Market’s strength = closer to the end?

{Singing} It’s beginning to look a lot like 2007…record low cap rates, spec construction at a fever pace, high rental rate expectations, bullish forecasts of continued growth.  Despite what our presidential candidates would tell us, the real estate world is on a roll.

thMulti-channel distribution networks are absorbing distribution space at a phenomenal pace. eCommerce has in effect made warehouse equivalent to retail! More technology and more people are being deployed to meet global supply chain demands. The market dynamics are pushing all boundaries.

Unfortunately all good things must come to an end. Believe me I have my board and plan to ride this wave at maximum pace.  But how long can this last?  I hope a long, long time! In the mean time keep singing.

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O’Hare rail crossing delays will soon be over!!

Irving Park Rd (Rte 19) and York Rd (Elmhurst Rd) scheduled for Labor Day 2015 completion

Eastbound and westbound lanes on Irving Park Road east of York Rd (Elmhurst) will be closed on March 14-16, 2015 and March 21-23, 2015. BUT this should be the end of the grade rail tracks that has reeked havoc with traffic for nearly 60 years, since O’Hare Airport opened. Two months later on Labor Day, May 25, 2015, after the all concrete and intersection work is complete both the CP and CN rial will be elevated…no more waiting for the trains…supply chains rejoice!!

IL19 & York Rendering

More information on the project can be found by clicking this link to IDOT.

 

Do you expect to overpay on your lease?

US companies occupying industrial real estate, listen up!   The market has pivoted to a Landlord’s market, that means you will pay more.   Taking on this market without proper representation, well why not just tie a steak around your neck and walk into a Lion’s den…you’re dead meat.

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Chicago stats:

Unemployment is down to 6.2%

Vacancy rate has decreased to 8.2%, lowest since 2001!

15 million square feet is under construction!

This data tells us there are more people employed, the amount of available space is lowest since 2001, and developers can’t build enough space to meet demand (or to feed their performas).  What does it all mean? Asking prices are up and incentives are down like free rent, large tenant improvement dollars, and risk diversion, you are in a Landlord’s market… expect to pay more.

But you don’t have to.  Embrace the approach of creating a competitive atmosphere where multiple buildings are being seriously considered you should be able to compress the rental rate and get some concessions from Landlords. Consider the vacancy rate of 8.2% it reflects nearly 90 million square feet of available space in Chicago metro!

If you have a renewal or are considering a new location:

  • Engage a real estate professional who has access to on and off market properties
  • Go see everything. You may not have 10 options, but there should be three or four and you need to leverage them.
  • Give yourself time, 9-12 months before your back is against the wall.

This is nothing new, but its never been more important.

Client saves cash and risk exposure

DanSmo

 The Modal Group completes sublease in less than 60 days.

CHICAGO-In early 2013 The Modal Group represented a company that leased an air cargo facility in Bensenville, IL in the  O’Hare submarket of Chicago.  In 2014 that same company realized they needed to suspend the Bensenville operation so they engaged Daniel Smolensky, SIOR of The Modal Group to sublease the space. In less than 60 days the client had a fully executed sublease and their financial exposure and risk was diverted to the subtenant. With an aggressive marketing campaign Smolensky had over 5 showings and four offers in the first two weeks.  Smolensky continued to receive offers and negotiate with interested parties in the weeks to come and then settled on a company that was the best fit.  The rent will cover 100% of the client’s exposure including utilities.

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Data indicates strong activity in industrial real estate market

From CoStar’s 2014 Mid-Year Report.
The Chicago Industrial market ended the second quarter
2014 with a vacancy rate of 8.5%. The vacancy rate was
down over the previous quarter, with net absorption
totaling positive 2,303,618 square feet in the second quarter.
Vacant sublease space increased in the quarter, ending the
quarter at 1,416,465 square feet. Rental rates ended the second
quarter at $5.23, an increase over the previous quarter. A
total of five buildings delivered to the market in the quarter
totaling 1,708,735 square feet, with 7,721,186 square feet still
under construction at the end of the quarter.
Absorption
Net absorption for the overall Chicago Industrial market
was positive 2,303,618 square feet in the second quarter 2014.
That compares to positive 327,193 square feet in the first quarter
2014, positive 6,177,633 square feet in the fourth quarter
2013, and positive 1,375,931 square feet in the third quarter
2013

