Chicago-Area Buyers Rewarded With Higher Yields

Especially valuable are buildings near dense populations, diverse labor pools and major thoroughfares.

1005 Westgate Dr. in Addison, IL.

CHICAGO—Class B industrial property throughout the Chicago suburbs has become quite popular with prestigious investors. Goldman Sachs Asset Management Private Real Estate just became the latest group to test the waters here. In an off-market transaction, the New York-based firm acquired an approximately 830,000 square foot, ten-building industrial portfolio located primarily in the O’Hare, North Cook and North DuPage submarkets.

“This is the first industrial deal we’ve done in IL,” Joseph Sumberg, co-head of GSAM PRE, tells GlobeSt.com, and one of the chief draws was the likelihood of finding higher yields, especially for buildings near dense populations, diverse labor pools and major thoroughfares. “The cap rates for infill product has not changed to the degree it has in other markets.”

One key reason for the high yield associated with this portfolio is that “there is a significant number of tenants and a lot of moving pieces,” he says. The company can’t be passive and just collect the rent. “You’re essentially getting paid for the work.” GSAM PRE plans to proactively lease known near-term vacancies, as well as strategically invest capital to maintain the portfolio‘s quality.

“The product is not pretty,” Sumberg adds, but it’s priced below replacement costs and the rents are not yet at a peak. Owning a state-of-the-art, class A distribution center will certainly have fewer headaches, but “they’re going for much tighter cap rates.”

And for an owner willing to provide proper management, having a lot of tenants can be “a beautiful thing.” The portfolio will not rise or fall with the fortunes of one tenant, so their credit is not as much of a concern. “Here it’s more about the real estate.”

And it would be hard to beat this set of locations. All of the properties are located near I-94, I-294, or I-290, which provide tenants with quick access to big labor pools, consumers and O’Hare International Airport. Existing tenants use their respective suites for a variety of functions, including R&D, light manufacturing and distribution.

The portfolio includes the following properties:

GSAM PRE has purchased other asserts in the Chicago region that also promise high yields, including multifamily units in the suburbs, loft office space in hot Chicago submarkets like River North, and 1165 N. Clark St., a now-repositioned office building that hosts Assemble, a shared office provider for the Gold Coast neighborhood.

Its new suburban portfolio is GSAM PRE’s eighth industrial investment. The company now owns approximately 3.3 million square feet of industrial assets across the US.

“We see intense competition for this type of product across the US,” Sumberg says.

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