Industrial Developments International, a relatively new kid on the Chicago-area real estate block, won`t be hurting for holiday cheer this year. Unlike any number of its counterparts, IDI`s stocking is already stuffed.
The Tribune has learned that in the last few weeks the builder of industrial facilities has lined up more than 1 million square feet of new projects that will be constructed between now and next spring. For IDI, it`s the equivalent of finding a shiny new bicycle under the tree.
The sackful of work is a reflection in part of the expected economic pickup in 1993 and the resilience of the Midwest industrial market.
But it is also a reflection of IDI`s capital-rich Japanese parent, which can still afford to pick up the tab for land buys and build-to-suit financings, necessary parts in assembling any industrial deals today.
”We think we really are the most active developer in Chicago this year,” said Michael Cushing, IDI senior vice president-Midwest region.
”No. 1, we`re buying land, and nobody`s doing that. No. 2, we`re putting up speculative buildings, and there`s definitely nobody doing that. And No. 3, we`ve captured a number of significant-sized build-to-suit projects.”
Among IDI`s recent activity:
– The purchase of 24 acres at Church Road and Interstate Highway 290 in Elmhurst for development of the Elmhurst Industrial Park. Formerly the site of a radio station, the parcel is one of the few vacant industrial sites in the western suburb.
A 95,000-square-foot office/service building for Elmhurst Memorial Hospital is already planned there.
– The purchase of 66 acres at Turnberry Lakes International Business Park, on Gary Avenue north of Lake Street in Hanover Park. Ground has been broken here for a 250,000-square-foot warehouse/distributi on building for Circuit City Stores Inc.
IDI also won a contract to develop a similar facility for the retailer in Boston. And the company is developing a 192,000-square-foot addition for Circuit City in Louisville.
In addition, IDI plans to build a speculative industrial building of 280,000 square feet on its acreage at Turnberry Lakes.
– The completion of plans for two additional major speculative industrial buildings: a 135,000-square-foot facility at Glen Pointe Business Park, Bloomingdale and Glen Pointe Roads in Glendale Heights, and a 320,800-square- foot project at Woodcreek Business Park, Remington Boulevard and Woodcreek Drive in Bolingbrook.
Before this year, IDI had built about 350,000 square feet of industrial space and leased virtually all of it. But in 1992, the company has broken ground on about 750,000 square feet of space. The recent deals, with groundbreakings that stretch into next spring, bring that total to nearly 2 million square feet.
That record earned IDI a nomination as the 1992 developer of the year from the National Association of Industrial and Office Parks, an award won by U.S. Equities Realty Inc.
In all, the Chicago IDI office will start new projects or lease space totaling about 3 million square feet in 1992. Not all of the projects are in Chicago, however. The company has done deals in Indianapolis, Cincinnati and Louisville, among other cities.
IDI has an office in Cincinnati, but Cushing said he plans to fold that operation into Chicago next year. The Chicago office will then serve a 10-state region rather the five states it currently covers.
”We`re focusing on industrial, staying out of the office arena. We see
(industrial) activity next year; well, it couldn`t get much worse,” said Cushing, whose firm also intends to stay in the land acquisition market next year. ”The gross amount of activity has shrunk in industrial, but we are able to capture a great percentage of it.”
Not all of IDI`s competitors see such a robust 1993.
”There is some demand there and we are making some deals. We`re riding the recession better than most around the country,” said Michael Novelli, the partner in charge of Trammell Crow Co.`s local industrial operation.
”But we`re seeing very little build-to-suit. There are those deals out there, just not a huge volume of them. Outside of some renewals and expansions, we think demand continues to be anemic.”
Novelli agrees that financing is the key to getting new industrial projects off the ground today. And it is not just the developer that must have a strong credit record; the potential tenant must as well.
And that is where IDI has an advantage.
IDI was formed in 1989 following the collapse of L.J. Hooker Corp., an Australian real estate and retailing firm that expanded rapidly in the United States but fell on hard times by the end of the decade.
Cushing, who had worked in Hooker`s Chicago-area office/industrial group since 1987, kept the operation together and found a new parent in Kajima Corp., the Japanese construction giant.
”That`s an instrumental part of why we are able to do what we are doing today. Kajima`s capital allowed us to move forward.
”But financing has gotten a lot tighter for us, too,” Cushing said.
”Other people have the ability to go out and build; it`s whether they have the gumption that`s still open to question.”
Most surveys of the industrial market suggested activity began picking up in the third quarter of this year, though vacancies remained near 10 percent. ”The signficant level of pentup demand in the market is beginning to break loose as many companies simply can`t wait any longer to forge ahead with expansion or relocation plans,” said Terrence O`Hara, vice president with Grubb & Ellis.
On the new construction side, almost all of the activity is in build-to-suit transactions, deals for buildings that meet the requirements of a specific customer. For the first six months of 1992, deals totaling 2.7 million square feet of build-to-suit projects were signed, up from 1.65 million square feet during the same period of 1991.
Richard Gatto, senior vice president of the Alter Group, a developer that also tracks the build-to-suit market, said Lake and Du Page Counties especially have been poised for a rebound in industrial activity.
”Lake County is active as a result of its low vacancy and (previous)
potential build-to-suit deals in Du Page County have been absorbed by existing inventory,” Gatto said. ”Assuming the current demand remains, you should see a substantial increase in activity there into early 1993.”
Overall, the Midwest industrial market remains the country`s least overbuilt and it stands to benefit the most from any upturn in the export trade sector that could come with a rebound in the worldwide economy, economists say.
”Warehouse/distribution is a mainstay for Chicago and it`s really not overbuilt here, particularly when you`re talking about large, contiguous spaces,” Cushing said.
”I think a fair amount of capital will be directed at Chicago because it is the second largest industrial market in the country and there is still a lot of untapped potential here.”
Part of the reason for his optimism is that changes in warehousing technology and distribution operations have forced many companies to seek new, modern facilities in order to compete.
”I think a lot of the industrial vacancy out there is real, but a lot of it is in functionally obsolete buildings. It`s probably not fair to include that,” Cushing said.
Those older buildings, espcially when they are in closer-in areas where land for new construction is scarce, present another opportunity.
”We hope to expand into the existing building market, buying properties for below replacement cost and rehabbing them. We like the O`Hare area and the city itself and we think we can do these kinds of projects there,” Cushing said.
Although Kajima is its parent, not all of IDI`s construction work goes to the Japanese firm. Cushing admitted, however, that Kajima is taking a more active interest in securing those assignments.
At its inception in June of 1989, IDI had projects going on in Elgin, Glendale Heights and Lemont. Today it has added properties in Joliet, Bolingbrook, Itasca, Des Plaines, Libertyville, Elmhurst and Hanover Park.
Although it has done little in the more risky speculative end of the market until now, Cushing said IDI has been willing to take some risks. As part of its build-to-suit deal with GE Supply, it agreed to assume a $1.5 million lease obligation the company held in Elmhurst.
IDI did sublease that space, he said, thus winning the gamble. It recently placed three tenants in the 132,000-square foot property at 777-781 Church Rd.
American Fastener Division of Elgin National Industries leased 70,000 square feet for a nuts and bolts distribution center; The Meetinghouse Companies Inc., a production, entertainment and special events marketing firm, is taking 30,600 feet for offices and showrooms; and Metropolitan Plants and Flowers Inc., a maker of silk trees and plants, is leasing the remaining 31,400 square feet of office, showroom and assembly space.
