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Happy Chinese New Year! (Also, Happy Pie Day.) According to the panelists at Bisnow’s Chicago Industrial Summit at the Donald E. Stephens Convention Center, this is the year when development will return. It sure feels like it's been a long time coming—until you realize it’s been 60 years since the last Year of the Water Dragon.
Mike Chivini at the Donald E. Stephens Convention Center on Jan. 19, 2012
The Pizzuti Cos’ Mike Chivini says new space will come to the market in the second half of 2012. Attitudes changed among users in the back half of ’11 (with the exception of August and September), he says. Now, the questions are: Do landlords hold fast and push rents up? Do build-to-suits start and push rates up? Because once rents rise, then comes spec development.
Jeff Dowd, Mark Saturno, and Dave Riefe at the Donald E. Stephens Convention Center on Jan. 19, 2012
McShane Development COO Mark Saturno (flanked by Reznick Group’s Jeff Dowd and ProLogis' Dave Riefe who are raising awareness about the recent plight of yellow ties) says lenders are more willing to bet on SoCal’s demand (and thus rent growth). Absorption there was close to peak in 2011, with no new building, he says. A big box like McShane’s planned 700k SF one there would have gotten $0.30/SF per month a year ago. Then Watson Land leased a 600k SF building a month after completion for $0.33/SF. And ProLogis recently signed a three-year lease for 700k SF at $0.39/SF. Now, five spec projects between 700k and 900k SF are going up in the Inland Empire. In Chicago, the rents aren’t there yet for lenders.
Dave Riefe at the Donald E. Stephens Convention Center on Jan. 19, 2012
Dave says three small projects totaling 440k SF went up spec in Chicago last year. He expects a couple million SF of it this year (peak was 10M SF). Developers are analyzing submarkets and stock for niche opportunities now. I-55, for instance, has only one availability (a sublease) over 500k SF. I-88 has only one over 400k SF. They’re slicing O’Hare even further: just one building that has 28-foot-plus clearance, and that’s over 150k SF. O'Hare had 2M SF of net absorption last year and a healthier cross-section of deal sizes, Dave says. Plus, a good amount of functionally obsolete properties are ripe for redevelopment.
Mark Goode at the Donald E. Stephens Convention Center on Jan. 19, 2012
Venture One Real Estate founding principal Mark Goode says labor rates in China have risen 20% for each of the past five years, and productivity per worker is 40% lower than in the US. His firm did a build-to-suit in Rockford for variable-speed drive manufacturer Danfoss, which expects to export 70% of what it makes. China just doesn’t offer the same quality, and European labor is too expensive, he says. Chivini adds that his company did a 600k SF build-to-suit in Columbus for a large retailer that wanted the States’ cost and quality control. Plus, it’s saving $6M just on cardboard for shipping by locating here. Mark also says the aging stock of cars on the road will drive demand from Midwest-based suppliers.
Jeff Dowd at the Donald E. Stephens Convention Center on Jan. 19, 2012
Jeff moderated our panel, which talked about just where the land is for new development, as well as the state of Class-B and C properties. Mark Goode’s take: That older space serves a purpose and has its own tenant base, so, as long as it’s leased, it won’t be torn down: “Just because something’s older doesn’t mean it’s bad. My wife tells me that all the time.”
the Donald E. Stephens Convention Center on Jan. 19, 2012
310 attendees! These guys are pretty astounded, too. One other hot topic: the feasibility of solar arrays on industrial roofs: Dave says ProLogis has done that in New Jersey, Colorado, Oregon, and California, where the states and utilities provide rebates and utilities are priced high enough to make alternatives competitive. Otherwise, a solar investment takes 10 to 20 years to pay itself off, a problem if a landlord only has a building leased for five years. Mark Goode adds that the hardware price would certainly be lower if we had invested our tech in solar panels instead of HDTVs. "They'd be $300, but no one cared because you can’t watch a solar panel.” (Otherwise, the water will never come to a boil.)
Tom Boyle at the Donald E. Stephens Convention Center on Jan. 19, 2012
We also snapped Newmark Knight Frank Epic principal Tom Boyle, who tells us he's marketing 30 acres near Eola Road and I-88 in Naperville that works for office, industrial, and data. He also repped buyers in an 84k SF acquisition in Waukegan and a 20k SF short sale in Buffalo Grove.