Instead of worrying about what market is hot (city or suburbs), creative real estate developers find opportunities to repurpose high potential properties to attract new users and reduce vacancy levels. Below are summaries of two developments where vision, creativity, and collaboration led to win-win situations for all involved – whether the properties are located in the suburbs or the city.
Example 1: Repurposing properties in the city
Hillshire Brands made news with its headquarters move from the western suburbs of Chicago into an industrial building owned by Sterling Bay in Chicago’s West Loop. The building was originally built to house a lithograph company in the 1940s, and had been used as an entrance station for the armed forces during the Vietnam War. And while this building may have initially seemed like an odd choice to repurpose as a corporate headquarters, Sterling Bay recognized its value due to its proximity to public transportation and its potential to accommodate a single user within a short period of time.
For Hillshire Brands, the former armed forces entrance station was a great opportunity to physically manifest a cultural change after its spin-off from Sara Lee. Repurposing of the space was thorough, including base building modifications such as opening the all brick facade with bands of glass, new infrastructure, and a roof replacement. The overall transformation resulted in a fit-for-purpose corporate headquarters within a condensed time-frame for Hillshire Brands as well as an investment success for Sterling Bay. Details about these successes are available through the following links:
“Sterling Bay poised for meaty payoff on Hillshire HQ” – Crain’s Chicago Business
“Cole Real Estate Investments Acquires Hillshire Brands Company Headquarters for $97.5M” – MHN online
Example 2: Repositioning properties in the suburbs
Repositioning doesn’t always mean transforming the primary use of the building. There are many instances in which corporate campuses remain office facilities; however, they offer great opportunities to be repositioned as multi-tenant properties. A recent example is taking place at the 1,100,000 sf Kemper Lakes Corporate Office Campus in Long Grove, Illinois.
In 2005, the campus had a vacancy rate of 73% [1] and was purchased by BPG with the sole purpose to renovate and reposition it as a premier multi-tenant corporate office campus. BPG saw potential in the campus’s enclosed pedestrian walkways, conference center, and other amenities, along with its accessible location and growing residential area. BPG’s prior success in repositioning corporate facilities into multi-tenanted office properties led to their interest in the Kemper Lakes campus. Upon acquiring the property, BPG developed and implemented an extensive capital improvement program to attract multiple tenants.
Through a combination of creativity, tolerance for risk, and diligence, BPG is making progress attracting tenants of various sizes to the campus – reducing the overall vacancy from 73% to 13% [2]. Recent leases include ACCO Brands at approximately 190,000 sf and Fresenius Kabi USA at about 101,000 sf.
“ACCO Brands to move in biggest suburban lease since 2010″ – Crain’s Chicago Business
“Kemper Lakes lands another big lease” – Crain’s Chicago Business
Summary Thoughts
Some people may question if companies moving from the suburbs to the city (or vice versa) result in a zero-sum gain in regard to an economic zone (Chicago Metropolitan area was used for this example). Overall, many factors contribute to the vitality of a metropolitan area’s economy. The examples above contribute to long-term economic vitality by reducing overall vacancies instead of adding new space (excess supply) in a regional market, inclusive of the city and suburbs. As the economy grows, companies will need more space for their employees to be productive, resulting in an overall decrease in supply of vacant space. This natural decrease in supply will foster opportunities for developers and companies to add supply through the development of new buildings.
What’s Next
The traditional approach of companies centralizing all functions within one building (city) or campus (suburbs) is changing. In my next post, we will look at two such examples where companies are choosing both the city and suburbs to optimize their space according to function, employee needs, and customer needs.