Retail & Office Pivot to Industrial

New York-Based Firm Joins Other Companies Pouring Into Distribution Space After Making a Reputation in Other Sectors, CoStar reports

Thor Equities plans a warehouse development in the Chicago suburbs that’s far more than just another investment. The project shows how the firm long known for retail holdings on glitzy avenues is pushing strongly into popular, but traditionally unglamorous, industrial property.

The New York-based developer said it bought a 6-acre site in Schaumburg, in Chicago’s northwest suburbs, where it plans to build a 109,000-square-foot industrial building. It comes on the heels of its other industrial purchases around the country, reflecting a shift in U.S. commercial property demand in the wake of pandemic-driven changes in consumers’ buying habits.

Thor’s rapid expansion into industrial arrives as other U.S. firms known for different types of properties also dive in, amid a record-low vacancy rate of 4.2% nationally. In 2021, the Chicago area had a record $8.6 billion in sales of $122.2 billion in the United States, according to CoStar data.

Hanover Co., a Houston-based company recognized for luxury apartments, recently launched an industrial division. Another Houston-based firm, Hines — known for trophy office towers — has significantly grown its industrial investments in recent years, including a recent $97.3 million deal for the Bradley Business Center industrial and office complex on Chicago’s North Side.

Related Midwest, part of New York-based Related Cos., is set to take on its first industrial project, a mixed-use plan in Chicago that will include two warehouses on 21 acres of city-owned land on the West Side.

Other firms, such as private equity giant Blackstone Group, had been pouring billions of dollars into industrial buildings even before the pandemic’s disruption of real estate.

Ground-Up Development

The suburban Chicago project at 1211 Tower Road will be Thor’s first ground-up industrial development in the Midwest, the firm said in a statement.

It marks an expansion of Thor Equities’ foray into warehouses, an area of the commercial real estate market that has thrived while others such as hotels and offices have struggled during COVID-19.

The rise of e-commerce has in many cases come at the expense of traditional retailers, such as the ones Thor has long had as tenants. Demand for distribution space has soared even higher since the start of the pandemic, as more people order products delivered to their homes.

Thor, historically known for owning retail buildings on high-rent streets such as New York’s Fifth Avenue, has sold off many of those properties in recent years.

Recently, it has bought industrial buildings and development sites in the United States, France and Spain. The firm has ongoing developments in Brooklyn, northern New Jersey and Adairsville, Georgia. The firm said it also has industrial buildings and development sites in the Philadelphia, Dallas and Los Angeles areas.

In Chicago, Thor has properties in the fast-growing Fulton Market district, including a 19-story office tower it built at 800 W. Fulton. Meanwhile, the firm faces an ongoing $338 million foreclosure suit on the city’s second-largest hotel, the Palmer House Hilton, after the loan matured during the pandemic.

The Chicago area’s industrial vacancy rate is 4.9%, the lowest in more than two decades, according to CoStar data. There has been 38.4 million square feet more space leased than vacated in the past year, 30% higher than previous record levels of absorption.

One developer, Indianapolis-based Duke Realty, in January said its 17.4 million-square-foot portfolio in the Chicago area is fully leased for the first time.

Building on Speculation

Thor wasn’t saying how much it paid for the Schaumburg property, but someone familiar with the deal said it was $3.9 million. The seller was industrial equipment maker Littell.

Thor said it plans to demolish the low-rise building on the site this summer before immediately starting construction of the new warehouse on speculation, or without commitments from tenants.

The site is near interstates 90 and 290, about 13 miles from O’Hare International Airport and 25 miles from Chicago’s Loop business district.

“Thor’s latest acquisition on Tower Road signifies an opportunity to invest in a top-performing market and develop a best-in-class industrial asset,” Thor Chairman Joseph Sitt said in a statement. “We are longstanding believers in Chicago, as evidenced by our diverse portfolio throughout the city, and are pleased to announce plans for our first ground-up industrial development in the Midwest.”

In its first Chicago industrial deal, Thor recently bought a 13.3-acre site at 2750 W. 35th St. and 2940 W. 36th St. along Interstate 55 on the city’s Southwest Side, which it plans to redevelop.

Thor’s strategy to buy and demolish a decades-old building in Schaumburg comes as developers eye everything from outdated corporate office campuses to poorly performing golf courses that they can turn into logistics hubs.

Also in the Chicago suburbs, Dermody Properties has a deal to buy the 232-acre Allstate office campus in Northbrook for $232 million. If it receives zoning approval, Dermody plans to demolish the office buildings and replace them with a distribution center spanning multiple buildings.

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