This month I’m going to offer a two-part series. Both articles will examine the advantages of leveraging the expertise of a commercial broker for commercial real estate transactions. This first article will cover the benefits of a commercial broker from a seller’s perspective; I’ll follow up in part two with a look at the benefits from a buyer’s point of view.

Before we delve into the many reasons why using the services of a commercial broker is a good idea for anyone looking to sell commercial real estate, let me just make a few general comments …

 

Commercial real estate is truly a specialty. A commercial real estate transaction is a complex undertaking that involves thousands of details and interrelated tasks. It can be very difficult for someone without a thorough knowledge of the commercial real estate business to manage a transaction efficiently and without missing details that would result in unnecessarily wasted time and money. The commercial real estate industry, along with all of the rules and regulations that govern it, is very dynamic. Things can change so quickly that even seasoned professionals can fall behind if they are not diligent about staying current.

I sometimes compare commercial brokers to attorneys. When people (that are not legal professionals) have legal issues, they could try to represent themselves, but it’s not a good idea. Without the vast knowledge and understanding of the minute details that a qualified attorney possesses, there’s a high probability that details could be overlooked and costly mistakes be made. Good attorneys know the most current laws and the smartest strategies and tactics for addressing legal issues. An attorney is an expert consultant for legal issues, and a commercial real estate broker is an expert consultant for real estate transactions.

A commercial broker can represent buyers, sellers, landlords and tenants. So let’s take a look at what a broker can do for sellers.

One of the most important benefits that a reputable broker offers a seller is effective marketing. Obviously, when sellers list properties, they need to get the word out to viable buyer prospects. This is how they reach the best prospects and they get the best price for the property. Unlike most property owners, quality brokers have a wide variety of marketing tools and resources at their disposal and the expertise to use those tools to maximize the exposure of the property to the target audience most likely to be interested in buying. Because a broker has these tools in place and uses them often, he or she will be able to run each marketing campaign efficiently and cost effectively. Marketing for-sale properties is something most brokers do practically every day, so the process usually runs like a well-oiled machine. Once the seller submits the details of the property, the broker will have it in the MLS system, on multiple internet real estate sites, and in all the right print publications almost immediately. In most cases, signs, flyers, email blasts, direct mail and other communications channels will also be used to enhance the campaign. In addition to the standard marketing channels, if a broker has been working in the area for an extended period of time, he or she has probably built up a network of relationships with clients, investors and other brokers that will result in some excellent leads.

An experienced broker may also have the talent and ability to look at the property from different perspectives and recognize variables that the owner didn’t notice. A broker can frequently help the seller identify the highest potential for the property based on factors such as location, square footage, property type and more. For example, a property near the hospital may have the most value as a medical facility. A building near the courthouse may be ideal for an attorney’s office. A specific example in Wilmington is on the corner of Oleander Drive and Independence Boulevard. Remember the old Exxon station? Today it’s a thriving Starbucks. It’s on the corner of a busy, high-visibility intersection that’s easily accessible from either side, and near business and residential areas – it’s the perfect spot for a Starbucks.

Proactive commercial real estate brokers also will offer sellers ideas about the best way to utilize their properties. Understanding the variety of ways a particular property can be split or subdivided can expand the appeal of the property to a broader audience. A good broker will run scores of analytics to determine the true value of the property for a range of business scenarios, and then find the appropriate target buyers.

The bottom line is, a commercial real estate broker is a specialist that has the tools, knowledge and connections to help sellers locate buyers efficiently and cost effectively.

Continue reading "The Benefits of a Broker In Commercial Real Estate (Part 1 of 2)"

