Suburbs Attract, Challenge Prentiss

"Suburban Chicago is a tough environment, as we have a lot of rollover," says president and CEO Thomas August during a recent earnings conference call. "That's what keeps us up at night in '03."

Included in the 2003 lease rollovers is Computer Associates, which leases about 175,000 sf at Prentiss Properties' five-building, 324,000-sf Corporetum Office Campus in this west suburb in the East-West Corridor. The asset already began the year with an 18% vacancy rate.

Still, Prentiss Properties Trust isn't writing off the suburban office market. Rather, officials reveal they are aggressively seeking new opportunities, recently bidding more than $100 million for a suburban office property.

"We thought we were being aggressive," says chairman Michael Prentiss. "Unfortunately we lost by a couple hundred thousand dollars. The encouraging thing is, when you look at the numbers and returns…In this particular case, the going-in cash-on-cash unleveraged returns were in excess of 9%."

The property was "substantially leased" and included adjacent parcels that could be developed, Prentiss adds.

Prentiss' company is bucking occupancy trends in the north suburban market. The 257,000-sf Bannockburn Centre, the 136,000-sf 1800 Sherman Ave. in Evanston and a 59,000-sf building in Mount Prospect are all 100% leased, according to the company's most recent supplemental report. The only exception is 1717 Deerfield Rd., where the REIT was forced to renegotiate a lease with its main tenant as well as deal with a 21% vacancy.

Among the competition in the East-West Corridor is a 167,000-sf building at 215 Diehl Rd. in neighboring Naperville, formerly Allied Van Lines' central office. Prudential Real Estate Investors has hired Cheryl Stein Inc. to lease up the building, and is offering naming rights as part of the deal.