An Insider's Guide to Commercial Real Estate In Chicago

Andersonville Commercial Real Estate: Retail Neighborhood Mom-and-Pops Resilient in the Face of Recession

This month we’re taking a look at commercial investment real estate in Chicago’s Andersonville retail corridor, which runs along Clark Street, approximately from Foster to Bryn Mawr. Like many of the urban retail strips on Chicago’s North Side (Southport in Lakeview, Halsted/Armitage in Lincoln Park and Damen Avenue in Bucktown/Wicker Park), Andersonville has seen commercial rents and property values soar in recent years. But unlike those corridors, Andersonville hasn’t experienced an influx of national retailers, save for Starbucks and a small (8 locations) burger franchise called Hamburger Mary’s. Furthermore, Andersonville doesn’t have the infrastructure advantages of Southport, Damen or Armitage. There’s no direct ‘L’ access, parking is abysmal, and it’s far from the Loop.

That makes Andersonville somewhat of an enigma. With a mix of almost 100% mom-and-pop retailers, Andersonville has maintained retail rents in the $25-to-$30-per-square-foot range for in-line space and the $40-to-$45-per-square-foot range for corner space. In addition, occupancy levels have remained stable despite the economy.

For this reason commercial investment property in Andersonville has begun to attract serious money. Case in point: last year, we represented local investors, RayMark Venture LLC, in the $22.5 million sale of a multi-building retail/mixed use portfolio. (RayMark nearly doubled its investment in just five years). The buyer was a $500-million institutional-advisory fund targeting urban retail real estate in Chicago.

One could argue that Andersonville is supported by a fiercely loyal resident base, but the reality is that its shops and restaurants could not survive on neighborhood traffic alone. So what’s the key to Andersonville’s urban retail success, and why has the neighborhood’s commercial real estate held up so well in a down economy? Holler at us if you have an opinion.

Peter Lynn & Dan Rosenberg
		Building Equity Commercial Real Estate Web:: buildingequityre.com Email:: solutions@buildingequityre.com Phone:: 773.292.5188

Fixation on Distressed Real Estate in Chicago Could Hamper Commercial Property Investors

Interesting article in Sunday’s Chicago Tribune business section: Foreclosures fuel sales to first time homebuyers, may lead to real estate recovery. The dime store version is that foreclosures and distressed real estate in Chicago have created so much interest among buyers that bidding wars are not uncommon, and many Chicago properties are selling over list. At the very end of the article, however, is another interesting scenario. After being rebuffed in several attempts to buy a foreclosed townhome in the Chicago's Northwest suburbs, a buyer wound up purchasing a similar unit through a traditional sale…at a lower price. It’s a revealing commentary. Buyers have become so obsessed with finding the best deals on distressed real estate in Chicago that they’re missing out on the best deals on all real estate. A similar mindset is taking hold among commercial real estate brokers in Chicago. Every day we take calls from brokers who want to know if the seller of this or that listing is in distress. If the answer is no, the conversation often ends right there. Today, people brag about getting a great deal on a foreclosure the way they used to brag about getting in on the ground floor of a new condo development in River North. It’s the new cocktail party chatter. And that leaves us to wonder, are distressed sales and property foreclosures in Chicago the second coming of the herd mentality that created this mess?

Peter Lynn & Dan Rosenberg
		Building Equity Commercial Real Estate Web:: buildingequityre.com Email:: solutions@buildingequityre.com Phone:: 773.292.5188

Distressed Chicago Commercial Real Estate Owners Creating Opportunities for Tenants

This week comes news that Microsoft Corp. has exercised an option to purchase its Northlake data center for $185 million. Crain's Chicago Real Estate Daily reports that the deal represents a growing trend in commercial real estate in Chicago: cash-rich tenants acquiring investment property from their landlords. We can attest to this trend, and furthermore, if you’re a tenant, you don’t need $185 million to take advantage. The distressed commercial real estate market in Chicago is creating unprecedented opportunities for businesses and individuals to acquire investment property.

As a tenant who occupies commercial property day in and day out, you're in the best position to understand your landlord's financial situation, inability to manage a building, or other factors that could motivate a sale. Still, don't make the false assumption that dealing directly with your landlord will net you the best deal. More often than not, it won't. If you're thinking about buying your leased retail, office, industrial or multifamily property in Chicago, contact a Chicago commercial real estate broker to discuss your options and develop a plan. A broker will not only help you value the property and negotiate the best deal, but they will also be able to help you identify good deals on alternative properties, giving you more options and potentially more leverage.

Peter Lynn & Dan Rosenberg
		Building Equity Commercial Real Estate Web:: buildingequityre.com Email:: solutions@buildingequityre.com Phone:: 773.292.5188

Chicago Commercial Property Values and the Capital Gains Tax Revisited

In a recent post, we talked about the likely increase in the capital gains tax rate and how it would affect Chicago commercial real estate owners in a number of different scenarios. The worst-case scenario involved a further decline in commercial real estate values coupled with a rise in taxes. Well, a recent survey seems to indicate that worst-case scenario is in fact the most likely scenario.

Last week, Globest.com published the results of a Grant Thornton survey in which 93% of respondents anticipated further declines in commercial real estate values through the rest of 2009. That means it will take one hell of a bull market in 2010 to offset the tax bill commercial real estate sellers will see in 2011. We’ll go out on a limb and say that bull market ain’t gonna happen. Selling in a recession is a tough pill to swallow. Still, as Chicago commercial real estate brokers, we think unloading now makes a lot of sense for Chicago commercial property owners with a low cost basis and therefore a high exposure to capital gains taxes.

We’re actually quite surprised there isn’t more debate on this topic. Tell us what you think. Do you anticipate a rate increase? And how is it affecting your commercial real estate investment strategy? Leave a comment below.

NOTE: Image is courtesy of CartoonStock.com

Peter Lynn & Dan Rosenberg
		Building Equity Commercial Real Estate Web:: buildingequityre.com Email:: solutions@buildingequityre.com Phone:: 773.292.5188