Developer’s real estate strategies in Chicago: AIRE recap

On Tuesday, March 12, Chris Gary, vice president with NAI Hiffman’s industrial services group, moderated a developer panel at the Association of Indsutrial Real Estate Brokers (AIRE) monthly luncheon that focused on developer’s industrial real estate strategies in Chicago. The panel consisted of four significant developers: Susan Bergdoll of Duke Realty, Dan Fogarty of McShane, Brian Quigley of DP Partners, and Brian Roach of DCT Industrial. Discussion topics included:

1. The Chicago market vs. other U.S. markets – While Chicago has generally lagged behind the east and west coasts in economic and real estate recovery, its importance as a transportation hub and its overall size ensure that developers will always have Chicago on their short list. The depth of current institutional ownership creates liquidity in the market, something that is highly prized for developers.
2. Chicago sub-markets – In the foreseeable future, institutional developers and investors will flock to the six “core” sub-markets (I-55, I-88, O’Hare, North DuPage, Lake County, and I-80). Due to tenant velocity in these sub-markets, investors see liquidity in their deals. They may not make as high of a return as they would in other markets due to intense competition between landlords, but the potential to sell a leased building on the capital markets trumps all.
3. Class A building / B market vs. Class B building / A market – Class A market trumps Class A buildings, hands-down.  A Class A market is easier to sell on the capital markets.
4. High credit tenant with lower rent vs. lower credit tenant with higher rent –Lower credit tenants lead in this comparison since high credit tenants demand a premium cap rate on the capital markets.

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