REIT Making $32-Mil Office Buy in Lake County

BANNOCKBURN, IL-Great Lakes REIT is a week away from closing on its second suburban Chicago office acquisition of the year, a $31.8-million purchase of 3000 Lakeside Dr. in this Lake County village. The Oak Brook, IL-based office REIT plans to add another $1.5 million in improvements to the two-year-old property after its scheduled Aug. 17 closing.

“The thing I like about this deal is the average term remaining” of 8.2 years on the nine leases, says chief investment officer Raymond M. Braun. “What we like about this transaction is its good initial yield with a tremendous upside.”

The 202,000-sf building just east of the I-94 interchange at Half Day Road will yield 9.0% cash-on-cash return based on its current occupancy of 81.5%, Great Lakes officials say. However, the yield will bump up to 10% when occupancy rises to 90%, Braun says. And at $126 per sf, Great Lakes is acquiring 3000 Lakeside Dr. at least 6% below replacement value.

“We think it’s wholesale pricing for new construction,” Braun adds.

The purchase in the suburb more known as the former home of two Chicago coaching icons, Mike Ditka and Phil Jackson, is somewhat along the same parameters as Great Lakes’ $26-million buy earlier this year of 1600 Golf Rd. in northwest suburban Rolling Meadows. However, that purchase was at an 11% initial capitalization rate.

The direct vacancy rate in the north suburban submarket is 13.1%, but drops to 9.4% for class A space, according to research from US Equities Realty. Braun says the going rate for space is $17.25 per sf.

Major tenants in the building include Mellon Leasing and Greater Chicago Group.

Great Lakes REIT has one more building under contract for a purchase price of more than $30 million, Braun adds.