Contributed By JD Salazar, Managing Principal of Champion Realty Advisors
Most of my colleagues and clients in the Chicago industrial real estate world know that I’ve been reporting on activity in the I-55 Corridor since 1990. The genesis of the I-55 Corridor, as we know it today, began in the late 1980s when Catellus Development set on developing Internationale Centre and IDI began purchasing land at Prudential’s Corporate Crossing Business Park. Since that time, the I-55 Corridor, as defined by the CoStar Research Department, has grown to a 195,000,000-square-foot mega submarket; a submarket that is discussed and dissected in the same ways as California’s Inland Empire.
In my 1992 report, I commented that it would take at least 20 years to build-out all the land available for industrial development in the I-55 Corridor. The recession that began in late 2008 effectively shut down the industrial land market. Sales activity began to emerge in 2012. With the uptick in leasing activity and new speculative construction on the rise again, the market for industrial land is heating up quickly. The price for fully improved land, net of water detention, is currently in the $6 to $7 per square foot range for parcels 5 acres or less. Larger land sites are priced at and above $5 per square foot. The I-55 Corridor has now officially entered into “Mature Submarket” status.
As is the case in all mature real estate markets most of the remaining industrial land is owned by entities that plan on developing for their own account. There remain only a very few geographically desirable large sites (50+ acres) designated for industrial development, that are, or will be at some point, available for development. Several other large sites are available a considerable distance from I-55, along very congested roadways.
The Best Remaining Parcels
Any discussion of the best remaining industrial land sites has to begin with the Mary Kelly property. This 350 + acre parcel is adjacent to the Carlow Corporate Center to the east and bounded by the Bolingbrook Golf Club to the west. According to officials in the Village of Bolingbrook, the property, when developed, will contain a mixture of residential to the west and industrial to the east. For at least 15 years the property owner has declined to respond to offers to sell. Bolingbrook officials remain unsure of when this property will be made available for development.
The second most highly desirable landsite is referred to as the “Kappos Property.” This approximately 80-acre parcel sits right on Remington Blvd across Schmidt Road from the Bolingbrook Hospital. The property has been owned for many years by the Kappos family, an entrepreneur family in the Western Suburbs. In 2008 it was rumored the owners turned down an offer of $4 per square foot for property. Bolingbrook officials confirmed that McShane Development, fresh off their success developing Union Pointe in Woodridge, is under contract to purchase the Kappos property. It is possible the entitlement process will be completed in the next 60 days and McShane can break ground sometime in the 3rd Quarter of 2015.
Pizzuti Development has expanded the Pinnacle Business Center by purchasing an additional 80 acres along Taylor Road in Romeoville. Plans are to construct 1.2 million square feet of Class A distribution space. Mike Chivini, head of Pizzuti’s Chicago office said “We feel the Pinnacle Business Center is ground zero for companies with high volume distribution requirements. Adding the 80 acres on Taylor Road to our project was an easy decision to make. The I-55 Corridor has entered the mature market phase with only infield development sites available.” Pizzuti closed on the site in October of 2014.
Redevelopments and Tear Downs Already Underway
A good indicator of a land constrained, high demand market, is the occurrence of redevelopment projects. This aspect of development is fully underway with Duke’s purchase of the old Panduit property in Romeoville. In 2013 Duke purchased the 97,200 square foot Panduit manufacturing plant at 1341 Enterprise Drive in the Marquette Business Park. The old building was sitting on an 18.3 acre site. Duke purchased the site for $3,700,000 and with estimated demolition costs added in Duke’s total investment in the site is approximately $5 per square foot. Construction will soon be completed on a 324,115 square foot cross-dock distribution center. And to Duke’s good fortune they have already leased 253,263 square feet of the building to MAT Holdings, a manufacturing and distribution company headquartered in Long Grove, Illinois.
The I-55 Corridor is a world class distribution submarket now in a mature state with only infield development sites remaining. If economic conditions remain constant and even at the slow growth level we’ve experienced in the last few years, we could see land costs in the Corridor reach the $7 to $8 per square foot range within the next 24 to 36 months. Tear down and redevelopment of Class C sites will become more prevalent at this land price range. Three key factors in achieving sustained development are: (1) a growing regional and national economy driving demand for more space; (2) higher rents to compensate developers for higher land costs and ever increasing construction costs and; (3) low CAP rates which allow developers to sell their properties and reinvest in new development. In the I-55 Corridor today, all three factors are present.