Bringing luxury apartments to Chicago’s wealthiest suburbs

northshore 770

by Dan Rafter

David Strosberg calls it a project that the North Shore area of Chicago — home to some of the most expensive homes in Northern Illinois — hasn’t seen in a long time. And he’s happy that his development firm, Chicago-based Morningside Group, is bringing it to the residents here.

This August, Morningside Group is breaking ground on NorthShore 770, a mixed-use project in the North Shore community of Northbrook, Ill. The development will include 347 luxury apartments and a 101,435-square-foot retail center anchored by a Mariano’s grocery store.

Northbrook, and the entire North Shore community, has rarely seen a project of this scale. But Strosberg, president and managing principal of Morningside, says that the residents here are ready for a development like NorthShore 770.

“On the retail side we are bringing a new Mariano’s grocery store. Mariano’s stores are always huge hits with residents. It’s a phenomenal grocer,” Strosberg said. “On the residential side, we will be constructing an ultra-luxury building. It has been 25-plus years since a new rental building has been built in this market.”

Strosberg predicts that NorthShore 770 will be the premier rental building in the Chicago suburbs, one that offers what he calls the “highest level” of amenities.

Northbrook is a wealthy community. The question, then, is why has it been more than 25 years since a luxury project like NorthShore 770 has hit the market.

Strosberg points to three reasons: For decades, developers prefered to build condo developments in the North Shore suburbs. Secondly, developers who did want to add rental units to the area often struggled to gain the zoning changes they needed. Finally, up until recently, residents of the North Shore preferred to own.

That has changed. Today, younger residents would prefer to rent in these suburbs. And they want to rent in high-quality developments that offer the same kind of amenities present in high-end condo projects.

“People realize that they don’t need to own a home,” Strosberg said. “They realize that owning is not necessarily a great investment. They like the idea of having an apartment where someone else takes care of all the headaches. It provides for a very nice lifestyle.”

Strosberg said that NorthShore 770’s retail component, including the new Mariano’s, will open in the summer of 2015. The first residents will be able to move into the apartment building by the end of 2015.

Strosberg said, too, that he expecs more projects like NorthShore 770 to pop up in Chicago’s suburbs as demand for multi-family product spreads from the city of Chicago and into its suburban communities.

“The demand has been pent up for a long time,” Strosberg said. “The demand in the suburbs is just beginning to be satisfied now. There are a number of projects that will be absorbing some of that demand. Ours is uniquely located and will have the highest number of amenities of any multi-family project.”

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HSA Commercial: Industrial market still booming in Indianapolis

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by Dan Rafter

Bob Smietana doesn’t consider the 220,000-square-foot spec building that HSA Commercial Real Estate recently built in the Indianapolis suburb of Plainfield, Ind., to be a risk: The industrial market in Indianapolis is tight. And his company isn’t alone in addressing this demand with spec industrial construction.

As Smietana, vice chairman and chief executive officer with HSA says, the time was right for the spec industrial building at Plainfield’s busy Gateway Business Park.

“We saw a gap in the market,” Smietana said. “And this building helps fill that gap.”

The gap to which Smietana refers? There aren’t many new industrial spaces available to tenants looking for 50,000- to 200,000-square-foot spaces.

That’s because many of the new industrial spec buildings in the Indianapolis market are large projects, often totaling 1 million square feet of space. The developers of these buildings are not eager to break their buildings into 200,000-square-foot chunks of space. They’d rather lease them out to one or two larger tenants.

HSA’s spec building — Gateway Industrial 3 — provides an opportunity for smaller tenants to move their businesses to a smaller yet modern space.

The new industrial building sits on 13 acres immediately southwest of the Indianapolis International Airport. It features 32-foot clear heights, 24 truck docks, four drive-in doors and 155 parking spaces. HSA partnered with Boston-based Great Point Investors LLC to develop the building.

Interest has been strong for the building, Smietana said. HSA is fielding proposals for 200 percent of the building’s remaining space after having already signed a lease that will fill a quarter of the development. Smietana says that the entire building should be leased by the fourth quarter of this year.

Smietana says that there are plenty of reasons why the Gateway Business Park is so busy today. The entire space was master-planned to become a modern industrial park. And because it sits on the west side of Indianapolis’ airport, it provides tenants with easy access to the airport’s cargo area. New buildings in the park generally receive a 10-year graduated tax abatement, which has encouraged developers to target the park for new buildings.

“Indianapolis, basically the entire state of Indiana, is a very pro-business state,” Smietana said. “The state is attracting regional tenants when these tenants have choices. It pains me to say this as a resident of Illinois, but Indiana is winning the battle for regional tenants that have a choice to locate in either Illinois or Indiana. Indiana has been winning more times than Illinois has been lately.”

