High New Construction Prices, Highly Trained Workers Revive Old Manufacturing Towns, Properties

The industrial boom isn’t just about sleek new Amazon warehouses. Even older manufacturing properties are finding second lives that soften the blow whenever firms decide to pick up stakes and move on.

That has been the experience so far in Montgomery, Illinois. Caterpillar’s 2017 decision to sell and mostly close its 1950s-era manufacturing complex there could have left behind economic devastation. But the village of 20,000 and its largest plant are already on the path to recovery.

A turnaround began last year when it was acquired by the White Plains, New York-based Reich Brothers for $68.5M. The family office specializes in buying and leasing up second-generation industrial spaces and, according to Colliers, it just secured 2.9M SF of leases for the former Caterpillar complex at 325 South Route 31.

“It’s been huge because we’ve always been a manufacturing town,” Montgomery Economic Development Corp. Executive Director Charlene Coulombe said.

The entire Chicagoland industrial market has soared throughout the coronavirus pandemic. Q3 statistics from Colliers International show record levels of leasing activity, absorption and build-to-suit deliveries. The expansion of e-commerce has driven much of the activity, especially for modern distribution facilities, but experts say the economic expansion is having a much deeper impact.   

“In today’s economic environment, when new construction prices have skyrocketed in response to demand, these more operationally efficient and still habitable buildings have become a really good, low-cost solution,” Colliers principal Brian Kling said.      

The three new leases in Montgomery, the largest in the Chicago area during Q3, according to Colliers, go a long way toward filling the more than 4M SF complex, now called The Grid at Route 31. Tangent Technologies signed a 1.1M SF deal, U.S. Medical Glove Co. agreed to occupy 980K SF, and DSV, a logistics firm, signed up for 700K SF.

“We’ve been pleasantly surprised that they’ve been able to garner as much interest as they have,” Montgomery Director of Community Development Sonya Abt said.

Caterpillar’s exit was worrisome. It once employed thousands and had become an economic mainstay for Montgomery, located along the Fox River about 44 miles west of Chicago and just south of Aurora. An ecosystem of other companies providing the plant supplies and services, such as the transport of the heavy equipment, had grown up around it, and the effects of a full closure would have rippled across the village.  

“Over the last five years, we’ve seen some vacant businesses,” Abt said.

But the new leases signal high-paying manufacturing jobs are in Montgomery to stay, she added. And instead of dealing with vacant businesses, the village, which saw its population nearly quadruple since 2000, can continue expanding through new commercial and residential development on the vast amount of available land to its western side.

Michael Reich co-heads Reich Brothers' business development department, and although he said he is happy about the progress made on leasing up The Grid at Route 31, he actually isn't surprised. The region’s vacancy rate has sunk to about 6%, and it isn't easy to find manufacturing space with the heavy power capacity of the Caterpillar complex, which also has its own water system and is directly served by a railway.     

“It’s smack dab in the middle of the country, and the railroad infrastructure is second to none, and railroads are the reason that Chicago and Illinois thrive,” he said.

The many supply chain interruptions caused by the pandemic have also convinced many companies they need to manufacture more products in the U.S., further boosting demand, Reich added.

U.S. Medical Glove Co., for example, manufactures nitrile gloves, often used to handle chemotherapy drugs, among many other uses, and can’t afford to have its products stranded outside a U.S. port.

"American customer service, reliability and quality control can only be delivered by eliminating dependence on foreign-made machines, not just foreign-made gloves," U.S. Medical Glove CEO Dylan Ratigan said in an August statement announcing the lease.

The aging complex still needs a significant amount of work before most tenants can move in, according to Reich. The new owners launched a reconstruction effort in 2020 to modernize the plant and have already spent about $30M, he estimates, but the work continues.

“There are tenants who are in there right now, but for the most part, we are very much in the midst of building spaces for tenants who will soon be on-site,” Reich said.

The village intends to establish a tax increment financing district, most likely early next year, that could generate up to $35M over the next 23 years. It also plans to formally annex the complex, which currently sits on unincorporated land surrounded by Montgomery, according to Abt.  

"One of the existing tenants is Caterpillar, which agreed to keep up to 500 employees in Montgomery and lease around 250K SF, including the site’s entire office building, as well as some industrial space," Reich said.

That willingness to not fully abandon the town was a big comfort and helped make the transition much easier, according to Coulombe. In addition, Caterpillar officials had spoken to village officials for several years about the firm’s pending exit.

“It wasn’t as devastating as some other closures, where companies just shut down in months and said goodbye,” Coulombe said.  

Village officials had enough time to help find the right buyer and users, she added. Some exotic proposals were fielded, including one proposal to use the plant as a 24/7, year-round farming operation with greenhouses and another to transform it into an entertainment venue and amusement park.

“We had all sorts of people who had a lot of crazy ideas,” Coulombe said.

The Reich Brothers’ purchase was the best possible outcome, she added. The firm had experience buying and repurposing local industrial complexes around the nation and managed to fill the former Caterpillar space with more high-paying manufacturing jobs that would best sustain the local economy.

The village has gotten past other economic shocks, Coulombe said. In May 2017, Butterball announced it would close its Montgomery processing plant that summer, where it employed 600 people. Today the same plant is used by food manufacturer Carl Buddig & Co., which occupies about two-thirds of the building and may soon expand.

She said the village has proven resilient partly due to its large numbers of highly trained manufacturing workers, as well as those in nearby Oswego and the city of Aurora. That resource is what brings the region attention whenever a major plant closes.

“It becomes like a magnet,” she said.