Wednesday, November 10, 2010

Chicago Industrial Real Estate 3rd Quarter Trends

Third quarter trends our out for the Chicago industrial market and the overall vacancy rate in Chicago dropped 20 basis point to 11.9% the lowest vacancy rate that we have seen for the entire Chicago industrial market since the 4th quarter of 2009.

The I-55 corridor vacancy rate dropped to 11.3% marking the the second consecutive quarter of declining vacancy in this submarket and the lowest vacancy rate since the 4th quarter of 2007 when the vacancy was at 9.7%. I think we will continue to see a decline in of vacancy rates as owners/investors continue to lease up property while holding off on any speculative development at this time.

To view Grubb & Ellis industrial market trends for the Chicagoland area and for the I-55 corridor, please visit

Thursday, October 14, 2010

SBA 504 Small Business Loans for commercial real estate

Recently the Small Business Jobs Bill was passed resulting in changes to the Small Business Administration loans. These loans are very attractive allowing financing up to 90%. Certain procedures have to be followed to qualify for these loans but if you work with a qualified SBA loan professional, this program can be very attractive to companies looking to purchase industrial real estate. Here are some highlights of the program.

**SBA 504 Program Update resulting from the recently passed Small Business Jobs Bill**

Allocates $505 Million for the continuation of SBA Fee reductions under the American Recovery and Reinvestment Act.

Maximum SBA 504 Loan Amounts – The loan maximum on the SBA portion of financing
is permanently increased to $5 Million ($5.5 Million for small manufacturers and borrowers
meeting certain Energy Efficiency Public Policy goals). This means that SBA lenders
participate in projects up to $12,500,000 under the 50/40/10 structure.

Maximum Size limit increase – Maximum Corporate tangible Net Worth increases to
$15MM and two-year average net income after taxes increases to $5MM. This change will allow
the SBA 504 loan program to become a very viable option for Middle Market companies.

For more information on SBA please visit my real estate news page at

Thursday, October 7, 2010

Chicago Industrial Real Estate Market Update

It seems like market activity is improving. In the second quarter of this year we saw a leveling out of the vacancy rate for the entire Chicago industrial real estate market and we experienced a drop of 2.7% in the vacancy rate in the I-55 corridor.

I have seen an increase in activity on my listings and word from our capital group is that financing is starting to free up . Hopefully that will translate into more qualified buyers of industrial property. The overall tone that I hear from speaking with business leaders/owners is that they are cautiously optimistic. With regards to leasing, companies are more willing commit to longer terms versus a year ago when the average industrial lease renewal was one year and new industrial leases were averaging 2-3 years.

The Grubb & Ellis Chicago Industrial Market Trends will be out soon for the third quarter. You can always see current and past market reports on my real estate news page at

Wednesday, October 6, 2010

FASB's Changes For Lease Accounting

Here are two great articles written by Grubb & Ellis Corporate Finance group regarding FASB’s impact on commercial real estate leases. The proposed accounting changes would recognize leasing as a form of financing, eliminating operating leases, and placing all leased assets on the lessees’ balance sheets. You can read the two articles by visiting my industrial real estate news page located here.

M & E Cold Storage Sells Bolingbrook Facility to Supreme Lobster

Grubb & Ellis is pleased to have assisted M & E Cold Storage in the sale of the facility located at 279 Marquette Street, Bolingbrook, IL. Supreme Lobster purchased the 101,088 sf state-of- the-art freezer/cooler building which features, 35’ceiling height, one drive-in-door, and 11 exterior docks. Jim Cummings, Grubb & Ellis Company represented the seller, M & E Cold Storage.

Thursday, September 23, 2010

Undisclosed Tenant to Lease 250,000 sf in Aurora

Jim Cummings, Grubb & Ellis Company, represented an undisclosed tenant in the lease of 250,000 sf, at the property located at 901 Biltner Rd., Aurora, owned by Liberty Property Trust.

