Cushman & Wakefield of Illinois, Inc. recently arranged the largest industrial portfolio sale in the Midwest since the economic downturn began in 2008. The portfolio, which includes seven buildings in northwest Chicago and one in the Milwaukee area, totals more than two million square feet.
In this market, it’s not often that everybody wins in a deal, but according to Jim Carpenter, senior director at C&W’s Capital Markets Group, that is exactly what happened in this portfolio transaction.
Carpenter, along with Ken Szady, executive director from C&W’s Capital Markets Group, represented the seller, a joint venture between Interstate 
Partners and Towne Investments, in the marketing and sale of the portfolio. In addition, Cushman & Wakefield Sonnenblick Goldman, the firm’s debt and equity finance division, secured permanent financing of the portfolio for the buyer, San Francisco-based Stockbridge Real Estate Funds.
The Illinois properties are located within two adjacent industrial parks in Elgin near the Randall Road/I-90 interchange– the NorthWest Corporate Park and the NorthWest Business Park. The Milwaukee-area property is located at the RidgeView Corporate Park within the city of Pewaukee.
“A ton of sellers would like to transact, but they can’t because of issues with their lender,” says Carpenter. “We were able to work with Interstate Partners and Towne Investment’s lender, which then allowed Stockbridge to finance the purchase of the portfolio at an attractive rate.”
The main hurdle in this transaction was a large pre-payment penalty that was attached to the original loan with Interstate and Towne. Cushman & Wakefield went directly to the lender to enable the seller to avoid the pre-payment penalty and then worked with the same lender to originate a new loan to Stockbridge.
“My biggest take away from this deal is that there are not a lot of transactions you do where everybody wins,” says Carpenter. “A lot of people have sold buildings, but not a lot of people did what we did.”
Well-leased, class A properties have driven the investment market for the past 12 months, leading to a substantial recovery from record-low sales in 2009. The current pipeline of transactions closed or in the market and expected to close totals more than $500 million, putting the market on pace to return to normal industrial sales volumes in 2011, according to C&W.
The recent portfolio sale reflects this as the Illinois properties in the portfolio are 95 percent leased to 18 tenants and the Pewaukee property is 100 percent leased. Yet as the recovery continues, investors will begin to invite more risk.
“It’s all about confidence,” says Carpenter. “The fundamentals are not great, but the worst is behind us. In a recovery, investors look at the great stuff first, but once they feel more secure, they will start to take more risk.”
Carpenter sees this scenario beginning to take place in the market. As momentum continues to build, investors will begin to take on leasing risk in class A properties. Recently, KTR Capital Partners purchased a 182,000-square-foot property in Bolingbrook that is 50 percent leased. Eventually, investors will begin to look at class B properties as well.
“There was a time when certain properties couldn’t attract a bid,” he says. “Now, you will get a bid. You might not like it, but you will get a bid. If yourproperty has a real position in the tenant market you can find a price today.”
Despite the overall improvement in the market, Carpenter says that he concerned about the rate of job growth in the Chicago market.
“This city has got to find a way to attract jobs. Investors require a certain yield premium in Chicago when compared to Los Angeles and New Jersey. That yield premium has widened because of concerns about our economy.”
Properties:
- 2800-2880 Galvin Drive, Northwest Business Park I, Elgin
- 2760-2770 Spectrum Drive, Northwest Business Park III, Elgin
- 2780-2794 Spectrum Drive, Northwest Business Park VI, Elgin
- 2500-2580 Galvin Drive, Northwest Business Park VII, Elgin
- 2400-2416 Galvin Drive, Northwest Corporate Park VIII, Elgin
- 2583-2589 Technology Drive, Northwest Corporate Park X, Elgin
- 2300-2370 Galvin Drive, Northwest Corporate Park XIV, Elgin
- W234N2100 Ridgeview Parkway Ct, Ridgeview Business Center V, Waukesha