HSA has a long history with the Gateway Business Park, owning 50 acres of land in it. The company has already built three industrial buildings here, all of which are 100-percent leased.

HSA is far from alone, of course, in adding spec industrial space to the Indianapolis market. This market remains one of the strongest when it comes to this type of property.

But Smietana says that the number of spec industrial developments hasn’t overwhelmed the demand.

“We still have some runway left,” Smietana said. “The amount of leasing activity in this market is still strong.”

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St. Louis’ McCarthy celebrates 150 years with key acquisition of civil-engineering firm

Castle Contracting founder Julie Ledbetter shakes hands with McCarthy Building Companies, Inc. Central Division president Scott Wittkop. Also pictured (on left) is current Castle president Rich Ledbetter and (on right) current Castle chief operating officer Mike Myers.

Castle Contracting founder Julie Ledbetter shakes hands with McCarthy Building Companies, Inc. Central Division president Scott Wittkop. Also pictured (on left) is current Castle president Rich Ledbetter and (on right) current Castle chief operating officer Mike Myers.

by Dan Rafter

As St. Louis-based commercial builder McCarthy Holdings celebrates its 150th anniversary, the company continued to grow with a significant acquisition, signing a letter of intent last week to acquire Castle Contracting, a civil-services company also based in St. Louis.

Scott Wittkop, central division president for McCarthy, told Midwest Real Estate News that a growing number of the company’s clients are asking for help with civil-engineering and infrastructure needs. The acquisition of Castle Contracting, which provides turnkey civil services, utility work, earthwork and trenchless technology, gives McCarthy another way to provide more value to its clients, Wittkop said.

“One of our strategic initiatives is to focus more on horizontal construction and infrastructure,” Wittkop said. “We have primarily been a hospital builder and an education builder. This acquisition gives us a chance to expand our portfolio of services.”

It helps, too, that McCarthy officials have worked often with Castle’s leadership team in the past.

“This is our first acquisition in 20 years,” Wittkop said. “Before making the move, we looked at both the possibility of new profits for us and the people at Castle. At the end of the day, you are buying the talents of the people coming over. I personally have known Castle’s leadership for 18, 19 years. Some of our folks have had relationships with Castle’s leadership that go back even longer than that. We knew what we were getting from the people side, and we liked what we were getting.”

Castle also brings new technology to McCarthy. The company is known for its 3D utility mapping powered by GPS technology.

Castle will become a subsidiary of McCarthy after the acquisition, which should close at the end of October. The company, though, will continue to operate as a stand-alone business under the Castle name. Mike Myers, a 13-year Castle veteran and its chief operating officer, will become vice president of operations reporting to Wittkop.

Terms of the agreement will not be disclosed.

Julie Ledbetter, founder of Castle, said that the move will prove beneficial to both her company and McCarthy.

“Out two companies share similar values and beliefs about our approach to building,” she said. “McCarthy’s leadership recognizes and appreciates that.”

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Selling points: Why now is a good time to sell

Andrew Farbman

Andrew Farbman

Guest post by Andrew Farbman, CEO, Farbman Group

The recent sale of 200 W. Monroe, a 23-story office tower located in The Loop in downtown Chicago, drives home a point that has become increasingly evident in recent months: Today’s real estate market is a great one for sellers. And, like any good sellers’ market, it is not a bad market for buyers, either.

Why now?

An office building or other complicated piece of real estate is a living, breathing asset, and there are many variables that go into the valuation of such a property. The broader market context is one of the most important of those variables, which is why the majority of transactions getting done today involve buyers who seem to have a clear and mostly positive vision of where the global marketplace is headed. Job growth in the United States remains strong, and we continue to see certain categories of assets appreciating because they are irreplaceable (to the extent that replacing them would be a prohibitively expensive or impractical proposition).

Today we are seeing more money flowing into commercial real estate from an institutional perspective. On the debt side, lenders have more capital to deploy and are becoming more active. Additionally, with the strong performance of stock exchanges—an increase that has overly weighted most of the big endowments and life companies in public stock—there is a push to diversify in many portfolios. It is the “rising tide lifts all boats” principle in action: The increase in value of those assets has essentially led to a corresponding increase in the value of real estate assets as investors look to redeploy capital.

With that in mind, it is not hard to see why now is an opportune time to sell. What is important, however, is that it is also a good time to buy: buyers like it when there is still a little meat left on the bone—and today there are still quality investments to be made. Investors who took advantage of the once-in-a-lifetime buying opportunities in the depressed real estate market from 2008-2013 are likely happy with the strong returns that they are making, passing healthy properties on to others before the market has peaked—the essence of a win-win scenario.