Siwin Corp. Purchases Channahon Building

Grubb & Ellis is pleased to have assisted in the sale of the property located at 23315 S. Youngs Rd., Channahon, IL. Siwin Corporation purchased the industrial facility featuring convenient freeway & rail access, 24’ ceiling height, 10 docks, and 2 drive-in-doors. Jim Cummings, Grubb & Ellis Company, represented the seller, Smurfit Corporation.

Tuesday, March 23, 2010

Industrial Real Estate Construction Costs Continue To Decline

Below is an interesting article from Turner Construction about the continuing decline for commercial real estate construction costs. This trend will certainly help the build to suit market. Currently user are looking very hard at existing industrial properties versus build because they can purchase for less than what they can build for. In the Chicago Industrial real estate market, there have been a few build to suit deals finalized but activity in this sector of industrial real estate has dropped dramatically along with speculative development.

For more market information regarding the Chicago Industrial Real Estate Market go to:

Construction Costs Are Forecasted to Decline Further in First Quarter of 2010

Market pressures maintain downward influence on construction costs

Turner Construction Company announced that the First Quarter 2010 Turner Building Cost Index, which measures non-residential building construction costs in the United States, has decreased by 0.5% from the Fourth Quarter 2009 and decreased 7.74% from the First Quarter 2009. Construction costs have decreased by 13.06 % since their peak at the end of 2008. The Turner Building Cost Index value for First Quarter 2010 is 799.

Karl F. Almstead, the Turner vice president responsible for the Turner Building Cost Index said, “The rate of decline in construction costs is not as dramatic as it was in 2009. The reduced volume of work remains the driving force behind the market’s downward pressure on costs in the non-residential building construction sector.”

“While there are signs of recovery in the economy, the construction industry trails the broader economy due to the time required for project planning and design. As the economic recovery strengthens, increased activity in project planning will provide an indication that the rebound in the construction industry is underway,” said Almstead. Approximately 90% of Turner’s business is performed under contract arrangements where Turner provides extensive preconstruction planning services before the contract price is fixed and before construction starts. By providing preconstruction services and utilizing enhanced procurement strategies, Turner effectively manages the market risks associated with cost-related issues.

Turner has prepared the construction cost forecast for more than 80 years. Used widely by the construction industry and Federal and State governments, the building costs and price trends tracked by The Turner Building Cost Index may or may not reflect regional conditions in any given quarter. The Cost Index is determined by several factors considered on a nationwide basis, including labor rates and productivity, material prices and the competitive condition of the marketplace. This index does not necessarily conform to other published indices because others do not generally take all of these factors into account.

Friday, March 19, 2010

Global Supply Chain

Evolution of the Global Supply Chain, an article written by Tim Feemster, Senior Vice President & Director of Global Logistics at Grubb & Ellis detailing the trends in the logistics industry, as well as some opportunities to reduce overall logistics costs during these difficult economic times.

Chicago Industrial Real Estate Market Activity

We are starting to see market activity pick up in Chicago. More industrial real estate users are in the market and existing industrial tenants are more willing to negotiate longer terms leases than they were a year ago.

Tenants have taken advantage of weak market conditions for landlords locking in very aggressive rental rates and or free rent offered by landlords. Grubb & Ellis will be publishing our quarterly market trends for the Chicago industrial real estate market soon.

A great resource for industrial real estate market information for Chicago and the United States can be found at

Economic Forecast For Commercial Real Estate

Bob Bach, Chief Economist at Grubb & Ellis, just started his own Building Knowledge blog sharing his thoughts on the economic outlook and how it relates to the commercial real estate market.

Tuesday, March 16, 2010

Lease Renegotiation From Your Landlord’s Perspective – Improving Chances of Reducing Leasing Costs

During these difficult economic times there is an excellent opportunity for firms leasing industrial space to reduce their occupancy costs in the near and long term.

In the Chicago industrial real estate market where I specialize, there is an 11.4% vacancy rate for the Chicago metropolitan area for the first quarter of 2009. We are experiencing the highest vacancy rates in years, and this trend will probably not improve until later this year, or some time in 2010. This trend of increasing vacancy rates for industrial properties is playing out in virtually all major industrial real estate markets in the U.S. and North America.

