Here Are Three Suburban Assets That Can Hold Their Own With The Best Downtown Has To Offer
If downtown Chicago real estate activity the past few years has been a raging fire, suburban activity has been more of a controlled burn. But with dwindling opportunities in the city and suburban markets stronger than they've been in years, the expert panelists for Bisnow’s Flight to the Suburbs event (7am Aug. 23 at The Westin Lombard Yorktown Center) say the spark is there to set the burbs aflame.
Tucker Development CEO Rich Tucker says little has changed in the suburbs since he was a panelist at last year’s event. There are more investors entering the market seeking short- and long-term investment opportunities. And Tucker is still looking for ideal opportunities in high-traffic, high-density suburban submarkets where it can fill a need for mixed-use development by buying high-quality assets and improving them.
Rich has been busy implementing the redevelopment plan at Town Square Wheaton, Tucker’s major retail-grounded mixed-use property that was purchased last year. Some of the major physical work won’t be noticeable until next summer, as it includes significant common area improvements that will create true community gathering spaces, Rich says. But other aspects, such as better signage, will be in place by fall. Rich adds that there’s renewed tenant interest in the property as retailers recognize the quality location and improved physical aspects. The next phase will open next summer, including a renovation of Town Square Wheaton’s “Oval” with new fountains, a fireplace and other hard- and softscape gathering areas.
Equus Capital Partners SVP Joseph Neverauskus (right, with Equus Capital VP Matt Latimer and Madison Apartment Group marketing director Stacie Sines) says the investors he sees entering suburban markets are mostly private equity looking for more yield-driven opportunities—a combo of Class-A and value-add. They tend to be investors that are somewhat contrarian. Joe says Equus is targeting Class-A assets where amenities can be added or upgraded to meet the work/play requirements of today’s tenants.
One sector Equus is avoiding: commodity assets. Joe says those are tough to turn around, have functional obsolescence and do not meet the requirements of the modern workforce. The shift of companies from the burbs to downtown, and high vacancy rates in the Class-B market, have contributed to a highly competitive market.
Joe says Equus believes in the East-West Corridor, where the firm recently bought Mid America Plaza (pictured) in Oak Brook for $80M and MetroWest in Naperville last year. Joe says Mid America Plaza is well leased and in one of the suburbs’ strongest submarkets, with clear rent growth on the horizon. It’s across from Oak Brook Mall, which is the highest-producing shopping center in the Chicago Metro. Joe adds that Equus will implement an $8M value-add program to further reposition the asset.
Lincoln Property Co VP Peter Kelly says the fundamentals of office activity in the burbs are as strong as they’ve been in years, something that is often overlooked in the news headlines. Most Class-A submarkets have vacancy rates in the low teens and there is little in the way of spec development. Infill submarkets are especially strong: Oak Brook (especially around the Oak Brook Mall), O’Hare, Lake-Cook and—surprising to us—Evanston.
Peter says the main reason for Evanston's low vacancy is limitation in supply, since there are very few multi-tenant office buildings available. Evanston's two largest users are Northwestern University and NorthShore University HealthSystem; both are 501(c)(3), so they are exempt from paying real estate taxes. With all of Evanston’s recent real estate development focused on multifamily and hotels, the competitive office landscape is only four or five buildings. And Evanston is a huge, easily accessible TOD market.
Speaking of TODs, Peter says Lincoln is in the process of upgrading Corporate 500 Centre in Deerfield on behalf of its client, Cornerstone Real Estate Advisers. Cornerstone bought Corporate 500 from GE Real Estate Capital in the largest suburban office deal of 2015. The Metra North Shore Line stops at Corporate 500, the only Class-A office building of its kind outside of Evanston. Peter says Lincoln hopes to further enhance the property with a multimillion-dollar capital plan to transform the 700k SF campus into a 24/7 destination. Lincoln is in the process of adding amenities including more greenspace, fire pits, putting greens, outdoor grills, bikes rooms, a fitness center and a micro market. Completion of the renovation is expected in September.
To learn more, attend Bisnow’s Flight to the Suburbs event, 7am Aug. 23 at The Westin Lombard Yorktown Center, 70 Yorktown Center, Lombard. Register here.
