

The board approved the appointees and ordinances last week, approving each committee’s purpose, membership, officers and proposed meeting schedules.

“I’m looking forward to these committees becoming active again,” Trustee Asif Yusuf said. “There are a lot of good people giving their time, effort and skill. This represents a partnership of our residents and our business community working together towards a common goal.”

Posted by NAI Hiffman | Filed Under Media Coverage

Chilling out: Bridge deal adds to its cold-storage portfolio

December 19, 2011

As seen in Chicago Real Estate Daily
As seen in GlobeSt
As seen in RE Journals

(Crain’s) — A local investment firm is hot on cold storage. A venture including Bridge Development Partners LLC paid $14.3 million to buy a 312,000-square-foot west suburban cold storage facility and hopes to buy more such properties next year.

Oak Brook-based Bridge and capital partner Wanxiang America Real Estate Group LLC, a real estate firm backed by Chinese capital, bought the Lyons building late last month from Voorhees, N.J.-based United States Cold Storage Inc., which will remain a tenant.

The building is the third Chicago-area cold storage facility in which Bridge has an ownership interest. Such properties are used to store chilled and frozen foods during the distribution process.

“We like them because they’re typically well-leased,” says Anthony Pricco, a Bridge principal.

“Good economy or bad economy, people need to eat,” Mr. Pricco says. “Not a lot of people chase these properties, so it allows us to be a little more aggressive and buy these types of buildings. We can build a portfolio of well-leased buildings where there’s a limited supply and high replacement costs.”

Bridge wants to add refrigerated warehouses to its portfolio, he says. The new owners will spend $2 million to $3 million to replace the roof of the warehouse built in 1974, which Mr. Pricco says is otherwise in good condition.

“We feel like we got a great deal,” Mr. Pricco says. “The replacement cost on something like this would be $120 to $150 per square foot. We got it for about $45 a square foot.”

The Bridge venture used a $12-million loan from Green Bay, Wis.-based Associated Banc-Corp. to finance the purchase, according to Cook County real estate records. The building, 8424 W. 47th St. in Lyons, is along Interstate 55, about 12 miles southwest of the Loop.

United State Cold Storage, a refrigerated-warehouse operator with more than 30 facilities in 12 states, will lease more than 148,000 square feet in the building, according to Bridge. Steve Connolly and Larry Much, executive vice-presidents with Oakbrook Terrace-based NAI Hiffman, represented United States Cold Storage in the sale and will be Bridge’s leasing agents for the building.

Mr. Pricco says negotiations are under way with multiple tenants to fill most of the available space, declining to name them.

A spokesman for United States Cold Storage did not immediately return a phone call for comment.

Posted by NAI Hiffman | Filed Under Industrial

Valpo hires broker to sell old North Coast property

December 14, 2011

As seen in The Northwest Indiana Times

VALPARAISO | By this time next week, Valparaiso could be the owner of the North Coast Distributing property on Silhavy Road.

The city’s Redevelopment Commission received no bids for the property. The bids were due at 4 p.m. Wednesday and were to be opened at the commission’s meeting at 5:30. The minimum asking price was $4.7 million and did not include the Coastal Valley Water building at the front of the property, which North Coast is keeping.

The commission agreed to hire NAI Hiffman, of Oakbrook Terrace, Ill., one of six companies to submit proposals to serve as the real estate broker for the sale of the property. NAI Hiffman will receive a 5 percent commission on the sale of the property.

North Coast is building a new facility on Ind. 49 and expects to move into the new building in February. The commission agreed to buy the buildings and property, not including Coastal Valley, for $4 million Wednesday and will charge North Coast $1,000 a day in rent until it moves to the new site.

To pay for the purchase, the commission is using $2.1 million in its budget for the North Coast project and an additional $1.9 million left in the budget to develop a speculative industrial park. The closing on the property is expected to take place next week.

The commission also paid $800,000 to build the access road and extend water and sewer utilities to the new building and will pay $150,000 next year for a traffic signal at the Ind. 49 entrance to North Coast and the sheriff’s offices.

NAI will market the property for a year. If no buyer is found, the commission is expected to turn the property over to the city for use as the new public works department campus. In the meantime, the commission expects to receive about $70,000 in rent.

Posted by NAI Hiffman | Filed Under General Business

New investors in Ravenswood development a hit with neighbors

December 7, 2011

As seen in the Chicago Sun Times

There’s a new cast of characters involved in a plan to build a grocery-anchored retail complex and housing along Lawrence Avenue in Ravenswood. Their performance so far is drawing positive reviews from the neighborhood.

Gone from the investors is Magellan Development Group LLC, whose downtown pedigree and preference for building at least a multi-floor residential building made the community nervous. In place is a new group, some responsible for the retail part, others for a low-rise housing component planned for the open lot at 1900 W. Lawrence, just west of Metra’s Ravenswood stop.

Spearheading the retail is Seymour “Sy” Taxman, head of Taxman Corp. He said he hopes to have a 72,000-square-foot Mariano’s grocery open there by mid-2013. He said he expects the rest of the retail, totaling some 35,000 square feet, will be leased by the time the complex opens.

Working with Taxman are investors Timothy Barrett and Gene Porto and the firm Sierra Group Inc. The project preserves two oft-stated community priorities for the site: attracting a grocer and rebuilding a Sears auto repair facility that currently uses a small part of the property. Sears Holdings Corp., owner of a store nearby, also owns the lot.