.ship data
Tenants moving out of large blocks of space in 2014
include: Quantum Foods, LLC moving out of (269,591) square
feet at 550 W North Frontage Rd, Silgan Containers moving
out of (187,850) square feet at 1191 Lake Ave and Channel
Distribution moving out of (165,762) square feet at CMD
Business Park.
Tenants moving into large blocks of space in 2014 include:
Pactiv Corporation moving into 898,560 square feet at
Pinnacle Business Center, Ferrara Candy Company moving into
747,152 square feet at Carlow Corporate Center, and Midwest
Warehouse & Distribution System moving into 650,494 square
feet at Carlow Corporate Center.
The Flex building market recorded net absorption of positive
84,263 square feet in the second quarter 2014, compared
to positive 287,109 square feet in the first quarter 2014, positive
54,574 in the fourth quarter 2013, and positive 212,314 in the
third quarter 2013.
The Warehouse building market recorded net absorption
of positive 2,219,355 square feet in the second quarter 2014
compared to positive 40,084 square feet in the first quarter
2014, positive 6,123,059 in the fourth quarter 2013, and positive
1,163,617 in the third quarter 2013.
Vacancy
The Industrial vacancy rate in the Chicago market area
decreased to 8.5% at the end of the second quarter 2014. The
vacancy rate was 8.7% at the end of the first quarter 2014,
8.7% at the end of the fourth quarter 2013, and 9.0% at the
end of the third quarter 2013.
Flex projects reported a vacancy rate of 12.1% at the end
of the second quarter 2014, 11.9% at the end of the first quarter
2014, 12.3% at the end of the fourth quarter 2013, and 12.4% at
the end of the third quarter 2013.
Warehouse projects reported a vacancy rate of 8.3% at
the end of the second quarter 2014, 8.5% at the end of first
quarter 2014, 8.4% at the end of the fourth quarter 2013, and
8.8% at the end of the third quarter 2013.Rental Rates
The average quoted asking rental rate for available
Industrial space was $5.23 per square foot per year at the end
of the second quarter 2014 in the Chicago market area. This
represented a 1.0% increase in quoted rental rates from the
end of the first quarter 2014, when rents were reported at $5.18
per square foot.
Rental rates
The average quoted rate within the Flex sector was $10.31
per square foot at the end of the second quarter 2014, while
Warehouse rates stood at $4.91. At the end of the first quarter
2014, Flex rates were $10.33 per square foot, and Warehouse
rates were $4.87.accounting for 276,031,840 square feet of Industrial
space.
ServeAttachment-3.ashx

Sales Activity
Tallying industrial building sales of 15,000 square feet
or larger, Chicago industrial sales figures fell during the first
quarter 2014 in terms of dollar volume compared to the fourth
quarter of 2013.
In the first quarter, 91 industrial transactions closed
with a total volume of $539,789,301. The 91 buildings totaled
13,210,857 square feet and the average price per square foot
equated to $40.86 per square foot. That compares to 154
transactions totaling $637,990,562 in the fourth quarter. The
total square footage was 15,821,506 for an average price per
square foot of $40.32.
Total year-to-date industrial building sales activity in 2014
is up compared to the previous year. In the first three months
of 2014, the market saw 91 industrial sales transactions with
a total volume of $539,789,301. The price per square foot has
averaged $40.86 this year. In the first three months of 2013,
the market posted 85 transactions with a total volume of
$232,203,922. The price per square foot averaged $31.84.
Cap rates have been lower in 2014, averaging 7.37%,
compared to the first three months of last year when they
averaged 8.56%.

Big delays due to I-55 construction @ Arsenal Road, to be completed by Labor Day.

Experienced a significant traffic back-up approaching Arsenal Rd on I-55 in Joliet.  Work on the bridge spanning the Des Plaines River has traffic down to one lane (!!!!) in both directions, see pictures in this post.

Received this update from IDOT:

The work being performed to the structures carrying I-55 over the Des Plaines River in Will County includes repairing the structural steel, patching and resurfacing the bridge decks and cleaning and painting the structures. In 2013 work was done on the southbound structures. This year (2014) work is being performed on the northbound structures. The work is expected to be completed by late August (before the Labor Day holiday). The Illinois Department of Transportation appreciates your patience as we work to repair these 60+ year old structures.

