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CHICAGO-Despite slowdowns in the national and regional economies, the pace of real estate investment in some Chicago-area submarkets remains relatively healthy, according to a recent report prepared by Marcus & Millichap’s Chicago office. The report found this especially true in the retail sector, noting that “investment remained strong in the second quarter of 2001,” in Lake County, directly north of Chicago, and the north and northwest suburban areas of Cook County, adjoining the city of Chicago.

During the second quarter, eight retail properties totaling 408,300 sf changed hands in the north and northwest suburbs for a total of about $53.5 million. That compares with 15 sales totaling 334,000 sf at $26 million in the second quarter of 2000. The number of properties bought and sold recently may be fewer, but they are larger and more valuable properties all together.

A similar pattern held for the first six months of 2001, compared with the first six months of 2000. Eighteen retail properties (949,000 sf) were sold in the first half of this year, totaling about $100 million. For the same period in 2000, 19 retail properties traded for $31 million, representing a total of 420,000 sf.

“The focus of investor interest has shifted from the office market, which was strong last year, to the retail market,” says Michael J. Christie, managing partner of the firm’s Investment Real Estate Group. “We’re seeing a flight to quality, with many investors looking to acquire retail properties with triple-net leases and creditworthy tenants.”

By contrast, in the office market, seven properties totaling 306,000 sf were sold in 2Q01 for an aggregate of about $30 million, compared with 12 properties totaling 667,000 sf for a combined price of $29 million in the same quarter in 2000. In the first half of 2001, investment in the north and northwestern office markets totaled 15 properties with 731,000 sf for $72 million; the first half of 2000 racked up 28 office properties totaling 1.54 million sf and an aggregate sales price of $107 million.

Christie cites the reduction of interest rates by the Fed as a major factor in the relative health of the investment market. “We’re seeing investment acquisitions financed at interest rates from a low of just above 7% to a high of about 8.5%, which is 50 to 100 basis points lower than a year ago,” he notes.

“The general expectation in the real estate community is that the current downturn will not last more than a year or two, so while there is caution, especially among lenders, there’s also a sense that this may be a buying opportunity.”

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