Rising taxes won’t stop Chicago’s surging industrial market, developers say

By Alex Nitkin | June 04, 2019 02:00PM

Clockwise from left: Jim McGill, Mark Goode and James Martell (Credit: iStock)

Clockwise from left: Jim McGill, Mark Goode and James Martell (Credit: iStock)

High taxes and byzantine building regulations aren’t enough to keep industrial developers out of Illinois.

Real estate shot-callers who consider taxes a barrier to entry into the state’s market are either crying wolf or missing the myriad other benefits the country’s third-largest metro area has to offer, an array of industrial developers and lenders said during a Tuesday conference hosted by Bisnow.

“They bitch about it, but taxes are not a big expense to a company,” said Mark Goode, principal at Rosemont-based Venture One Real Estate, which owns dozens of industrial properties across the region. “You may fight for a nickel on rent, but when it gets to the CFO, they’ll ask how much labor is going to cost, and how much you’ll save on transportation.”

Taxes and transportation were both top of mind in the wake of the landmark legislative session that wrapped up in Springfield over the weekend, when lawmakers raised taxes on gasoline and other car-related expenses to fund a $45 billion capital bill. Legislators also approved a ballot measure that would raise income taxes on residents who earn more than $250,000 and created a “task force” to explore ways to bring down property taxes.

The changes come amid Mayor Lori Lightfoot’s pledge to take a tougher stance on the real estate industry, and Cook County Assessor Fritz Kaegi’s vow to make commercial real estate heavyweights shoulder a heavier share for the county’s tax burden.

Goode tried to tamp down fears that Kaegi’s new math will blow up the market for commercial and industrial operators, after some north-suburban property owners saw their assessments more than double this spring.

“He’s an elected official, and politicians in all these communities are going to be very upset if all of a sudden he doubles their taxes,” Goode said. “We’re in the first few months of a process … and he can always adjust it back down.”

Political obstacles and the shrinking availability of wide-open properties in Chicago have driven industrial developers to cities like Louisville, Nashville and Columbus, Ohio, where warehouse construction has spiked dramatically in the last several years, panelists said.

Those smaller cities have seen a “much larger demand” for large-scale new construction and warehouses suited to unique tenants, while smaller in-fill sites are Chicago’s “bread and butter,” said Jim McGill, who leads the nascent industrial division of CA Ventures.

But the Chicago area is one of the only regions with enough “human resources” to satisfy companies’ voracious demand for employees in a drum-tight national labor market, according to James Martell, CEO of the Chicago-based Logistics Property Company.

“You may see some yield benefits looking at other markets, but Chicago is still the industrial hub of the Midwest,” Martell said. “Everything has to flow through here at some point, so with all of the political issues, there’s still going to be a demand for industrial real estate driven by logistics activity.”

Logistics Property Company announced plans this year for a 900,000-square-foot shipping campus in south-suburban Country Club Hills and a 137,000-square-foot “last-mile” facility in McKinley Park on the Near South Side, set to join the more than 17 million square feet it’s already built around the country.

It’s among a multitude of developers and other investors cashing in on the region’s 6.3 percent industrial vacancy rate, an 18-year low.

This week, New York-based investment giant Blackstone made an eye-popping $19 billion bet on the industrial sector with its purchase of a nationwide warehouse portfolio from Singapore-based GLP Pte.