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PALATINE, IL-A recession has pushed up office and retail vacancy rates in most submarkets, new construction has virtually stopped in its tracks and none of the space beyond the developer’s 30,000 sf has been pre-leased. Nonetheless, there was an express train of optimism Thursday as ground was broken on the Gateway Center project in this northwest suburb, where officials have long sought to replace a “blighted embarrassment” at the village’s Metra commuter rail stop.

The $86-million project, which in addition to three-building, 100,000-sf office and 18,000-sf retail on the northeast side of the tracks also includes 280 multifamily units on the southwest side, is the latest suburban Downtown redevelopment effort in the market.

Why the optimism? One reason is the project, being developed by Wheeling-based Joseph Freed & Associates with construction of the office and retail component by Skokie-based The Alter Group Ltd., is an integral piece of a Downtown suburban redevelopment, which more often than not have proven to be home runs in the Chicago market. Freed and Alter brought a strong track record in suburban Downtown makeovers, neighboring Arlington Heights and Wheaton among them, to the table more than a year ago.

“Communities that don’t take advantage of these opportunities are missing the boat,” says Grubb & Ellis retail group vice president A. Rick Scardino, who sees tenant representation opportunities in the project.

“This building offers a golden opportunity for people who live in Downtown Palatine to work where they live,” says Anita Quadrini, director of national development for The Alter Group. She adds tenants also may take advantage of the reverse-commuting trend, using its location at a rebuilt Metra stop to draw workers from Chicago.

When completed next year, the $25-million Gateway Center will offer the only class A office space in the village, with the closest competition coming from Arlington Heights and Schaumburg, further away in terms of time because of increased traffic congestion. And while U.S. Equities Realty reports the northwest suburban office vacancy rate has climbed to 18.4% for class A space, the project’s $16 per sf net rates are at the lower end of the spectrum.

Even renewed corporate downsizing and layoffs are seen as providing potential tenants. Workers forced to trade in Metra monthly passes for severance packages may opt to set up shop close to home, Scardino suggests. “There are a lot of people who think the economy will come back even stronger than it was before Sept. 11,” he adds.

The Gateway Center on the northeast side of the Union Pacific tracks along with the accompanying Groves of Palatine condominium and townhome project began in earnest 13 months ago during a breakfast meeting, recalls Village President Rita Mullins. Besides seeing other suburbs jumping on the Downtown redevelopment train, Palatine was looking to improve its well-worn train depot, but more importantly, sought to eliminate a dilapidated and largely vacant Commuters Plaza shopping center behind it.

The village bought the land and is using tax increment financing. Six months after trustees approved the project, the village is banking on the development team of Freed, Alter and Walsh Construction to turn its former “pig’s ear into a silk purse,” Mullins says, adding, “The key to this development was to select the right partner.”

Quadrini and Robert Fink of Freed & Associates use “active” and “significant” to describe interest in the space. “We’re still in the early stages of development,” Fink says. “It’s a little early to name names.”

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