A California real estate investment firm bought a Naperville office complex for $18 million, 29 percent less than the property's pre-recession price in 2007. Irvine, Calif.-based Sperry Equities bought Washington Commons, an approximately 200,000-square-foot office complex on Diehl Road, according to DuPage County records. The deal comes nine years after the complex sold for $25.2 million, before the recession hammered suburban values. In many cases values have never fully recovered. Although the property's value remains below pre-crash levels, Sperry believes it can cash in on the lowest suburban office vacancy in 14 years, allowing it to charge higher rents than those in deals signed in the past few years. Suburban vacancy was 18.5 percent to end 2015 and 18.6 percent in the western part of the east-west corridor, according to Chicago-based Jones Lang LaSalle. “They bought it in 2007 at the peak,” said Burton Young, a Sperry Equities principal. “Rents haven't recovered to where they were in 2007, but we believe we can capitalize on market timing. There are some rents there that are low relative to the market, and there's room to increase the occupancy. We think it's a market-timing play.” The seller was a Denver-based venture of real estate investment firm EverWest Real Estate Partners and real estate investment trust Dividend Capital Diversified Property Fund. EverWest was known as Alliance Commercial Partners at the time of the deal. Alliance lost a few other suburban buildings to foreclosure during the downturn. The Alliance venture that bought Washington Commons faced a potential loan default on the complex in 2011 because of rising vacancy, according to a Bloomberg loan report. But the owners later that year negotiated a maturity extension of four years, to February 2016, on the $21.3 million securitized loan, according to Bloomberg. The Alliance venture also made a $4 million equity contribution and split the loans into A and B notes as part of the 2011 modification, according to the loan report. EverWest, which changed its name in 2014, and Dividend Capital representatives did not return calls requesting comment. Washington Commons, at 450-500, 550-700 and 750-900 E. Diehl Road, consists of 10 single-story buildings connected by foyers and hallways, on 21 acres, Young said. The complex was 77 percent leased when Sperry Equities struck the deal to buy it, and several small new leases have boosted occupancy to about 85 percent, he said. The largest tenants are a regional headquarters of Toyota's Lexus division, with 31,000 square feet, and a 17,000-square-foot Bright Horizons daycare, Young said. Sperry Equities, once affiliated with brokerage Sperry Van Ness but now independently owned, plans upgrades including building out move-in-ready suites, he said. “We love Naperville and the surrounding area," Young said. "It's a good long-term hold right off the I-88 tollway and Diehl Road.” Sperry Equities owns about 6 million square feet of commercial real estate, including office and industrial space in Bolingbrook, Hoffman Estates and Tinley Park, Young said.

 A California real estate investment firm bought a Naperville office complex for $18 million, 29 percent less than the property's pre-recession price in 2007. Irvine, Calif.-based Sperry Equities bought Washington Commons, an approximately 200,000-square-foot office complex on Diehl Road, according to DuPage County records. The deal comes nine years after the complex sold for $25.2 million, before the recession hammered suburban values. In many cases values have never fully recovered. Although the property's value remains below pre-crash levels, Sperry believes it can cash in on the lowest suburban office vacancy in 14 years, allowing it to charge higher rents than those in deals signed in the past few years. Suburban vacancy was 18.5 percent to end 2015 and 18.6 percent in the western part of the east-west corridor, according to Chicago-based Jones Lang LaSalle. “They bought it in 2007 at the peak,” said Burton Young, a Sperry Equities principal. “Rents haven't recovered to where they were in 2007, but we believe we can capitalize on market timing. There are some rents there that are low relative to the market, and there's room to increase the occupancy. We think it's a market-timing play.” The seller was a Denver-based venture of real estate investment firm EverWest Real Estate Partners and real estate investment trust Dividend Capital Diversified Property Fund. EverWest was known as Alliance Commercial Partners at the time of the deal. Alliance lost a few other suburban buildings to foreclosure during the downturn. The Alliance venture that bought Washington Commons faced a potential loan default on the complex in 2011 because of rising vacancy, according to a Bloomberg loan report. But the owners later that year negotiated a maturity extension of four years, to February 2016, on the $21.3 million securitized loan, according to Bloomberg. The Alliance venture also made a $4 million equity contribution and split the loans into A and B notes as part of the 2011 modification, according to the loan report. EverWest, which changed its name in 2014, and Dividend Capital representatives did not return calls requesting comment. Washington Commons, at 450-500, 550-700 and 750-900 E. Diehl Road, consists of 10 single-story buildings connected by foyers and hallways, on 21 acres, Young said. The complex was 77 percent leased when Sperry Equities struck the deal to buy it, and several small new leases have boosted occupancy to about 85 percent, he said. The largest tenants are a regional headquarters of Toyota's Lexus division, with 31,000 square feet, and a 17,000-square-foot Bright Horizons daycare, Young said. Sperry Equities, once affiliated with brokerage Sperry Van Ness but now independently owned, plans upgrades including building out move-in-ready suites, he said. “We love Naperville and the surrounding area," Young said. "It's a good long-term hold right off the I-88 tollway and Diehl Road.” Sperry Equities owns about 6 million square feet of commercial real estate, including office and industrial space in Bolingbrook, Hoffman Estates and Tinley Park, Young said.
Naperville Office Complex Sells for $18 Million

A California real estate investment firm bought a Naperville office complex for $18 million, 29 percent less than the property's pre-recession price in 2007.

