CHICAGO—Mark Nelson of NelsonHill has been handling real estate transactions on the Near West Side for years, but has never seen properties change hands at today’s pace. “This is a consequence of the Google deal,” he tells GlobeSt.com. “It’s been like a tsunami into the neighborhood.” When Sterling Bay Cos. bought and then began refurbishing the Fulton Market Cold Storage building at 1000 W. Fulton, now called 1K Fulton, into modern office space, “nobody saw that the property values would escalate as radically as they did after the company signed Google as a tenant.” Google will move into the 550,000-square-foot building next year.
Nelson estimates that by the end of 2014 the value of neighborhood properties that trade hands will be double what was bought and sold in 2013. Although most of the individual deals are relatively small, taken together the transactions are transforming the neighborhood from an industrial zone mostly dedicated to food production and distribution and into a high-end office community. In 2014, NelsonHill has completed nine sales east of Ashland Ave. in the West Loop totaling more than $38 million.
“Some of these companies have been here for several generations, but the values have gotten to the point where for many it’s a no-brainer to sell,” Nelson says. Sterling Bay, for example, just bought 172 N. Ada St. from Takis Royal Foods for $3.85 million. Still, Takis officials had to weigh the benefit of selling what had become a desired property against leaving a neighborhood and facility where they were comfortable and had quick access to their downtown customers. To solve the dilemma, NelsonHill structured a deal that gave Takis 12 months to find a new home.
Eventually, after checking over facilities throughout the metro area, including in the suburbs, the company settled on a building in the Crawford Industrial Park on the Southwest Side. The 45,000-square-foot structure is big step up from their 14,400-square-foot West Loop building, and will allow for more efficient operations while keeping the company close to downtown, Nelson says.
He expects many West Loop food companies will eventually follow a similar path as the neighborhood fills up with office workers. But in the short-term, “there’s a reason for some of them to stay put. They’ve built up a lot of infrastructure that has served them well for decades.” Furthermore, “what we see in the Chicago market is a severe lack of modern product. We can sell their property for a big number, but then where do they go?”
However, developers have begun to cast their eyes on a number of properties several miles outside the Loop as possible alternatives. The Wanxiang America Real Estate Group and Clarius Partners, LLC, for example, recently acquired the former APL Logistics facility at 2302 S. Paulina in Chicago for $6.6 million and plan to build, on a speculative basis, a 162,000-square-foot warehouse building targeted at food distributors. The partners plan to demolish the existing building and eventually develop up to 400,000-square-feet in three major buildings on the 22.68-acre site, dubbed Pilsen Park Chicago. Nelson and Doug Hayes, the managing director of NelsonHill, represented Elgin-based Wanxiang in this transaction.
The West Loop neighborhood has to overcome other challenges. Much of the land is zoned for industrial use and dozens of buildings have been designated historic, and that combination has prevented some investment, Nelson says. For example, NelsonHill has been marketing 315 N. May St., two non-contiguous land sites that contains a 45,799-square-foot warehouse building, but although they did receive some interest from multifamily developers, the site remains zoned for manufacturing. “We’re now trying to figure out what is the highest and best use for the property and what is achievable.”
He expects it will take years for city officials to decide all the zoning issues as the older food companies and new players like Sterling Bay, Google and others put forward their respective visions for the neighborhood. “Some owners have been sitting on the sidelines, waiting to see how all this plays out,” he says. The resulting low supply has “put them in a very strong position. You can be a holdout or cash-in for a big payday.”