Core Acquisitions sees a bright future for the Parkway North office park in the northern suburb amid trying times for some suburban office landlords.
Article originally posted on: Crain’s Chicago Business
A Chicago real estate firm is rolling the dice on a soon-to-be vacant Deerfield office building, betting it can modernize it and lease it up amid trying times for many suburban office landlords.
A venture of Chicago-based Core Acquisitions paid a little less than $6.8 million in February for the 100,000-square-foot Ten Parkway North building in the northern suburb, according to Lake County property records. The developer financed the purchase with a $4.7 million loan, records show.
Core Acquisitions bought the 19-year-old building from New York-based private-equity giant Blackstone Group, which picked up the property as part of its $7.6 billion purchase of New York-based Gramercy Property Trust last year.
Blackstone, best known locally as the owner of Willis Tower, has renovated and flipped some suburban Chicago office properties added through mergers and large portfolio acquisitions in recent years. But it quickly sold off Ten Parkway North, which is fully leased by its original tenant, insurance company Markel.
Markel’s deal expires in January, and the company is moving, said Core Acquisitions Principal Bradley Joseph. That’s why Core Acquisitions got the building at a discount—it traded for $25 million in 2010—with a vision to give it a shot of life with a new tenant, or multiple ones.
“It has never been tapped into, to see what a lobby renovation would do, to see what a patio would do,” Joseph said. “It’s an opportunity to reposition a Class A building and give it amenities found in the city.”
It’s the type of wager that’s gaining traction in the suburbs, which have largely seen a tenant exodus over the past decade through corporate moves to downtown. Lake County is no exception, with a 25.7 percent vacancy rate at the end of the year, according to brokerage Jones Lang LaSalle. That was higher than the 23.3 percent average across all suburbs and the second-highest rate of the six suburban submarkets JLL tracks.
But certain pockets of the suburbs with easy access to public transportation and town centers are doing well, prompting developers like Core Acquisitions to outfit buildings in those areas with updated tenant amenities to attract new users. Another Chicago developer, GlenStar Properties, has spent tens of millions of dollars updating large office buildings in Schaumburg, Rolling Meadows, Bannockburn and near O’Hare International Airport.
At Ten Parkway North, part of the Parkway North office park along the Tri-State Tollway just south of Deerfield Road, Core Acquisitions plans to spend as much as $750,000 on capital improvements, including a lobby renovation, changes to the building’s facade and updates to the cafe and conferencing space.
Joseph foresees demand from tenants looking for proximity to north suburban corporations like Abbott, AbbVie and Baxter. Caterpillar’s headquarters move last year to another Deerfield office park also showcased corporate appetite for the area, and Ten Parkway North’s 100,000 square feet of contiguous available Class A space is rare in the area, he said.
Still, Core Acquisitions faces plenty of competition, including within its own office park. Mondelez International is leaving behind more than 50,000 square feet at Three Parkway North when it moves its headquarters next year to the Fulton Market District. Walgreens Boots Alliance has been consolidating its offices in Deerfield, opening up lots of available space. And Takeda Pharmaceutical, which owns three Deerfield office buildings totaling 777,000 square feet along the Tri-State Tollway, is moving its operations to Boston. The company has already vacated some of that space, and the move potentially opens up a lot more.
Joseph said Ten Parkway North will be available sooner than most of the other high-quality office options in the area. His broader confidence in the suburban office market, meanwhile, comes from Core Acquisitions’ work in Schaumburg at Chatham Centre, a 10-story, 205,000-square-foot office building it bought in early 2018 at 1901 N. Roselle Road in the northwest suburb. After a series of renovations, it brought the building to 90 percent leased from 70 percent when it bought it.
“The Schaumburg and Deerfield office markets, we hope, will always have a place in the suburban landscape,” Joseph said.
Core Acquisitions made another suburban investment earlier this year with the Burr Ridge Village Center, a 12-year-old shopping center it bought for $15 million through a joint venture with Orland Park-based Edwards Realty. The companies plan to revamp the 200,000-square-foot property with new entertainment-focused tenants and programming.Letter