If you have two years of term or less left on your lease, this is an excellent opportunity to approach your landlord and competing properties in the area to discuss how you can lower your leasing costs. You may wonder why a landlord would want to talk to you about reducing their income stream from your lease, especially in these difficult economic times, so let’s look at this from the perspective of a landlord and the industrial investment sales market to better understand.

Industrial investment properties owned by a landlord who does not occupy any of the space are valued differently than property sold to an end user who will occupy the property for their own operations. The income stream and remaining term left on the lease(s) are key factors in determining the value of industrial investment real estate.

Industrial real estate investment markets use capitalization rates to value properties. The basic formula is I/R=V, referred to as IRV. This is income (the net rent your landlord receives from you, not including money you pay for taxes or common area maintenance fees), divided by the sales price which gives you a capitalization rate. For example, if you had a property that had net rent income stream of $100,000 annually and you sold the property for $1,000,000 your capitalization rate would be 10%.

Industrial real estate investors apply a capitalization rate to determine what they will pay for a property. If a tenant is willing to extend their lease in exchange for a lower rental rate, your landlord could improve their capitalization rate and get a better sales price for their investment.

The industrial investment market is hurting so capitalization rates are climbing. Many landlords are sitting on the sidelines hoping to sell their properties in a couple of years when the markets recover. If they currently have a tenant(s) with a couple of years of term left on their lease, and they can extend them for example, for five years, they will have an investment property with five years of term left on the lease(s), putting themselves in a excellent position to sell when the markets recover.

A second area that landlords consider is carrying costs and tenant improvements in the event that you move out when your lease expires. Carrying costs are the expenses while the space is vacant. Currently many landlords are projecting a years worth of carrying costs for vacancy. Tenant improvements and free rent will likely be incurred by your landlord to attract a new tenant for your space. If a landlord can avoid this costly risk by giving you a better leasing rate and extending your term, they will be much better off.

Another important issue for landlords is financing. Maintaining a strong income stream is critical to procure financing. If they can mitigate the risk of your space going vacant, this puts them in a better position with their lenders.

Finally, we need to look at the current leasing market. Landlords are being very creative by offering free rent and other incentives to lure tenants away from their existing property prior to their lease expiration. It is crucial to use competing buildings for additional leverage when renegotiating with your landlord.

Using a broker who specializes in industrial real estate in a particular market enhances your chances of reducing your short term leasing costs. Your broker tracks the market on a daily basis monitoring current lease deals/investment sales activity, and understands your landlord’s situation in order to give you a clear and concise scenario to begin your negotiations. Your broker’s fees are paid by the landlord (who in many cases will have their own local broker representing them).

If you have any questions, or if I can be of any assistance, please contact me. You can also visit my website to get local market reports for industrial real estate.

(Original article, by Jim Cummings, can be viewed on

Buying Industrial Real Estate – Key Factor To Consider

Given the current condition of the commercial/industrial real estate market, there is an excellent opportunity for people who have the capital, and or credit to acquire industrial/warehouse properties well below market pricing.
With this in mind, it is important to follow the old adage in any type of real estate "keep the next buyer in mind when purchasing the property". In other words, make sure the features of the property will be appealing to as many potential buyers as possible. Realizing that this property is there to support your business, you cannot meet every potential buyers needs, but below is a list of key features that are very important to most buyers.

Before we begin, I would like to comment of the state of industrial properties in the U.S. As we all know, more manufacturing jobs are moving overseas. The U.S. is shifting from a production-based economy to a distribution economy and import volume is increasing quickly every year. Consequently, developers have responded by providing larger and more efficient distribution centers (warehouses) to meet this need. These are key factors to keep in mind.

1. Location, location, location - This golden real estate rule still applies and even more to industrial real estate as fuel prices climb. Having a facility close to expressways is critical for you and the next user in keeping their transportation and logistics down. As fuel prices increase, having a facility in the right place can make a major impact on a firm's ability to compete. For distribution centers, labor and fuel costs can account for 50% of the costs of operating a facility according to logistics industry experts.