Asset management

While every property is different and every market has its own unique characteristics, a quick look at the recent history of 200 W. Monroe reveals some general insights about what factors are driving sales today. In this case, the new owner sees a chance to carry on some of the redevelopment that has already taken place at 200 W. Monroe, and to continue to reap the benefits of the increased occupancy (which has increased from the 70s into the low 90s since Farbman Group purchased the property in 2012).

Some of the specific tactics used to optimize asset capitalization at 200 W. Monroe include renovating the lobby and corridors and upgrading and building-out spaces to a more efficient and open layout. The property was able to absorb significant additional density because of its prime location. In the context of strong job growth, it is especially important to take advantage of any “low hanging fruit” and leverage opportunities for expansion with existing tenants that are seeing their needs change and evolve. Carefully review existing tenants before purchasing an asset to identify growth tenants and how/if those tenants can be accommodated.

Midwest markets

What holds true in downtown Chicago does not necessarily apply elsewhere—the Midwest is hardly a monolith. Michigan’s investment sale market is starting to come back to life (as evidenced by the sale of Southfield Town Center, a $180 million deal that attracted national interest), and the disconnect in yield is shrinking between markets like southeast Michigan and The Loop in Chicago. With that said, Southeast Michigan is still more of a buyer’s market, with properties trading at about 200 to 400 basis points higher than in Chicago and, to some extent, Milwaukee.

Ohio is somewhere in the middle: Markets like Columbus are trading closer to the Chicago standard, while markets like Dayton and Cleveland are trading closer to Southeast Michigan. In general, however, we are seeing investors and investment opportunities coming back into all of those markets.

Risks and rewards

Going forward, analysis of suburban versus urban assets will feature prominently, as investors think critically about the very different infrastructure, density and co-tenancy needs and possibilities. Suburban does carry some additional risk, simply because there are fewer barriers to entry. Mixed-use will also be an active category, with young employees and Millennials clearly focused on staying urban. Markets to watch include Evanston, just north of Chicago, which offers the amenities of urbanity with suburban convenience.

Going forward, quality assets in virtually all categories will continue to see demand ratcheting up. With liquidity in the marketplace and significantly more interest when you take something to market, it is a great time to sell. Most buyers are healthy again, and most investors who were hurt by the slack in the economy have found their way back. Only two things can really change that dynamic: interest rates and fund flows. And while interest rates will eventually go up, the ongoing increase in fund flow will continue to keep prices high for some time. As price increases go, we are in the 7th inning—far better to sell now than to wait for the 9th inning, when the crowd starts to get restless.

Farbman Group is a full-service real estate firm handling all facets of real estate transactions. The firm manages more than 20 million square feet of office, retail, multi-family and industrial space across Southeast Michigan.

Posted in Chicago Commercial Real Estate, Illinois, Illinois real estate, industrial real estate, Michigan commercial real estate, office, Ohio commercial real estate | Tagged , , , , , , | Leave a comment

Multi-family’s advantage: Young consumers love the apartment life

Mike Jehle

Mike Jehle

by Dan Rafter

The multi-family sector has an advantage today: A growing number of young consumers prefer apartment-living to the responsibilities and monthly mortgage payments of owning single-family homes.

And in even better news for the middle of the country, Michael Jehle, vice president in the Bloomfield Hills, Mich., office of Arbor Commercial Mortgage said that the Midwest is a particularly strong region for the multi-family sector.

There are several reasons for this. The Midwest is seeing strong employment growth. And when new jobs hit an area, people want to move there. At the same time, Midwest cities didn’t see much new apartment product added to their neighborhoods during and immediately after the Great Recession. That has boosted demand for existing products and made finding financing for new apartment communities an easier task.

“You can list many cities in the Midwest – Minneapolis, Kansas City, Chicago, Ann Arbor, Columbus – and say that those markets are on fire right now when it comes to multi-family,” Jehle said. “We really did not see much new apartment development at all from 2008 to 2011. Now we are seeing almost the perfect storm for owners and investors of apartment projects. I can’t remember when the economics for multi-family have been better in this region during the last 15 years.”

Young consumers, of course, are a key to the enduring strength of the multi-family market. It’s why so many of the new multi-family projects are planned for the CBDs of major cities. As Jehle says, there was a time when most new apartment developments rose on the outskirts of markets where abundant land was available for construction.

But there was a downside to this: Such locations required a long commute into employment centers. Today, a growing number of renters want to live close to where they work. They don’t want the long commute. As Jehle says, some younger renters don’t even want the hassle of having to own a car. They’d prefer to live in walkable neighborhoods close to public transportation, neighborhoods that are usually located in the CBDs of bigger cities.

At the same time, many younger people don’t want the responsibility of owning a home and making monthly mortgage payments. Many of these same young people are getting married and having children later in life.

“The need, then, for having a large home for their children and dog isn’t as great as it once was,” Jehle said.

