What companies need to know about the West Cook industrial submarket Josh Will & Brian Chandler

Overview

The West Cook submarket draws companies from the City of Chicago looking for more functional buildings and additional amenities compared to the aging--often obsolete--inventory in Chicago. Companies also migrate to the area from the neighboring O’Hare submarket where interstate and airport access is comparable, but rental rates tend to be higher. West Cook benefits from convenient access to the City of Chicago, close proximity to area interstates & rail providers, and relatively low rental rates. It is primarily an owner/user market, but leasing opportunities have increased as institutional and private owners have entered into the submarket.

Vacancy Rate

Currently, West Cook's vacancy rate is at 8.26% and is made up of 14 cities, with Franklin Park, Melrose Park, Schiller Park, and Northlake inventory combining to make up 79.91% of the submarkets total of 58,036,172 SF. The West Cook submarket is currently marketing 6.36 million SF of available space, 1.52 million SF more than the Central DuPage market at 4.84 million SF.

Existing Buildings

Many buildings in this submarket were built in the 60's and 70's and are equipped to handle heavy manufacturing, supplying heavy/thick floors, and overhead bridge cranes. Finding these types of buildings in DuPage can be few and far between. The cost to retrofit a pure warehouse into a manufacturing operation would most likely outweigh the benefit of the perceived DuPage County tax savings, as opposed to moving into an already established manufacturing building in Cook County.

6b tax abatement

The 6b tax abatement is a Cook county program designed to give tax relief to industrial properties. This incentive lasts for 12 years and is tied to the property--not the property owner--meaning one can transfer this incentive if the building is sold, adding significant value to the transaction.

Typically, an industrial asset would be assessed at 25% of its market value, but the 6b lowers the assessment level down to:

  • 10% of its market value for a period of 10 years
  • 15% of market value in year 11
  • and 20% in year 12

An easier way to think about this is with a 6b in place you save 60% off of your property taxes from years 1-10, 40% off your taxes in year 11, and 20% off of your taxes in year 12. What this means for you is that over that course of 12 years you save 55% off your property taxes.

Who is eligible to receive a 6b?

To receive a 6b on a property, the property must fall under a certain category: new construction, substantial rehabilitation, or substantial re-occupancy of an abandoned property.

What does Cook county gain from this program?

The 6b has a few purposes that are beneficial to the entity receiving the abatement, as well as county itself. It attracts new industry to the area, stimulates expansion & retention of existing industry, and increases employment opportunities in the area.

For example...

Imagine ABC Manufacturing goes out of business 2 years ago in Franklin Park, but the 40,000 SF building sits vacant the entire time. The owner of the building is still paying property taxes. The building is not creating jobs, and if it sits vacant that long, it might start to look like an eye sore. Now imagine the next buyer is XYZ Manufacturing and they will be bringing 40 jobs to the area. Those employees will be eating lunch at the local restaurants, fueling up their cars at the local gas stations, and maybe even moving their families into nearby homes, all while XYZ Manufacturing is renovating the building and improving the area in the process. The property taxes for XYZ Manufacturing with a 6b incentive will be roughly equivalent to that of a fully vacant building, but now the local economy will be getting stimulated.

Historical Sales

Over the past five years, Central DuPage and West Cook were both susceptible to fluctuations in the market. It appears that both markets are comparable in sustaining a stable average per square foot sale price.

In this time frame, average Central DuPage pricing was between $42.22 PSF and $75.10 PSF, a spread of $32.88 PSF. In West Cook, average pricing was between $21.59 PSF and $52.40 PSF, a difference of $30.81 PSF.

Case Study

The data below was gathered using real buildings that are currently for sale in the market. Buildings were selected based on a manufacturer looking for a property to purchase ranging in size from 15,000 -25,000 SF. The numbers below show the significance of taxes and how they can greatly swing the economics of an asset. It also shows the large spread between current Central DuPage asking prices compared to West Cook. Assumptions are based on conventional financing using a 20-year mortgage with a 4.75% interest rate and a 20% down payment.

West Cook

Central DuPage

Note the two scenarios for the West Cook buildings if the building was granted a 6B tax abatement vs. no tax abatement. Based on the following scenarios, without negotiating the asking price, a manufacturer with a 6B would end up paying around $3.69-$4.14 PSF annually for their mortgage and tax payments. Without receiving the 6B they would be around $5.36-$6.09 PSF, compared to $5.45-$6.66 PSF in Central DuPage. This shows the significance a 6B can play in the decision-making process when selecting a building and county for your operation.

Pictured from top left to right: (1) 9525 River Street, Schiller Park; (2) 9229 Ivanhoe Avenue, Schiller Park; (3) 9611 Winona Avenue, Schiller Park; (4) 540-544 Windy Point Drive, Glendale Heights; (5) 1770 W Cortland Street, Addison; (6) 520-524 Windy Point Drive, Glendale Heights; (7) 1405 W Jeffrey Drive Addison; (8) 390 W Irving Park, Road Wood Dale

Contact

We’re happy to be a resource for market updates, property valuations, leasing & sales, and any other commercial real estate questions you may have. Don't hesitate to reach out to us for more information.

Josh Will | jwill@hiffman.com | 630-317-0794
Brian Chandler | bchandler@hiffman.com | 630-317-0738

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