Irvine, Calif.-based Sperry Equities bought Washington Commons, an approximately 200,000-square-foot office complex on Diehl Road, according to DuPage County records.

The deal comes nine years after the complex sold for $25.2 million, before the recession hammered suburban values. In many cases values have never fully recovered.

Although the property's value remains below pre-crash levels, Sperry believes it can cash in on the lowest suburban office vacancy in 14 years, allowing it to charge higher rents than those in deals signed in the past few years.

Suburban vacancy was 18.5 percent to end 2015 and 18.6 percent in the western part of the east-west corridor, according to Chicago-based Jones Lang LaSalle.

“They bought it in 2007 at the peak,” said Burton Young, a Sperry Equities principal. “Rents haven't recovered to where they were in 2007, but we believe we can capitalize on market timing. There are some rents there that are low relative to the market, and there's room to increase the occupancy. We think it's a market-timing play.”

The seller was a Denver-based venture of real estate investment firm EverWest Real Estate Partners and real estate investment trust Dividend Capital Diversified Property Fund.

EverWest was known as Alliance Commercial Partners at the time of the deal. Alliance lost a few other suburban buildings to foreclosure during the downturn.

The Alliance venture that bought Washington Commons faced a potential loan default on the complex in 2011 because of rising vacancy, according to a Bloomberg loan report. But the owners later that year negotiated a maturity extension of four years, to February 2016, on the $21.3 million securitized loan, according to Bloomberg.

The Alliance venture also made a $4 million equity contribution and split the loans into A and B notes as part of the 2011 modification, according to the loan report.

EverWest, which changed its name in 2014, and Dividend Capital representatives did not return calls requesting comment.

Washington Commons, at 450-500, 550-700 and 750-900 E. Diehl Road, consists of 10 single-story buildings connected by foyers and hallways, on 21 acres, Young said. The complex was 77 percent leased when Sperry Equities struck the deal to buy it, and several small new leases have boosted occupancy to about 85 percent, he said.

The largest tenants are a regional headquarters of Toyota's Lexus division, with 31,000 square feet, and a 17,000-square-foot Bright Horizons daycare, Young said.

Sperry Equities, once affiliated with brokerage Sperry Van Ness but now independently owned, plans upgrades including building out move-in-ready suites, he said.

“We love Naperville and the surrounding area," Young said. "It's a good long-term hold right off the I-88 tollway and Diehl Road.”

Sperry Equities owns about 6 million square feet of commercial real estate, including office and industrial space in Bolingbrook, Hoffman Estates and Tinley Park, Young said.

Source: Chicago Real Estate Daily Ryan Ori April 7th, 2016

biggest suburban chicago apartment deal in 18 months
biggest suburban chicago apartment deal in 18 months
Stonebridge of Arlington Heights is a 586-unit apartment complex.

Biggest Suburban Chicago Apartment Deal in 18 months
An Ohio landlord on the hunt for apartments here has pulled off the biggest multifamily acquisition in the Chicago suburbs since September 2014.

Ventures led by Connor Group, based outside Dayton, paid $105 million, or about $179,000 a unit, last month for Stonebridge of Arlington Heights, a 586-unit complex in northwest suburban Arlington Heights, according to a deed filed with Cook County. It is the third acquisition in 18 months in the Chicago suburbs for Connor, which owns 14,000 apartments in the eastern half of the country.

Connor is expanding its presence in a strong suburban apartment market that shows few signs of weakening in 2016 amid steady job growth and a continued preference for renting over owning among many suburbanites. The median net suburban rent rose nearly 4 percent last year, with similar increased expected in 2016, according to Chicago-based consulting firm Appraisal Research Counselors.

