When partners Mike Healy, Jim Lasko and Elyse Agnello were conducting the site selection process for their member-based event venue, maker space, and commercial kitchen venture back in 2016, the team settled on a row of older industrial buildings near the Chicago River in the Avondale community. The aging structures at Rockwell and Fletcher were ripe for adaptive reuse, not just purely for the floor plan and total square footage, but because they were tucked into a residential area.
“We had really done a lot of analysis and research demographically about where there’d be a match between supply of people who would be looking to make neighbor-to-neighbor connections and building stock that would facilitate the kind of business that we wanted,” Healy says of the Guild Row development which opened last summer during the pandemic.
“Historically, this was an area where people would walk to these factories to work and it was this industrial building stock that was integrated in with the fabric of the community,” Healy adds. “So we thought this corridor in particular was amazing because if we could give more life to these spaces, they’re already integrated in with the neighborhood fabric to a large extent still, and that’s how it ended up being a match made in heaven for us.”
Guild Row is one of several newer businesses to open or relocate to the Chicago River’s edge near Belmont Avenue. Just across the street from Guild Row are the Metropolitan Brewing and Metropolis Coffee facilities, producing craft beer and roasted coffee beans for greater distribution. Retailer The Alley moved its operations from a Lakeview storefront to its Avondale warehouse last September, also in the same industrial corridor. And then across Belmont to the north, dental tool manufacturer Hu-Friedy still maintains a presence.
For years, Class B, and particularly Class C, facilities have attracted entrepreneurs who have a vision for new creative endeavors, or business owners who are simply looking to maintain control over their entire operation. This is why there will always be demand — and competition — in this space, says Beverly Hayes, senior industrial advisor with SVN Chicago Commercial.
“There’s always going to be people who want to own their own property,” Hayes says. “There’s always going to be a market [for Class B and C], because there are still people who want to see their company’s name on the building and they want to know that they own it. They’re not going after Class A because they can’t afford it and don’t need 100,000 square feet.”
And for a lot of business owners, especially smaller fabricators or distributors, there’s a need to be closer to population density. Despite the expense of owning and operating within Chicago city limits, for many companies, there may not be an option to run the business out of a facility in the outer ring suburbs.
“I know owner-users who buy a particular building because that’s where they want to be,” says Hayes. “They feel that they need to be close to the city center. They don’t want to be in Joliet, even though you get more bang for your buck — that’s too far away. The guys who run around the city need to be in and closer to the city.”
Broker Michael Conway of JLL concurs with this idea and points to service companies in particular as an example. And the need to have smaller, aging industrial space will continue as long as there are business opportunities within the city. For businesses looking at Class B and C space, in many cases, it’s the location that comes first before quality of building stock or price.
“Think of businesses like Kennicott Brothers Company at Ashland and Hubbard,” Conway explains. “To my knowledge, all of the flowers that come in from O’Hare fresh via air freight end up in a cooler warehouse, then goes out to distribute to all of the different floral design places around the city. So for these folks, they can’t necessarily be down in Joliet or Bollingbrook or Romeoville — they’re service-driven, so they have to be near downtown to handle their customer base.”
Conway also points to privately-owned businesses in foodservice, equipment rental, construction, and building materials as just a few examples of cases where a business owner would likely choose to purchase an industrial property over renting. Hayes highlights light manufacturing such as cabinet making, warehousing, metal casting businesses, and trucking as prime companies seeking Class B and C space in and around the city.
Common adaptive reuse opportunities for older industrial spaces include wedding and event venues, breweries and brewpubs, silkscreening, art galleries, salvage goods stores, music venues, maker spaces, and fitness clubs. It’s the flexibility that older industrial properties offer that make them ripe for these contemporary creative endeavors. In many cases, industrial space may be the only option for certain business plans.
Conway notes that he worked on a deal at 2137 W. Walnut Street with Midwest Coast Brewing Company for an older industrial structure with a coveted heavy timber bow truss roof. The location near the Kinzie Corridor and character of the building were crucial factors in the decision to take the 36,000-square-foot space.
“If you want to open a 20,000-square-foot wedding venue, there’s not a lot of existing structures that make sense for that around the city,” Conway says. “And the only thing other than industrial that’s gonna have a footprint that big would be retail, and it’s like, do you want to go to a wedding that’s in a retail mall or strip mall? The bride’s probably not thinking that.”
There’s also a value-add to repurposing these spaces, Conway adds, particularly when it comes to character and quality of construction. A lot of older, lower-density industrial properties are built with brick and timber versus sheet steel and concrete. And with the rising costs of building materials, it’d be cost prohibitive for a business owner or property developer to construct a 20,000-square-foot single-story building from brick and timber from the ground-up.
But with so much interest in the industrial market in the last few years, larger investors and REITs have started getting into the Class B and C markets as a business play. And in some cases, it’s not to demolish and build new, but instead, to buy and hold, particularly for lighter industries that will continue to maintain a presence in the area for the long-term future.
“Institutional money finally realizes that those tenants aren’t going away,” Conway says of the interest in smaller and aging industrial properties from larger players. “And yes, it’s a lot more work to put those kinds of deals together — the 10,000-, 20,000-, or 50,000-square-foot deals — but there’s a very strong core tenant base and demand for those [buildings].”
Despite the push into Class B and C from institutional investors, the owner-operators who are putting all of their eggs into one basket are likely to want to purchase property. Not only will there always be business owners who want to see their name on the deed, but it goes a little deeper than that, Conway suggests.
“If you’re going to put everything you have into your life dream, and you’ve got a landlord who might not be willing to do a deal, suddenly owning is the only thing that makes sense in order to have control over the vision you have for your dream business.”
This story also appears in the May 2021 issue of Chicago Industrial Properties.