Persistence Proves Productive
Persistence among commercial real estate practitioners is more than a personal attribute — it’s fast becoming a necessary business skill. As transactions grow increasingly complex, detail-minded brokers must follow through on every point of due diligence — or risk losing the deal.
Sometimes a deal falls through anyway, despite a broker’s best efforts. In such cases, truly tenacious brokers call upon their creative energies to find a solution that brings results.
Marc A. Boorstein, CCIM, principal of MJ Partners Real Estate Services in Chicago, recently had a deal that appeared straightforward. But even after it took a few wrong turns, he refused to let go until he reached a satisfactory conclusion.
Looking for a Deal
Boorstein’s transaction began with a form of prospecting. Browsing through a local business journal, he came across an advertisement for an industrial property located off Interstate 290 in Bellwood, Ill., 15 minutes west of Chicago.
"We had recently leased a similar industrial facility also overlooking the Eisenhower Expressway [I-290] and we thought this property might offer alternative uses such as redevelopment for retail, industrial, residential or mini-storage."
He and a partner met the owner, who was using the building as an equipment warehouse for his Plano, Ill., company. "The owner had owned the property for over eight years and wished to consolidate his equipment auction company to his Plano location, which was over an hour’s drive away," Boorstein says. The owner was eager to sell the building because the carrying costs — real estate taxes, maintenance, and insurance — exceeded $100,000 annually.
"We discussed the potential of converting the entire facility to a high-end, climate-controlled self-storage facility," Boorstein says. The idea impressed the owner to the point where he said he would consider a joint venture with an experienced developer.
Demographic reports and a market survey confirmed Boorstein’s hunch that the building might interest self-storage operators. The 73,000-sf concrete facility sits on 4.3 acres of land in an industrial corridor surrounded by a large concentration of single-family homes. About 272,000 people live within a four-mile radius with an average household income close to $70,000. The facility has excellent access to I-290 and I-294 and is visible from I-290, which carries over 180,000 vehicles daily.
"Our research showed that two nearby national self-storage operators, Public Storage and Shurgard Storage Centers, had facilities near 100 percent occupancy and rental rates ranging from $9 psf up to $38 psf for climate-controlled units," Boorstein says. Confident that the property could be sold or leased to a self-storage operator, MJ Partners listed the property for $1.75 million.
Familiar with the requirements of self-storage operators from previous transactions, Boorstein knew that visibility from the expressway would be of paramount concern to a potential buyer. Several large trees hid the building from drivers’ view in one direction. "We contacted the Illinois Department of Transportation ... [and] discovered that any trees removed would have to be replanted on the property."
Not surprisingly, given the push by self-storage operators to establish themselves in top metropolitan markets like Chicago, MJ Partners received several proposals from private companies and public real estate investment trusts to acquire the property outright. One of those was the Devon Group, a private company from Emeryville, Calif., which signed a sales contract.
Specializing in adaptive reuse of industrial and retail properties into high-end, climate-controlled mini-storage facilities, "The Devon Group did not have any other mini-storage locations in Illinois," Boorstein says. What’s unusual about this self-storage company is that it offers drive-through access in its facilities. "It planned to convert the existing building utilizing the 17-foot ceilings as a central core for trucks to drive through for interior loading into the storage units," Boorstein says.
The Devon Group converted an empty warehouse store in Stone Mountain, Ga., into a self-storage facility with a center drive lane wide enough for two semi trucks, according to an article in the industry publication Inside Self-Storage. Tenants enter the building through an access-code roll-up door and drive right to their storage spaces — a convenient feature in locations like Chicago, home to many forms of inclement weather.
Boorstein says the deal was on its way to closing, when a week before, "The buyer discovered evidence of environmental contamination in the preliminary title commitment that contradicted a previously clean environmental report," he says. "The buyer performed a Phase II environmental assessment showing cleaning solvents had leaked into the ground. The cost of remediation could be as high as $390,000."
That was too high for the Devon Group’s financing source, which pulled its money, canceling the transaction.
Redoubling their efforts, Boorstein and his associates put together a list of alternative approaches, which included remediating the property and remarketing it or leasing or selling it in its current condition. Remediation seemed out of the question, since it could take as long as a year.
Then Boorstein hit upon marketing the property to an environmental firm. "At Illinois CCIM meetings, we had been introduced to several companies that specialize in the purchase and remediation of environmentally contaminated properties."
Selling to an environmental cleanup firm would allow the owner to sell the building in the shortest amount of time, without having to address the remediation problem. Ultimately the property sold to Chicago-based Equitable Property Consultants, which planned to clean up the contaminated portions of the property and either lease it as a multitenant building or sell it outright.
A Second Opportunity
After interviewing other industrial brokers, Equitable hired MJ Partners for the remarketing effort. "We devised a new marketing plan that included contacting new and previously interested prospects. Multiple offers were generated from storage companies and from new prospects, including industrial developers wishing to demolish the building and erect a high-cube warehouse. All offers were contingent on delivering the property after the environmental cleanup was performed in conjunction with Pioneer Environmental."
The purchaser chosen was a familiar name — the Devon Group — the original buyer, a full year after its original contract. Along with a new financing source, "The Devon Group had the shortest due diligence time of all the new prospects generated as a result of its previous investigations of the property," he says.
The cleanup is now in progress and the transaction will close after the property receives a "no further remediation" letter from the Illinois Environmental Protection Agency.
Boorstein says he persisted with the transaction because he knew his company had the tools to see this dilemma to its rightful conclusion. "First, we understood the potential of the property, currently underutilized as an equipment warehouse. Second, we were able to offer solutions and bring various parties to the transaction through our CCIM contacts, self-storage experience, and local industrial transaction experience. Third, with a little ingenuity and persistence, we repeatedly told our clients — and ourselves — that, ‘The deal isn’t dead until the broker says it is.’ "