Point/Counterpoint: The Suburbs
You might love them for their favorable cap rates or hate them for repelling Millennials, but you gotta respect the ‘burbs for evoking strong feelings from investors. We’re excited to watch the sparks fly when the top suburban players square off at Bisnow’s State of the Suburbs event this Thursday at the Westin Lombard Yorktown Center, starting at 7 AM.
White Oak Realty Partners managing principal Rick Blum, one of our panelists (right, with White Oak's Tom Saletta and Chris Lynch), likes the suburbs’ limited new construction. Escalating office rents downtown will drive suburban demand, he says, as the cost of operating and retaining employees gets increasingly expensive. That’s fertile ground for repositioned suburban assets, but where do you start when you’re buying value-add? Rick’s tricks: fresh capital, a fresh perspective, in-house leasing, and a dash of luck. That worked at the firm’s Columbia Centre complex in Rosemont, he says, where a renovation and re-tenanting was complemented by a burgeoning entertainment district nearby.
White Oak is working on new acquisitions in the East-West Corridor (a talent magnet), O’Hare submarket (the quickest to bounce back), and northern suburbs (corporate HQ haven). “The cap rate arbitrage between downtown and the suburbs is pretty wide,” Rick says. White Oak sold its 700k SF Central Park of Lisle to Blackstone last year and it's about to close on selling the Columbia Centre complex to Adventus Realty Trust. It’s also working on West Loop multifamily (Arkadia Tower) and courting tech tenants at 625 W Adams. This summer Rick and his family enjoyed trips to Israel and Lake Geneva, plus a whole lot of splashing in their backyard pool.
Pearlmark Real Estate Partners managing director Matt Haley, another one of our panelists (snapped in South Africa with the kids), has been focused on getting his firm out of the Chicago suburbs. “We are monetizing our positions and looking to deploy capital elsewhere,” he says. The demand trends aren't looking good with job flight to the city, and Matt doesn’t expect that to improve anytime soon. Pearlmark sold three of its suburban properties last year (like Two Century Centre in Schaumburg, below), has another under contract, and is in the market with one more, leaving one remaining asset to sell early next year after leasing is complete.
Today’s levered suburban buyers are generally syndicators, sometimes funds, Matt says, but on the whole they’re private buyers putting together capital. This buyer, with a higher cost of capital and less control of their equity, is radically different from other suburban markets like Austin or Houston, he points out, which are very institutional. (He attributes that to the suburbs' questionable demand drivers and concerns about Illinois’s financial stability.) Pearlmark’s new areas of focus: high street retail and office in major markets. This summer Matt saw lions, rhinos, and elephants (oh my!) on safari in South Africa. To hear more, please join us for Bisnow’s State of the Suburbs event this Thursday at the Westin Lombard Yorktown Center, starting at 7 AM.