CHICAGO–Many of the people that work in the US industrial market have started to believe that the current upward cycle will soon come to an end. But Steven C. Disse, principal with Colliers International's Chicago-based investment services group, says in Chicago at least, there is a way to go, especially when it concerns the market for investments.

Along with Jeffrey B. Devine, another Colliers principal, he just represented Heitman in the sale of a seven building, 642,000 square foot portfolio in the Chancellory Business Park located in suburban Wood Dale and Elk Grove Village, to LaSalle Investment Management, and says the deal was significant in several ways.

The portfolio sold at a sub-5.0% cap rate, for example, and that shows how Chicago "is a 5.0 to sub-5.0 market when it comes to the very best stuff. The user market has recovered and investors are reponding to that."

Although these buildings were completed between 1985 and 1989, Disse says "they are in an absolutely class A locations due to the  recent infrastructure and highway improvements relating to the O'Hare Modernization Project." Furthermore, each building was very well-constructed by Hamilton Partners and "have demonstrated steady performance and impressive rental growth since their completion. This is a defensive, long-term investment." The portfolio was 92% leased to 14 tenants at the time of sale.

"This is new cap rate territory for Chicago," Disse adds. Still, investors realize they can make money in the area. Cap rates for similar product in California hover around 4.0%, leaving a gap between the two regions of about 75 bps.

And the Chicago region's recovery, at least from the user standpoint, has only been underway for about 18 months, unlike California and other coastal markets such as Florida or Seattle, where a recovery took hold about six years ago, Disse says. 

"We're very bullish on the underlying economy in Chicago, especially since many users in the Midwest are rather conservative. They want to make sure things are good before they take more space." But he feels that many local small- to mid-sized users, the type that occupies the Chancellory portfolio, are now ready to take the risk and expand. "It's a relatively recent phenomenon."