Thomas Sigrist, senior vice president and branch manager with the Chicago office of Berkadia Commercial Mortgage, doesn’t expect young consumers to flock in large numbers to single-family homes any time soon.

“Younger people today don’t want the attachment of a single-family home,” Sigrist said. “They want the ability to get up and move. They want to be able to transfer easily if they get a new job opportunity. That’s something that you might not be able to do if you are paying off a mortgage loan on a single-family home.”

Posted in Ann Arbor, Chicago Commercial Real Estate, Illinois, Illinois real estate, Michigan commercial real estate, multi-family | Tagged , , , , , , , , | Leave a comment

Office market thriving in the heart of Omaha

west dodge pointby Dan Rafter

The office sector is lagging in several markets across the country. But in Omaha? It’s a different story.

Jeffrey Wyatt, senior advisor with the Omaha office of Colliers International, said that the overall strength of the market is boosting the city’s office market, too.

He said that effective rents on Class-A office space in the heart of Omaha continue to trend upward, and that vacancies in this sector continue to fall. And this, he said, might inspire some developers to take on spec office building in the near future.

“Tenants are more comfortable today paying these higher rents for modern Class-A office spaces,” Wyatt said. “I think we’ll see more builders coming out of the ground with spec office. Banks are more comfortable lending for office projects today.”

Class-B office space in the heart of Omaha is faring well today, too, Wyatt said, as long as it’s the right size. Larger spaces, covering 100,000 square feet or so, are renting well. Smaller spaces, too – 2,000-square-foot to 5,000-square-foot office suites – are attracting a steady stream of tenants, Wyatt said.

But not all office spaces are thriving even in the heart of Omaha’s CBD. Wyatt said that Class-C office space is struggling. Not many renters want to invest in such outmoded and dated office space, he said.

“Class-C space now is a complete zero,” Wyatt said. “It is really struggling.”

Wyatt expects a bright future for Omaha’s office sector, too. There are plenty of new developments that are causing excitement in the city.

Wyatt points to Aksarben Village, an entertainment and shopping community that is home to plenty of shops, restaurants, bars and green space. It remains a popular destination spot for Omaha residents. Sterling Ridge, too, has generated excitement here. This 150-acre mixed-use development on the site of the former Ironwood Golf Course will provide multi-family housing, single-family homes, retail spaces and churches serving the three faiths associated with the Tri-Faith Initiative.

Retail is doing well in Omaha, too. The opening of the Nebraska Crossing Outlet Center in suburban Gretna has played a big role in the market’s recent retail success. The outlet center — as outlet centers often do — has attracted a steady stream of shoppers looking for bargains.

The Omaha market also saw the opening of a new Menards and WalMart Neighborhood Market in the fourth quarter of 2013, two big retailers that have provided a boost to the city.

So, what is it about Omaha? Why has this city’s commercial real estate market continued to thrive?
Wyatt points to several factors.

“We are conservative market,” Wyatt said. “We have hard-working people here. We are one of the wealthier communities in the country per capita, but we are not flashy or showy. We don’t have those big swings in the market that other cities face. There is not a lot of institutional money coming into Omaha. Most of the development is spurred by local companies. There is pride on the part of these companies in creating projects in the community in which their officials live. You see these people at the pool or at church. They want to do a good job.”

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An island community just minutes from Minneapolis? Trammell Crow Company is making it happen

The Island - 1

by Dan Rafter

High Street Residential is betting that plenty of people would be happy to live in a secluded island community while also enjoying the urban amenities that come with living near the central business district of a major metropolis.

And the company, the residential subsidiary of Trammell Crow Company — along with joint-venture partner Principal Real Estate Investors — is ready to test this belief.

The companies recently acquired a 13-acre site that will become the future home of The Island Residences at Carlson Center, a 174-unit five-story Class-A multi-family building located in the Carlson Center, a corporate office campus bounded by water on all sides. That makes the office campus an island, one that’s located less than three miles from Minneapolis.

Construction on this project is scheduled to begin in the third quarter of this year. The multi-family property should be ready for residents in the fourth quarter of 2015.

The development’s main selling point? It offers future residents the chance to live in a natural setting completely surrounded by water, and all the privacy that this promises. But it also gives them easy access to the Twin Cities and the recreational opportunities of nearby Lake Minnetonka. It’s also a short car ride from Ridgedale Center, a regional shopping mall anchored by Macy’s.

“The Island Residences at Carlson Center provide the best of both worlds,” said John Carlson, senior vice president with Trammell Crow Company.

The development will include studio, one-bedroom, one-bedroom-plus-den, two-bedroom, two-bedroom-plus-den and three-bedroom units. Waterfront views will be available from all sides of the building.

ESG Architects will serve as the project’s architect, while Stevens Construction is its general contractor. Jerry Ebert will oversee the construction of the development for High Street Residential/Trammell Crow Company.

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