Members of the Financing and Investing panel during last Thursday’s CIP Summit have been witnessing an increased willingness among lending institutions to provide financing within the Chicago industrial market.
The panel, moderated by Erik Foster of Avison Young, featured Patrick Sullivan, HFF; Alissa Adler, Podolsky|Circle CORFAC International; John Abuja, Marcus & Millichap; Erica Dombey, Regional Development Company; and Matt Goode, VentureOne.
Goode said the environment is positive for value-add acquisitions. However, with vacancy decreasing, he noted that there are fewer value-add opportunities. He added that the leasing markets have come back, so it is a little bit easier to underwrite rents and the values are rising for stabilized properties.
Abuja said investors are trying to be more competitive and they’re willing to take more risk because the lower yields with lesser-risk investments are not making the preferred returns.
Adler said she also thinks there has been a lot of money on the sidelines, which is returning.
“What I used to see in the past was that they might go to a second or third tier market to place that money and get a little bit better return,” she said. “But now there are still deals here in Chicago, so why not move up the risk factor here?”
Goode added that “other people’s money is back.”
“There was a period of time where we couldn’t really get financing. We were buying buildings with cash or with a lot of equity,” he said. “Now, financing is back, the equity is back, so you’ve got people who are investing other people’s money.”
Goode also noted that banks in particular have begun to lend again.
“If you go back to 2010 or 2011, we were begging banks to lend us money and 90 percent of them were saying no,” he said. “Today, we actually have banks calling us, which means there is money back in the market.”
Sullivan agreed that financing has returned, adding that almost every lending institution is under-allocated in industrial, so they are becoming more aggressive and using core and A pricing on B product.
Dombey pointed out that there also has been a strong increase in user sales and major renovations of buildings.
“We’re seeing people come in and do major renovations,” she said. “They’re actually spending more on a renovation of a property than they’re actually spending on the property on the off-set.”
In terms of recent development, Goode said he thinks there is demand for new spec product and that the market is undersupplied adding that there are a number of spec projects coming to the Chicago market.
Sullivan also said a number of international investors feel that the U.S. is at the front-end of a five-year building boom.
“We’re starting to see interest in industrial and it will be in the top five or seven markets nationally. So I think spec is something that is going to continue,” he said.