Taxman said that after he presented his plans at a neighborhood meeting last week, he got a rare honor for a developer: a standing ovation.

The rest of the 6.5-acre site would get 162 units of rental housing, said Ald. Ameya Pawar, whose 47th Ward includes Ravenswood. He said they would be grouped in three walkup-style buildings, with 10 percent of the units reserved as affordable. Pawar said the residential developer is Greg Merdinger, who works with Belgravia Group Ltd.

Pawar said the housing development will get no subsidies from the city. The retail portion is in line for a $4.5 million boost from tax-increment financing, he said. Pawar has been a critic of the city’s use of TIF, but he said this subsidy is reasonable because the parcel’s tax revenue should repay it in about five years.

“This should be a catalyst for redevelopment along Lawrence Avenue, where a lot of the property is under-used,” he said. Pawar has scheduled two more community forums on the deal Dec. 15 and 19.

BANKRUPTCY LOG: I’ve written recently about the financial problems facing two high-end developments for the elderly on the Near North Side. Now comes word that a similar development in Bartlett has filed for bankruptcy.

Clare Oaks at 825 Carillon Drive filed for Chapter 11 protection Monday but will not shut down or liquidate. The site serves 325 residents and is owned by the Sisters of St. Joseph of the Third Order of St. Francis.

Michael Hovde Jr. president of ownership’s board, said the filing will create time to find a new partner or owner. Trouble in the housing market has hit the senior sector, keeping many people in their homes who otherwise would move to facilities that offer a range of care options.

Hovde said Clare Oaks’ assisted living and memory support units are full, but that the independent living homes have been slow to draw occupancy.

Clare Oaks is not to be confused with the Clare at Water Tower, a senior development on the Loyola University Chicago downtown campus that also has filed for bankruptcy.

DOING THE DEALS: The 25-story, 304-unit apartment building at 77 W. Huron sold for $90 million to L&B Realty Advisors. Holliday Fenoglio Fowler LP marketed the building for owner Archstone. … JBS Logistics leased nearly 304,000 square feet at 2043 Corporate Lane, Naperville, with NAI Hiffman and Darwin Realty & Development Corp. advising on the deal. … Lowe Enterprises Investors said that on behalf of a pension fund, it acquired the 237-room Embassy Suites Chicago-North Shore/Deerfield at 1445 Lake Cook Road in Deerfield. Lowe Enterprises is from Los Angeles, so maybe it is unaware that Deerfield is not in the North Shore. … The law firm Hogan Marren Ltd. moved from 180 N. Wacker to 321 N. Clark, where it leased more than 11,000 square feet. Jones Lang LaSalle Inc. represented the firm. … Urban Partnership Bank will open a branch Thursday at 4310 St. Charles Road, Bellwood. It’s the bank’s third new location in two months in its effort to target areas that the competition neglects. … Chicago-based Heitman LLC said it formed a venture with Signature Senior Lifestyle Ltd. to put up senior housing in the United Kingdom.

Posted by NAI Hiffman | Filed Under General Business

NAI Hiffman names Assoian head of Asset Management, looks to ramp up office business

December 2, 2011

As seen in RE Journals

Commercial brokerage firm NAI Hiffman, a local powerhouse in the property management business, has tapped Bob Assoian as managing director of its Asset Management Group in a move that targets office sector growth.

Assoian brings a 25-year career in asset management to the Oakbrook Terrace-based firm and will oversee the Asset Management Group, which currently operates a portfolio of 58 million square feet of third-party assets for investor clients. He will also be active in new business development.

“I’m excited to work with a firm that is locally owned, yet has the size and capacity that NAI Hiffman does,” says Assoian. “I’ve been impressed with the growth of the company and my job now is to make a great firm bigger and better.”

Assoian is joining NAI Hiffman from Grubb & Ellis Realty Investors, where he oversaw various investor clients such as Prudential, with responsibility for assets in Chicago, Indianapolis, Milwaukee, Minneapolis, St. Louis, Cincinnati, Columbus, Denver, Miami, Portland, Detroit and Nashville.

However, it is Assoian’s experience on the institutional side, with firms like Travelers Insurance, and his exposure to office property management that has made him most appealing to Hiffman.

“Bob has spent many years as an institutional asset manager, which granted him an owners perspective and the ability to offer clients valued strategic asset management advice,” said David Petersen, NAI Hiffman’s CEO, in a statement. “His commitment to cultivating new relationships, as well as enhancing those we have with existing clients, fits perfectly with NAI’s dedication to client service.”

Assoian says that 80 percent of his background work has been with office product, both on the institutional and third party provider side. He plans to build on existing relationships to grow the office portion of Hiffman’s portfolio.

“We are growing all lines of our services, which include office, industrial and retail,” says Petersen. “We have had a tremendous increase in the office sector, to which Bob brings a unique perspective.”

He will be based out of the company’s Oakbrook Terrace headquarters, from which he will manage NAI’s six satellite management offices and the group’s 160 employees.

“I’ve had the job that my clients now have. I can take the best practices I’ve seen from those situations and bring them to a service company,” says Assoian. “It is refreshing that I’m not replacing anyone. NAI is actually adding people, making new hires. I’m looking forward to contributing to the continued success of the company.”

Posted by NAI Hiffman | Filed Under Asset Management