2. Clear Height - This term refers to the maximum height in a facility before you encounter joists, piping or anything else hanging from the ceiling. Typically clear height on newer facilities is approximately 2'-3' below the roof deck. Traditional production facilities have lower clear heights that can range from (age is usually a big factor) 12'-24' feet. Newer warehouse/distribution centers built in the last 8-10years are 30'-32' clear height on average.

3. Docking - There are two different types of docks that a building could have; internal & external.

Internal docks allow for trucks to drive into the dock area, and dock doors can be closed thereby protecting the product from the elements. This is usually seen on older facilities. The major drawback for internal docks is you or your next buyer is paying for the square footage in the dock area in purchase price, operating expenses and real estate taxes.

External docks have the dock doors flush with the buildings external walls and trucks can back right up to the building. Seals around the door keep the cold/hot air from entering the building. This has become the standard for buildings built today thereby eliminating the additional costs of internal docks as discussed above.
Newer facilities usually have 1 dock per 10,000 square feet of space, and new large distribution centers can have as many as 1 dock per 6,000 square feet of space. It is very hard to have too many docks.

4. Column Spacing - As developers respond to the increasing demand for more efficient distribution space, column spacing in buildings has become more important. Facilities are now being built with 50'x50' and larger column spacing. New innovations called "speed bays" (area from the dock doors to the first column) have larger spacing than the rest of the facility to provide more room for product to be staged for loading/unloading trucks.

5. Land- Obviously the more land with the property, the better. Three key areas land around the property can be utilized for:

· Trailer Storage - As mentioned earlier, imports to the U.S. are increasing rapidly and the need for trailer and shipping container storage is becoming a crucial issue. Communities are beginning to push back on this issue limiting, or banning trailer/shipping containers in their communities, which they see as an eyesore. It is important to check with local officials to understand the laws pertaining to this to make sure the limitations are understood.

· Car Parking - This will be particularly important to manufacturing companies who typically have many more employees than a distribution center. Typically new distribution centers will not have as good of a parking space/building square footage ratio than older production facilities.

· Outside Storage - This ties in with the trailer/shipping container storage issue. There is a strong demand for outside storage from both distribution and manufacturing facilities. With communities trying to restrict this, you will have a distinct advantage over competing buildings when you sell.

· Building Expansion - This is a little more obvious, but having land to expand your building is very important to many buyers.

6. Taxes - What you are going to pay in real estate taxes will have a big impact on your selling price. In the Chicago industrial market where I work, we see real estate taxes ranging from $.30/foot to $4.00/foot depending on which county you are in. This will have a significant impact on the price you will get when you sell. Check with your county and local community to see what types of tax incentives are available to you. For example: in Cook County, IL there is a tax abatement program that you must apply for before you purchase the property so it is important to check on this prior to you (or your potential buyer) purchasing the property.

7. Labor Supply - Being located near the labor, your need is critical for your operations. Companies have relocated to nicer buildings in better communities only to experience significant losses in their labor force. All the gains they made in real estate are lost in productivity. This is particularly important if you are looking to purchase an older lower clearance facility where the next user will probably be a production company.

8. Office Space - Typically 5-10% of the building's total square footage is office space. The percentage of office space can be critical in how many users could use your building. Too little space will force the new user to create space in the building thereby taking up room for their operations and add costs to the acquisition for the buyer. Industrial buildings that have too much office space will make it difficult for users to justify purchasing space that they can't use.

9. Building Materials - The vast majority of facilities today are being built
with precast concrete, which is typically formed off-site and shipped to onstruction sites and put into place thereby reducing construction costs. In addition to cost savings, architectural design, and color schemes can be added to the facility to give users a more modern look. Having the ability to repaint the facility and give it a fresh look when you sell will give your building "curb appeal".

In summary, these are key features that users will look for. The stronger your building is in each of these areas, the better.

(Original article, by Jim Cummings, can be viewed on

Monday, March 15, 2010

Welcome to the Chicago Industrial Real Estate Blog!

Your source for news, articles, opinions, market reports, and information on the I-55 Corridor Industrial Market in Chicago.