Rents have been rising since 2009, about when Connor started shopping for apartments here. The firm made its first acquisition in September 2014, when it paid $61.8 million for Glenmuir, a 321-unit property in Naperville. About a year later, it completed its second deal, paying $62.1 million for Alara at Summerfield, a 368-unit complex in Aurora now called Aurora at Summerfield.

Chicago is “a big market, there are a lot of renters by choice and the submarkets we're in are highly desirable,” said Connor Partner Pat Rini.

Connor acquired Stonebridge from its longtime owner, a venture led by local investor Maria Magnus, who did not return calls. Connor financed the acquisition with a $78.7 million loan from Freddie Mac, count records show.

The Stonebridge deal is the biggest sale of a suburban Chicago apartment complex since September 2014, when Woodland Creek, a 640-unit property in Wheeling, sold for $118.5 million.

Rini said a confidentiality agreement prevented him from discussing the transaction but not the Chicago apartment market or Connor's plans for the Arlington Heights property.

Stonebridge, at 600 W. Rand Road, is a so-called value-add acquisition for Connor, which plans to spend $6 million on a major interior and exterior renovation, Rini said. The firm is revamping the apartments with new countertops, appliances, flooring and other improvements, he said. The project will allow Connor to charge higher rents and ultimately boost the value of the property.

Built in 1975 and last renovated in 2011, Stonebridge is considered a Class C property, with rents ranging from $1,250 a month for a one-bedroom apartment to $1,480 for a two-bedroom, according to an Appraisal Research report. Rents have held roughly steady over the past year or so, at $1.34 per square foot, the report says.

Connor is being patient in its search for apartments here, but it ultimately could end up with another half-dozen properties here, possibly even some downtown, Rini said. To achieve scale, the firm aims to own six to 10 properties in each of its markets, enough to cover the cost of a local office and other operations.

“We'll get there,” he said. “I don't know if it will be sooner or later, but we'll figure it out.”

Source: Chicago Real Estate Daily, Alby Gallun April 6, 2016

SOLD!

1660 Glen Ellyn Rd Glendale Heights, IL 60139

 Glendale Heights Office Building Sold

Glendale Heights, IL - Randolph Taylor of Coldwell Banker Commercial NRT - Chicago has successfully brokered the sale of a Free-standing single story 3,612 sf office building at 1660 Glen Ellyn Rd in Glendale Heights, IL  near Adventist Glen Oaks Hospital minutes from the I-355 tollway. The property was vacant at the time of sale purchased by a local Dentist and will be converted to a Dental office. The property sold for $422,000

Coldwell Banker Commercial

Coldwell Banker Commercial NRT has the largest commercial real estate footprint with over 3,500 professionals nationally, over 16,000 listings, nearly double that of the nearest competitor, averaging 13,000 transactions annually valued at over $4 Billion. Providing comprehensive Commercial Real Estate Services to the Greater Chicago Area and Nationally through our vast network of over 3,500 professionals and Global Client Services team.

Randolph J. Taylor MBA, CCIM, Broker is a  seasoned Commercial Real Estate Broker with over 16 years of commercial real estate sales, leasing, asset management and investment experience. Providing comprehensive Commercial Real Estate Services to the Greater Chicago Area and Nationally through our vast network of over 3,500 professionals and Global Client Services Group.

1717 Park St

Naperville office building sells for 5.7 million

A 114,016-square-foot office building in Naperville owner Omaha, Neb.-based Quarter Circle Capital LLC sold for more than $5.7 million. DuPage County records show the buyer of the property at 1717 Park St. was a venture of a Farida Tazudeen, a local real estate investor who could not be reached. The venture financed the Jan. 15 purchase with a $4 million loan from New York-based Garrison Realty Finance LLC, according to county records. It was the last remaining building owned by an approximately eight-year-old fund that also had included 1755 Park, which previously sold for $2.5 million to Riverwoods-based Podolsky Circle CORFAC International, Quarter Circle Principal John Martin said.  A Podolsky venture also agreed to buy 1717 Park, but Quarter Circle sued the venture in December, saying it failed to close on the deal. The lawsuit is still pending, Mr. Martin said.

