Allan Hamilton, 54, has survived a lot of industry shifts, surges and slumps during his 28 years in commercial real estate, so the recent downturn in industry fortunes doesn`t disturb him.
After 23 years with Trammell Crow, most of it in the Chicago office, he and the eight other local partners broke away in 1987 to form their own real estate development and investment firm.
Trammell Crow retained the established buildings and the partners took over ongoing projects under development as well as most of Crow`s vacant land in the Chicago area.
Itasca-based Hamilton Partners today owns more than 16 million square feet in suburban office, industrial and retail projects and last year began $80 million in new projects.
”Despite market changes and less absorption, we made the business judgment to stay with what we know and do best,” Hamilton said. ”So we`ve hunkered down and continued to develop business parks, multi-use buildings and retail centers. We`re not brokers or third-party property managers; our fundamental business is housing business.”
The decision to stick with pure development runs counter to most companies` philosophies, which stress diversification as the only way to survive in these days of overbuilt markets, dried-up financing and a struggling economy.
Almost one-third of the nation`s largest development firms reported in a recent Urban Land Institute survey that they had shifted their emphasis away from development in the last year. Nearly two-thirds said their business has fallen and they have been forced to reduce staff.
”(This year) will be a banner year for developer bankruptcies,” said James Gorman, executive vice president of Real Estate Research Corp., which annually prepares an ”Emerging Trends” report on the industry.
But you won`t find Allan Hamilton among the casualties.
”This is going to be a very handsome cash flow business,” he said.
”The markets are not that far away from being in balance except for the Central Business District, whose troubles put the damper on the real estate business. There`s an 8- to 10-year supply of office space downtown, where there`s more migration and reaction to price.”
But elsewhere in metropolitan Chicago, Hamilton sees markets getting tighter, rents more economic and more rational returns or yields on investment.
”There will be no spec and few buildouts unless there is assurance of economic rents,” he said. ”With the exception of Schaumburg, where there is an excess of Class B space, the suburbs are not in too bad shape. There`s not enough acceptable Class A inventory in the north suburbs and twice as many large users as space in the East-West Corridor.”
Big users in the East-West Tollway corridor may not have as much negotiating ability as the 5,000-square-foot user who has more choice available to him, he said. ”There`s no longer any rationale for owners and buyers to give free rent and discounts. The game is over except for the brokerage community and users.”
Suburban office brokers agree with Hamilton, for the most part, although they still see vacancies as a problem.
”The psychology out in the suburbs is much more positive for the office market,” said Jeffrey Barrett, senior vice president with CB Commercial Real Estate Group Inc., who moved to the firm`s Schaumburg office last year after working downtown.
”There have been vacancy declines in each of the four major submarkets and though there is still a long way to go to get the situation in balance, we`re headed in the right direction,” Barrett said.
”The brightest spot is the north suburban market,” Barrett said.
”There are a limited number of buildings with large blocks of space available.”
Hamilton`s faith in the suburban market is reflected in his firm`s office, industrial and retail projects that sprawl from Vernon Hills south to Orland Park and west to the Fox River.
This month Spiegel will move into the new 14-story, 658,000-square-foot headquarters building that Hamilton Partners owns, developed and will manage at its Esplanade at Locust Point development in west suburban Downers Grove.
In addition to Spiegel, the 80-acre development at Interstate Highway 355 and Butterfield Road includes a 256-room Radisson Hotel connected to the 19-story Esplanade I building whose 540,000 square feet of rentable space is 73 percent leased to such major tenants as Swift-Eckrich, Peachtree Systems and the Amoco Executive Training Center. Hamilton Partners also built a $250,000 day care center at Esplanade, which will be available to employees at Spiegel and Esplanade I.
Completion of the Spiegel headquarters is but one of the projects that have kept Hamilton Partners` 102 employees hopping in the last year.
”We`re developing a new 100,000-square-foot headquarters building for Brunswick in Lake Forest, leasing up inventory, completing warehouses and developing new shopping centers,” Hamilton said.
Under construction is a 220,000-square-foot shopping center anchored by Wal-Mart and Eagle Foods at Meacham and Nerge Roads, Elk Grove Village, as well as Summit Plaza, a Jewel-anchored center adjacent to Cobblers Crossing in Elgin.
Other new developments include a 55,000-square-foot building for Phillips Electronics nearing completion at Hamilton Lakes Commerce Center in Itasca and an 80,000-square-foot build-to-suit office building for Angus Chemical at Chevy Chase Business Park in northwest suburban Buffalo Grove.
Another Hamilton project, the new 12-story, 250,000-square-foot River Walk office building in Buffalo Grove, is 75 percent leased. The firm`s 370-acre Meadows Business Park in Addison/Bloomingdale has two buildings completed and construction to begin soon on a third.
Two one-story office buildings at Washington Commons in Naperville will soon be joined by three more, Hamilton said.
”Hamilton has held its own,” said one real estate broker who deals extensively in the suburban office market. ”All of their buildings are about 90 percent leased, with the exception of one that came on line in the spring, and they have the ability to finance build-to-suit projects.”
”They do have a good amount of land sitting. The only question is whether that will put more pressure on them,” the broker said.
Hamilton Partners` portfolio of office, industrial and retail projects throughout suburban Chicago as well as its huge inventory of developable sites and vacant land support Hamilton`s vision of pursuing large-scale master-planned and multi-phased suburban developments, Hamilton said.
”Our philosophy is to build and hold properties for long-term appreciation and cash flow,” Hamilton said. ”It`s the basis of our success and the key to our future.”
