July 9, 2015

Value-Add Success Stories; Ventas and Zell

Seeking out value-add properties for development or adaptive reuse has several advantages, from faster turnover time to lower overall costs than ground-up. Today, three developers share their value-add success stories. 

R2 Cos managing principal Matt Garrison (pictured) says his company seeks out location when buying value-add properties, which accounts for 100% of R2's recent projects. An example is a 110k SF building at 1165 N Clark St. R2 paid $11.5M for the seven-story building in 2013 and then in May partnered with Goldman Sachs on the development, a move that valued the property at $23M. Matt says value-adds on the property include improved tenant spaces and common areas.


R2 also bought a 77k SF building at 224 N Desplaines (shown) out of foreclosure in 2013 for $7.6M. It completely leased the building and added improvements to the office spaces, lobby and other common areas before recapitalizing with Goldman Sachs on the property last August for $12M. Matt says most of distressed properties, the “low-hanging fruit” of the value-add market, are gone in the current cycle. So he's looking more at adaptive reuse and other deals to generate high ROI.


Marc Realty principal David Ruttenberg looks to retail as a sound investment in the current market, especially as prices have increased every year since the market began its rebound. David adds this market forces developers to get creative and any deals Marc Realty does will involve value add or value creation. Two projects David is high on are Plaza de Cicero (pictured), an 80k SF strip mall at 3000-3076 S Cicero Ave in Cicero he bought for $9M, and a smaller project at 1130 W Bryn Mawr in Edgewater, a mixed-use property located steps from the Bryn Mawr Red Line “L” station purchased for $400k. Plaza de Cicero was in good shape when David bought it and only needed tenants, which he acquired. The Bryn Mawr property is undergoing tenant improvements.


Bridge Development Partners principal Tony Pricco says the market for value-add is tighter in the industrial sector as costs in the current cycle are better for building. But Tony has found some success with food distribution properties. One example is the former Dominick's distribution campus at 555 Northwest Ave in Northlake (shown). Bridge bought the campus last year for $40M and Tony says Bridge is keeping the 162k SF cold-storage building, expanding an adjacent freezer building to 239k SF, tore down the old dry warehouse and is building a 588k SF cross-dock distribution center, which Bridge pre-sold to Prudential in February for $48M. Tony says this was a nice ROI without having the added leasing risk while Prudential can build out the warehouse shell to suit for tenants.

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The Fields Logan Square Attracts Young Talent

All sorts of companies want to move or add offices outside of the central business district and the suburbs and be “in the neighborhoods,” says Cushman & Wakefield senior director Larry Goldwasser. He adds that many tenants are opening space in emerging neighborhoods to test the market and attract young talent. The Fields Logan Square (4000 West Diversey) makes no bones about catering to these companies and is one of only three “superwide” office buildings in Chicago that can fit 175k RSF on a single floor, says Cushman & Wakefield executive director Barb Schenberg. It's in the heart of Chicago's hot Logan Square, where the creative types live, work and play. Formerly home to Marshall Field & Co, The Fields offers 450k SF of creative office, flex and light industrial space, 50k SF of rooftop terraces, and 30k SF of indoor/outdoor event space. There are also 700 on-site indoor parking spots (heated!) and private shuttle service to and from public transportation. For more info, click here.


Ventas Stock Up After Ardent Health Deal with Zell

Shares in Ventas stock were trading higher this morning after yesterday's announcement the REIT sold a majority share in Ardent Health Services to Sam Zell's Equity Group Investments. Ventas bought Ardent for $1.75B in April and will still retain a 9.9% stake in its operations while retaining the real estate. Yahoo reports Ventas and Ardent management will enter into long-term, triple-net leases with initial annual base rent of $105M once the deal is finalized later in the quarter. The agreement values Ardent at $475M. [Yahoo]

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River North Home to WeWork, Salesforce Sells for $75M

Munich-based GLL Real Estate Partners plunked down $75M for One11 West Illinois, the 10-story, 228k SF office and retail space in River North at 111 W Illinois St that's home to one of WeWork's Chicago locations as well as Salesforce.com. CLL executive Christian Goebel said the building's location, the quality of the tenants and the building itself were major attractions. One11 West Illinois is 99% leased, leaving it with one of the lowest vacancy rates in the competitive River North office market.


Groupon Expanding Chicago HQ

Groupon isn't leaving its Chicago HQ in the near future. The online daily deal pioneer is in the process of renewing its lease on its River North offices at 600 W Chicago Ave that'll include expanding its office size and overall footprint in the eight-story building. Plans call for Groupon's office space to grow to 380k SF and its overall footprint, including affiliated ventures, to 450k SF. Building owner Equity Commonwealth also plans to upgrade the building's lobby and elevators, build a rooftop deck with views of downtown and add more food options in the retail area, reports Crain's. The building, a former Montgomery Ward mail order warehouse, was one of the first buildings outside of downtown repurposed for creative office space and helped spark the current office development in River North, River West and Goose Island. [Crain's]

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Archdiocese of Chicago Puts South Side Rectory on Market

If you've been looking for a starter home the Archdiocese of Chicago has one that will pique your interest. The archdiocese has placed a 14k SF church rectory shuttered since the 1990s on the market for $295k. The former Little Flower Parish rectory at 8026 S Wood St used to be home to the church's pastors and contains a private residence on the second floor for the church's pastor, 17 bedrooms and 12 bathrooms, custom woodwork, a full basement and a garage. Century 21 agent John Kmiecik told DNAInfo this building would list for at least $1.4M if it were built today. He also said there are some maintenance issues that are easily correctable and hopes a nonprofit will be interested in the rectory, given the low price. [DNA]


Studio Apartments Scrapped from Rogers Park Multifamily Proposal

It's back to the drawing board for Col. Jennifer Pritzker's plans to build an eight-story apartment development in Rogers Park. The most notable change is scrapping plans to build studio apartments in the building at 1313 W Morse Ave after residents and neighborhood groups expressed their reservations at a community meeting last month. Those groups also want better sharing of the project's proposed parking spaces with Mayne Stage, which Pritzker also owns, and designing a better street-level entrance. Tawani Enterprises COO Sean McGowan told DNAInfo new plans call for 45 units while 25 parking spaces will be reserved year-round for residents and the remaining 50 spaces will be managed by Mayne Stage and shared with the community at hourly and daily rates when not in use. [DNA]

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