Source: Chicago Real Estate Daily January 28th, 2014

GetThumbnail

205,633 SF Lisle, IL Office Building Sells

GlenStar Properties, a Chicago-based commercial real estate company, along with an institutional capital partner, acquired the office building at 2400 Cabot Dr. in Lisle, IL.

The 4-Star, 205,633-square-foot building delivered in 1987 as Pansophic System Inc.'s headquarters and features various amenities. According to GlenStar, the property includes a 100 percent electrical building back up system via two 1500-kilowatt generators, conference and training facilities, indoor executive parking, a full service cafeteria and dining area, as well as a 20,000-square-foot raised floor data center.

Located in the East-West Corridor, the property was vacant at the time of sale and GlenStar plans to expand and upgrade the on-site parking as well as provide some base building enhancements with the intent to lease the property to a single tenant.

Source: CoStar Arris Noble October 29, 2013

Walgreens Headquarters

Walgreens Completes Sale-Leaseback of Headquarters

Walgreen Co. completed the sale of six office buildings in its Deerfield headquarters complex to Realty Income as part of an effort to free cash to invest in its stores and other parts of its business.

The nation's largest drugstore chain said it sold the low-slung office buildings on the south side of Lake-Cook Road, which comprise 574,605 square feet on 38 acres, with an agreement to lease back the space long term.

"We're going to continue to use those buildings; it doesn't really change how we use them or mean we're moving anyone around," said Michael Polzin, a Walgreen spokesman. "It's pretty much just a financial transaction and nothing beyond that."

Though neither Walgreen nor Jones Lang would disclose a purchase price, an industry source pegged it at about $85 million. It's unclear how much Walgreen will pay Realty Income in rent.

The sale does not include all of the company’s property in its Deerfield complex. Its top executives and others have offices on the north side of Lake-Cook Road. Walgreen said in April it was seeking a buyer for the property.

Source: Chicago Tribune, October 08, 2013 By Peter Frost
Tellabs Building Naperville

39,000 SF Office Lease Tellabs Building Naperville

A health care software firm founded by a member of Marquette University's national championship basketball team is expanding to about 39,000 square feet, the latest company to lease space in Tellabs Inc.'s headquarters in the western suburbs.

JDA eHealth Systems Inc. signed a long-term lease for 39,215 square feet in the Tellabs building, 1415 W. Diehl Road in Naperville, said Los Angeles-based CBRE Inc., which represented the tenant.

The company was founded in the early 1990s by James Dudley, a backup forward on Marquette's colorful 1977 team, which was coached by Al McGuire and included Chicago-area prep stars Bo Ellis and Jerome Whitehead.

Mr. Dudley was a principal in a trading firm on the Chicago Board of Options Exchange before starting JDA in the early 1990s, according to the company's website.

JDA is nearly doubling its space as part of a move from 1717 Park Street, a Class B building less than 3 miles east in Naperville, said Corby Bell, JDA's chief operating officer.

Telecom equipment maker Tellabs completed the 800,000-square-foot structure with high-end finishes in 2001 but in recent years has leased space to outside tenants. Recent transactions include deals with accounting and consulting firm Sikich LLC and cable and internet provider Comcast Corp. for 80,000 square feet each.

JDA nearly tripled its revenue and employee count in the past six to seven years, said Mr. Bell, who declined to specify annual revenue. JDA and an affiliated company, Next Recovery Source LLC, have about 150 employees combined in their current location, he added.

The new office can accommodate up to 200 employees and can be reconfigured for as many as 400, he said.

'INCREDIBLE GROWTH'
“Despite the economy, we've experienced incredible growth over the last few years,” Mr. Bell said. “We need more space, and the building we're going to gives us really nice space for our employees, and for clients we bring in.”

JDA provides software called revenue cycle middleware, technology that allows hospitals to efficiently track registration, billing and payment of patient accounts, while Next Recovery Source is a collection vendor. JDA's clients include about 40 hospital systems throughout the U.S., he said.

The move, made possible by executing a termination option in its current lease, is expected by April, he said. The firm has small satellite offices in Dallas and near Fort Myers, Fla., Mr. Bell said.

In addition to Class A space that comes mostly furnished and built out, one major selling point in the Tellabs building was the onsite data center. JDA currently must keep data both on and off site, he said.