IMG_4710 IMG_4709IMG_4706

Chicago Tribune reports the new Elgin-O’Hare Expressway may not feed into O’Hare

May 03, 2014|By Jon Hilkevitch and Richard Wronski, Tribune reporters

O’Hare western access may look like dead-end
With plans for a western airline terminal on hold, DuPage highway to airport planned to carry traffic to old entrance
Construction worker Shawn Ferrin of Midlothian cuts concrete storm sewer pipe along the eastbound lanes of the Elgin-O’Hare Expressway in Roselle on Tuesday, April 15, 2014. ImageThese expansions are part of the Elgin-O’Hare Western Access Project. The project will be completed in 2018.
(Stacey Wescott / Chicago Tribune)
Construction begins in earnest this year on a multibillion-dollar stretch of highway in DuPage County amid a growing sense that its potential to become a long-promised western route to O’Hare International Airport will fall far short of expectations.

Political and business leaders have envisioned a roadway, lined with retailers and other services, that takes passengers to a new western terminal at O’Hare.

But plans for the terminal never got off the ground, and on paper, the road system set to be built by 2025 will be a bypass that will still force air travelers who live west of the airport to circle around to the old eastern entrance.

The situation stems from a decade-old deal involving DuPage County, suburban mayors and the city of Chicago. The county and municipalities agreed to accept new runways and the noise that comes with them, and the city would persuade O’Hare’s biggest airlines to kick in millions of dollars to help build a western terminal that would make a future highway practical.

But while new runways are being built and so is the highway, the airlines are not on board with a new terminal, which might bring in competitors. And without the terminal, the highway appears to be, in effect, a road to nowhere.

It will dead-end at the airport’s western boundary, several miles from the nearest terminal. Those wanting to proceed to the airport will take another new road north or south to get to the old entrance. Or they might one day be able to use a park-and-ride system, featuring 35 to 40 minutes on a shuttle bus.

“No one is going to drive to the west side of O’Hare simply to park and take a bus,” said Elk Grove Village Mayor Craig Johnson, whose community has long supported a western access and bypass roads. “I am always hopeful that lightning strikes and they will build the western access terminal. But I am not going to hold my breath.”

As if that wasn’t frustrating enough for western suburbanites, the new roadways will carry a toll that’s more than three times higher than other area toll roads.

If you build it …

State lawmakers last June approved the long-planned $3.4 billion Elgin-O’Hare Western Access project. It will include an extended Elgin-O’Hare Expressway that intersects with a new north-south tollway skirting O’Hare’s western edge and connecting to the Jane Addams Memorial Tollway (Interstate 90) and the Tri-State Tollway (I-294).

Even though the Tollway is spending $3.1 billion on the project, there is a $300 million funding gap, which DuPage County and local communities will have to provide. The county has secured about $110 million in funding so far, DuPage County Board Chairman Dan Cronin said.

Proponents of the project see underused land stretching east from the western suburbs being transformed into gas stations, restaurants, hotels and shopping centers employing tens of thousands of people.

They point to predictions from an advisory council appointed by Gov. Pat Quinn that say the project will create 13,450 jobs during construction and that future development will lead to 65,000 new jobs by 2040.

“There are 127 square miles of untapped opportunity out there that brokers and developers are excited about,” said Greg Bedalov, president and CEO of Choose DuPage, which markets DuPage County and supports economic development.

“Absent a western access road and absent the needed infrastructure, that day will never come,” he said.

But Bedalov said recent developments are important for a roadway project that “has been baking for some time.”

“Some people say to me, ‘Greg, come on, you are building a road to nowhere.’ But I disagree. Transportation infrastructure is in the team photo of the first three things that developerslook at,” Bedalov said.

Cronin said he supports the idea of western access to a new terminal, but said that day won’t come until an improving economy generates hundreds of additional daily flights at O’Hare, and added that he’s taking heat from constituents in the meantime.

“There are a lot of people, particularly in my neighborhood, who are like, ‘Cronin, what are we signing onto this thing for? Why do you support the toll increase? We don’t even have a commitment that they are going to open up (the road into the airport),’ ” he said.

Cronin said he shares the frustration, but he insists the commitment will be made. “We might be gray, but it will happen,” he predicted.

