CHICAGO—Crossroads Development Partners has just closed on the purchase of two medical office buildings in northwest suburban Hoffman Estates. The Schaumburg-based firm acquired the Medcoa Professional Buildings at 990 and 1000 Grand Canyon Parkway for only $1.2 million cash from a subsidiary of Boston-based Admirals Bank, which had taken the buildings back from a private owner in a 2012 foreclosure transaction.
It’s just the latest chapter for this property, which has seen better days and traded hands several times. In 1999, it was bought for $3.74 million and by 2005 the price had increased to $6.9 million, according to Cook County property records.
“We don’t have any illusions of getting the valuation back up that high,” Lee Kotler, principal of Crossroads, tells GlobeSt.com. “But we’re well-capitalized, and we’ll do what we have to do to lease up the space at fair prices.”
This slice of the metro area might turn off some investors. It has many obsolete structures and a very high vacancy rate for office space. But Crossroads’ Schaumburg location has given its principals a deep understanding of conditions in the submarket, and Kotler says many local owners had fully-functional buildings but fell victim to the financial collapse. Therefore, well-capitalized buyers can now approach the submarket with some degree of confidence.
“Suburban office is tough,” he admits. “Sometimes it’s not a picnic, but if you have a well-located building and a good basis you can do well.”
In 2009, for example, the firm purchased 1300 E. Woodfield Rd. in Schaumburg, where it and its affiliated management arm, SVN Crossroads Management, established headquarters. The building was only 30% occupied, but Crossroads made several upgrades to the building’s interior, exterior and to the mechanical systems to make the property more energy efficient. Tenants now occupy about 97% of the property.
Tenants now occupy only about half of the two Medcoa buildings, which total more than 53,000-square-feet, Kotler says. But both sit just off the heavily trafficked Higgins Rd., and within five miles of several hospitals.
Furthermore, “we know this property very well. The bones of these buildings are very good, and the purchase price is very, very low, and that gives us a substantial margin of error.”
“There was no real issue with this property except that the previous owner was undercapitalized and could not do the proper upkeep, which was the situation of a lot of people in 2009 and 2010,” he adds. And once it was bank-owned, the brokerage community considered it an uncertain prospect, and probably steered potential tenants elsewhere.
Crossroads plans to revitalize its new acquisition by making several capital improvements and launching an aggressive leasing campaign.
“I don’t think we have to overachieve to stabilize the property, but we do have to roll up our sleeves and get to work.”