“We were able to get unbelievable economics compared with doing a data center somewhere else,” said CBRE Senior Vice President Jon Springer, who represented JDA along with CBRE Vice Chairman Gary Fazzio.

Tellabs occupies about half of the office space in the five-story building, with several tenants using most of the remaining half, a Tellabs spokesman said. “With this lease, the building will be pretty full,” the spokesman said.

Source: CommercialRealEstateDaily, Ryan Ori October 04, 2013

CREConsult4

Downtown Chicago Office Vacancy Lowest in 4 Years

Office vacancy fell during the third quarter in downtown Chicago, reaching its lowest point since mid-2009, after six consecutive quarters of virtually flat leasing

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Overall vacancy rate fell to 14.7 percent during the quarter, down from 14.9 percent in each of the previous three quarters and 14.8 percent in the third quarter of 2012, according to commercial real estate firm CBRE Inc.

 Law firms and other professional services firms have been reducing their space in recent years, while tenants such as technology firms fill the void with continued growth.

 The vacancy rate is at the lowest level since the second quarter of 2009, when it was 14 percent, Los Angeles-based CBRE says. The downtown market faces a big challenge beginning in 2015, when two big tenants leave their locations for a new tower under c

onstruction along the west bank of the Chicago River.

 Even so, the drop is a positive sign for downtown landlords, who have seen vacancies at a virtual standstill over the past year and a half. In the wake of the recession, the vacancy rate peaked at 17.3 percent in mid-2010.

 “I think you're going to see vacancy continue to decline into 2014 at a slow but steady rate,” said tenant broker Brad Serot, a senior vice president at CBRE. “Sublease inventory has been picked over, and the market's still very active.”

 Demand, as measured by net absorption — the change in the amount of leased and occupied space from the previous period — was at 266,481 square feet, the largest amount since the first quarter of 2012.

 “There are still those singles and doubles, companies that have been growing by 10,000 or 20,000 square feet,” Mr. Serot said. “And a lot of the downsizing has already happened over the past 24 months.”

 The largest tenant move during the quarter was actually a contraction, reflecting companies' increasing focus on getting by with less space.

 The American Medical Association took 289,000 square feet at 330 N. Wabash Ave., reducing its space by 12 percent from the 329,200 square feet the doctors' group leased at 515 N. State St.

 The 45-story River Point, the only office tower under construction, took two major steps forward. The development venture led by Houston-based Hines Interests L.P. finalized a lease with McDermott Will & Emery LLP for about 225,000 square feet and signed another law firm, DLA Piper LLP, to a letter of intent for about 175,000 square feet.

Another tenant is in negotiations for a single-floor lease at River Point, 444 W. Lake St. along the Chicago River, said Greg Van Schaack, a senior vice president in the Chicago office of Hines. He declined to identify the tenant.

“There really aren't any big, 600,000-square-foot tenants out there looking for space in 2017,” he said. “We're getting the next-best thing, the 200,000-square-foot tenants.”

It's yet to be seen how many other proposed towers will come out of the ground. But those two law firms will leave big holes to fill, adding to the options of large tenants who might consider a new skyscraper.

“That will really impact the market at the end of 2015 and 2016, when the game of dominoes will occur,” said Mr. Serot, who envisions continued gradual absorption until then.

In the largest expansion during the third quarter, Chicago-based health technology firm GoHealth LLC subleased 93,799 square feet at the Merchandise Mart from Schaumburg-based Career Education Corp. Chicago-based GoHealth is keeping about 76,000 square feet it has in other downtown Chicago buildings.

River North remained the top-performing submarket, with 10.7 percent overall vacancy. North Michigan Avenue has the highest vacancy, 18.7 percent.

Other noteworthy deals included: Zurich American Insurance Co.  took 108,000 square feet at 300 S. Riverside Plaza, growing from about 100,000 square feet at 10 S. Riverside,; and fund manager Harris Associates L. P. subleased 55,400 square feet from law firm Locke Lord LLP at 111 S. Wacker Drive. Harris is moving from 2 N. LaSalle St., where it has about 66,000 square feet.