But for now, the closest thing to true “western access” to O’Hare, when all is said and done with the project, will be a $17 million, fishhook-shaped ramp off York Road, which will dead-end on O’Hare property.

The Tollway agreed to pay for the ramp even though it was not directly connected to the new tollways because it was favored by DuPage County and the local communities, Tollway spokesman Dan Rozek said.

“The Tollway frequently works with local communities to make improvements on existing, adjacent roadways while building or improving interchanges to improve traffic flow,” Rozek said.

 

Western terminal

The city-suburban deal a decade ago that was to help make a new terminal possible rested on the idea that the former administration of Mayor Richard M. Daley could persuade the biggest commercial carriers at O’Hare, United Airlines and American Airlines, to investmillions annually to pay for their share of the new western terminal campus. It would house more than 50 airplane gates and provide parking facilities for passengers on empty land along the west side of the airport.

But the airlines, which have welcomed new runways to ease flight delays and increase O’Hare capacity, never bought into the city’s plan for terminal expansion, which likely would entice other airlines to compete against the two mega-carriers.

Executives at Chicago-based United and at American have consistently said that two new runways that opened in 2008 and 2013 plus a runway scheduled to debut next year, along with other airfield improvements, are adequate to meet the two carriers’ needs for the foreseeable future.

The airline officials said any future investments will be based strictly on demand and cost efficiencies, not the city’s desire to complete the airfield expansion project, which under the most recent projection released by Chicago aviation officials is estimated to cost $9.7 billion in 2012 dollars.

Asked about the idea of a western terminal, one airline official who spoke on condition of anonymity said: “We don’t have a dog in that fight. Who’s going to use the western terminal, anyway? Not us. We have no interest in it.”

And the park-and-ride idea, which in the O’Hare expansion master plan has pointed to a possible extension of either the airport’s people mover transit system or the CTA Blue Line, has been scaled back to a shuttle bus that’s 35 to 40 minutes from the main O’Hare terminals.

For their part, Chicago officials said they are moving to complete O’Hare expansion.

“Our top priorities are to continue progress on the … airfield projects and to continue to coordinate with the state on western access to the airport,” said Karen Pride, spokeswoman for the Chicago Department of Aviation. “As we’ve said, the western terminal is a demand-driven project.”

The aviation department conducted a study in 2010 that developed several alternatives for the western terminal to possibly serve domestic and international flights as well as provide passenger connections to the main terminal core.

The main purpose of the study was to “ensure that developments on the west side of O’Hare, including the proposed Elgin-O’Hare west bypass, can co-exist,” Pride said.

Quinn’s executive director at the Tollway, Kristi Lafleur, acknowledged there is no assurance of any development on O’Hare’s western edge, but she says the $3.4 billion project around O’Hare represents “an interim step” that would facilitate any future airport expansion.

“We’re not sure Chicago or the Department of Aviation is committed to a western terminal,” Lafleur said.

Johnson said that for years Chicago Aviation Commissioner Rosemarie Andolino told him and other mayors who were part of the Elgin-O’Hare West Bypass Advisory Council that “Chicago has no intention in the foreseeable future, if not our lifetime, of building the western access terminal.”

“Rosie admitted, because of airline resistance, that they only plan a parking lot with a bus ride to the existing terminals on the east side of O’Hare,” Johnson said. “That’s always been Chicago’s intention. They have never had a history of being good neighbors with the surrounding towns.”

He speculated that a likely scenario would be for Chicago to use some of the vacant airport land to build hotels and restaurants and maybe even an entertainment complex — the same type of projects that officials in DuPage are pushing on the land outside the airport.

“That would be bad for us because it takes away potential business from our communities,” Johnson said.

Andolino did not respond to interview requests by the Tribune.

High priced tolls

Tolls along the Illinois Tollway will cover the lion’s share of the $3.4 billion project, which was part of the reason toll costs systemwide nearly doubled in 2012. But estimates suggest motorists who use the new roads will pay a premium, roughly 20 cents per mile for passenger cars versus the current 6-cents-a-mile average.

That’s the price motorists face for still having to circle the airport and enter from the east, via I-190, and onto the chronically traffic-clogged circular roadway that sits in front of the three domestic airline terminals.

jhilkevitch@tribune.com

rwronski@tribune.com

Twitter @jhilkevitch

Twitter @richwronski