FRIDAY, FEBRUARY 05, 2010

Year-end I-55 report: Vacancy up 11% from 2008

by Illinois Real Estate Journal Reports
The I-55 corridor finished 2009 with 12.5 million square feet of vacant space for a vacancy of 18.52 percent, according to Champion Realty Advisors, LLC year-end report.

Vacancy at the end of 2009 stood approximately 11 percent higher than at the end of 2008. Some 116 buildings had space available on December 31, 2009. For most of 2009 sublease space did not add significantly to the vacancy rate. However, in the 4th Quarter we did notice an uptick in the amount of sublease space coming to market.

The largest vacant facility is the 650,000-square-foot Pizzuti Development facility in the Pinnacle Business Park, Romeoville.

Other developers with available space greater than 400,000 square feet are IDI, Land & Lakes, P&G (Gillette sublease) and Leggett & Platt (Dann Dee Display sublease).

For the year, Champion identified 26 lease transactions totaling 4,184,000 square feet. Of this total, 1,634,000 square feet were lease renewals and 2,550,000 square feet were new transactions. Subleases totaled 333,000 square feet. On average, base lease rates for transaction between 125,000 square feet and 500,000 square feet ranged from a low of $2/SF/YR NNN to $2.35/SF/YR NNN. Abated net rent averaged 1 month per year of lease term.

Investment sales:
In the fall of 2009 Panattoni Development successfully acquired a portfolio of five industrial buildings located in the Windham Lakes Business Park in Romeoville from Prudential. The five buildings totaled 1,041,640 square feet. All of the buildings were built in the 1990s and early 2000s. Panattoni paid $30,833,500 or an average of $29.60/SF for the portfolio. The estimated CAP rate for the deal is approximately 9 percent.

Only one significant investment sale occurred during the first six months of 2009. In June, RREEF sold their Windgate Distribution Center (1375-1385 Weber Road, Romeoville) to a private investment group named Molto. The 658,060-square-foot two tenant distribution center is leased to Levy Home Entertainment and SPX. Market sources indicate the modern cross dock facility sold for approximately $33/SF. Overall, cap rates appear to be stabilizing in the 8.5 percent to 9 percent range for investment grade properties in the I-55 market.

Notable transactions:
-RTC Industries, a Rolling Meadows, Ill-based manufacturer of foamed plastic packaging and shipping materials as well as point of sale displays signed a 12-year lease to occupy the entire 503,200 square-foot Duke Crossroads five spec building at 801 Schmidt Road in Romeoville. Market sources indicate the lease contained 24 months of net rent free occupancy with a $2.65/SF/YR base lease rate beginning in year 3 and 2 percent per year rental escalations thereafter. Duke invested an estimated $6.50/SF in improvements for RTC. Other incentives credited for securing RTC as a tenant include a waiver of building fees by the Village of Romeoville; a 3-year tax abatement by Will County and; a commitment by the State of IL to provide RTC with Edge program credits. RTC is relocating this operation from facilities on the southwest side of Chicago.

-The second largest spec lease transaction of 2009 was LG's leasing of Highland Corporate Center #3 from ML Realty Partners. The 337,630-square-foot cross-dock Bolingbrook facility has a 30' clear ceiling and was equipped with 40 docks and all related dock gear. Market sources indicate the terms of the 7-year lease included a staged occupancy, with a year one rate of $3.00/SF for 240,000 SF; a year two rate of $3.26 for 240,000 square feet and a year three rate of $3.20/SF for the entire facility. The rental rate escalated at 2 percent per year thereafter. ML invested approximately $2.95/SF in tenant improvements as part of the LG lease. LG relocated from 165,000 square feet in another ML facility in the same development. LG reimbursed ML for unamortized TI in their previous space.

-The largest lease renewal of the year was the 800,000-square-foot Home Depot lease renewal at 1701 Remington Blvd in Bolingbrook. This ING Clarion owned building was originally leased to Home Depot in 2005. The one year renewal was completed at a base lease rate of $1.75/SF/YR NNN, according to market sources.