Source: ChicagoRealEstateDaily Ryan Ori September 30, 2013

Vulture Real Estate Investors Finding Less to Feed on

The quest for distress is getting a lot tougher. The real estate crash created opportunities galore for investors to buy commercial properties on the cheap as lenders unloaded bad loans or foreclosed buildings. But there's less carrion for the vultures to feed on nowadays, as rising rents, occupancies and property values have allowed many landlords to avert trouble. And lenders have sold off much of their delinquent real estate loans or repossessed properties, reducing the supply of distressed assets to buy. “They are really running low on inventory,” says Mr. Hassan, vice president of Edwards Realty Co. The rebounding real estate market is good for most landlords “but bad for opportunistic investors like us.” Of the $18 billion in distressed commercial real estate debt that has piled up in the Chicago area since 2007, $11.2 billion, or 62 percent, has been worked out or resolved, according to Real Capital Analytics Inc., a New York-based research firm. The pile of bad loans is getting smaller as fewer landlords default on mortgages and debt restructuring activity picks up. In the past year, some of the biggest casualties of the crash have gotten back on their feet. In June, a New York investor group invested $100 million in the struggling Prudential Plaza office complex overlooking Millennium Park as part of an agreement to restructure about $410 million in debt. A couple of blocks away, the owner of the Hard Rock Hotel late last year paid off an overdue $68.5 million loan in a recapitalization.

Distressed investors that got in early have made out well, thanks largely to rising property values. A venture including Northbrook-based Arthur Goldner & Associates Inc., for instance, recently agreed to sell the Crossings, a 304,000-square-foot office complex in Oak Brook, for $35.5 million, about three years after buying it for about $20 million through a consensual foreclosure. But with financing plentiful and investors chasing a dwindling number of distressed properties, few bargains are left. “It's a challenge to find interesting opportunities with returns that you can feel good about,” says David Helfand, co-president of Equity Group Investments LLC, the Chicago-based investment firm headed by billionaire Sam Zell. LENDERS OPTIMISTIC Still, many lenders are feeling better about the overall health of the real estate market. The delinquency rate on Chicago-area commercial property loans held by banks fell to 4.9 percent in the second quarter, down from a peak of 7.7 percent in 2011 and its lowest level in nearly five years, according to Trepp LLC, a New York-based research firm. One big reason for the drop: Banks have sold off a lot of bad loans. For investors, the simplest way to get control of a distressed property is to buy one that has already gone through foreclosure. A riskier route is to buy a delinquent loan from a lender at a discount and either work out a debt restructuring with the borrower or seize the property through foreclosure. Another option is to buy a property through a short sale, agreeing to pay less than the amount owed but enough to satisfy its lender. An Equity Group venture, for instance, recently paid $72 million for a River North parking garage, far less than the $13.7 million that the property's lender demanded when it filed to foreclose in November 2011.

Other distressed investors will recapitalize a property with fresh equity but allow the original owner to retain a stake. In 2011, a group including Mr. Zell's firm acquired a majority stake in the 40-story office tower at 200 S. Wacker Drive, allowing the building's owner to pay off an overdue $96 million mortgage. The property recently went on the market and is expected to fetch $226 million, or $300 a square foot. During the bust, investors that didn't need to borrow capital had a big edge, but that edge has narrowed as lenders have returned to the market, says David Ruttenberg, principal of Marc Realty Residential LLC, a Chicago-based firm that has specialized in buying failed condominium projects and renting their units out. So Marc is shifting its strategy. It's still chasing distressed properties but focusing on ones that need to be redeveloped. It recently acquired a former printing facility in Printers Row in a short sale and plans to convert it into 80 to 100 apartments. “The opportunity is no longer on the buy,” Mr. Ruttenberg says. “The opportunity is in the value creation.” Mr. Hassan, meanwhile, is still pursuing distressed properties. In May, Edwards paid $10 million for a lender-owned shopping center in Orland Park that was hit with a $16.9 million foreclosure suit in 2010. But Mr. Hassan has lowered his expectations. “It's been extremely difficult and extremely competitive,” he says. “We're chasing probably three or four distressed deals, and I honestly can't tell you that we'll get one of them.” Equity Group hasn't stopped looking either. Mr. Zell isn't called the “Grave Dancer” for nothing. “There are still deals to be done,” Mr. Helfand says. “It just takes a little more effort, patience and aggressiveness.”

Source: Crains Chicago Business, Alby Gallun September 16th, 2013