CHICAGO—The ongoing revival of manufacturing and the rise ofnext-day delivery has given a big boost to the US industrialmarket, and investors have also picked up the pace. SitexGroup, a Chicago-based private equity firm thatspecializes in industrial investments, for example, has justlaunched its eighth fund and plans to triple its footprint in justthe next two years.

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“Our eighth fund is five times the size of our seventh,”Cary Goldman, a Sitex principal, tellsGlobeSt.com. It's a long way from 2001, when he and DavidFriedman helped found the firm “without much more than anitch to start an acquisitions firm.”

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And Sitex has now started to spread its wings across the entirecountry. As reported in GlobeSt.com, it just opened an office in Manhattan Beach, CA, its third andthe first on the West Coast. It also has an office in New York andhas become one of the largest industrial buyers in New Jersey. Tolead the California operations, the firm has hired EricRuehle, a local veteran, as senior vice president.

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“In today's market, personal relationships are very important,”Goldman explains, and perhaps even more important, “the marketinsists that deals move quickly,” and rather than do thingsremotely, an on-site manager like Ruehle can run out to visit anyprospective investments and see changes in real time.

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And this new Los Angeles-area office will play a key role inSitex's expansion. “We've found that our tenant base has needs inall three major markets,” Goldman says, largely due to their portsand importance to the national distribution network.

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Furthermore, Goldman adds, “in all three of these markets thereis a growing manufacturing sector." And since the supply of newconstruction has not exactly become a flood, many distributors haveturned their sights to class B industrials, especially those thathave quick access to large concentrations of people. That demandhas opened up major opportunities for investors willing to takechances.

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“It requires an optimistic view,” he says, “since thesebuildings, many of them constructed in the 1960s, 70s and 80s, aremoving toward functional obsolescence every day,” he says. But oneof Sitex's specialties has been to buy up such properties and useselective demolition and renovation to bring them up to modernstandards. The company typically knocks down portions of thebuildings to make room for additional car parking, truck parkingand docks, among other changes, and brings in new tenants.

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Sitex recently wrapped up the redevelopment of a two-buildingindustrial complex located at 2680-90 West Lake St. and 2800-2840West Lake St. in Melrose Park, IL, a Chicago suburb. The companypurchased the 273,073-square-foot complex, built in the 1970s, inApril 2013. At the time, the property was somewhat dilapidated, butSitex soon launched on a capital improvement program thattransformed it into a modern functional warehouse distributioncenter. It gave the property an exterior renovation that included anew façade, parking lots and landscaping. Inside, Sitex upgradedthe office space and installed high efficiency lighting and newdock equipment. Tenants now occupy about three-fourths of thecomplex.

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But Sitex does more than buy and refurbish older product. Ifgiven the opportunity, it will launch new top-of-the-lineindustrial projects. For example, in addition to the recentpurchase of a 30-acre site in North Bergen, NJ with a300,000-square-foot warehouse that Sitex plans to refurbish andmodernize, the company also bought a site in nearby Secaucus rightnext to the Lincoln Tunnel where it plans to builda 350,000-square-foot distribution center. “You wouldn't thinkthere would be room for industrial development right there,”Goldman says, but once it became available, the company realized itmade sense to build. With its lightning-fast access to the vastconsumer market of Manhattan “these tenants will be able to pay alittle bit more in rent.”

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And the rising rents seen in many markets, including Sitex'starget areas, could open up another method of development. All ofthese areas have obsolete structures with 14' to 16' clear heightsnot suitable for modern needs. But Goldman says developers can buythese buildings and raise the roofs to sufficient heights. However,Sitex has found it difficult to buy such structures at the rightprice and still have sufficient funds to do the reconstruction. Buthe feels rents are approaching the point where reconstructions willbe viable. “It's been a very, very slow progression,” Goldman says,“but it's something to keep an eye on and we'll see if the trendachieves some velocity.”

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Brian J. Rogal

Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.