Canadian investor grabs another suburban office building

Continuing to push all its chips into the suburban Chicago office market, a Canadian real estate investment trust has agreed to pay about $30 million for Cantera Meadows in Warrenville.  Vancouver, B.C.-based Adventus Realty Trust is set to buy the 203,842-square-foot tower at 28100 Torch Parkway in the west suburb, according to sources. The exact price could not be determined, but it is believed to be about $150 per square foot.

Adventus, a private REIT that has said it plans to go public, continues to load up on well-leased suburban buildings with strong cash flow, undeterred by the weak leasing market. Overall suburban vacancy was 24.2 percent in the third quarter, down slightly from its peak of 25.4 percent in the second quarter of 2010 but still well above pre-recession levels below 20 percent, according to Chicago-based Jones Lang LaSalle Inc.

The eight-story Warrenville tower, which is 92 percent occupied, will be Adventus' fifth acquisition, all in the Chicago suburbs. The five deals since March 2012 total about $140 million.  “Real estate is a local business, and there are definitely benefits to concentrating resources, understanding a market well, being in the deal flow and having operating synergies,” said Jed Reagan, an office REIT analyst at Newport Beach, Calif.-based research firm Green Street Advisors Inc. “We prefer to see REITs that are focusing rather than spreading themselves too thin. That being said, it can introduce risks if a company is placing all of its eggs in one basket, particularly in a market with tough fundamentals and little investor interest.”  Because of its higher risk, suburban Chicago offers greater initial yields, supporting bigger dividends for investors.  “They probably perceive they're in a market where there's not a lot of competition from outside investors,” Mr. Reagan said. “They can throw their weight around and deploy a lot of capital. The downside is, suburban Chicago is a high-vacancy market that's very challenged in terms of long-term rental growth and ease of new supply. There's a reason why yields are so high.”

SUCCESSFUL FOR SELLER
While the long-term outcome on Adventus' suburban portfolio is yet to be seen, the pending sale will wrap up a successful three-year ownership venture of Chicago-based M&J Wilkow Ltd. and CarVal Investors LLC, a subsidiary of Minneapolis-based agribusiness company Cargill Inc.

The partners bought the Cantera property and a neighboring office building that oil giant BP PLC was vacating for approximately $20 million in 2010. In 2011 the venture sold the smaller structure for $14.7 million. The combined resale value will be about 75 percent greater than the purchase price three years ago.  Adventus' president and CEO, Rodney Johnston, did not return a call. Jim Postweiler, a managing director at Jones Lang LaSalle who is brokering the sale, declined to comment. "We feel like we've executed well on our business plan, and it's time to move on to the next transaction,” said John Wiechart, a vice president at Wilkow, declining to comment further.  Wilkow boosted the value of the larger tower by adding tenants EN Engineering LLC, which has grown to 97,177 square feet; Patterson Medical, with 52,220, and Symbria Inc., with 26,610.

Adventus has been part of an invasion of Canadian investors to the Chicago area, which includes Montreal-based Ivanhoe Cambridge investing more than $660 million to help develop the River Point office tower in the West Loop and to acquire twin office towers at 10 and 120 S. Riverside Plaza.  CarVal and Wilkow experienced the trend earlier this year when an affiliate of Toronto-based Agellan Commercial REIT bought their Naperville Woods Office Center for $83.4 million.  Adventus began assembling its portfolio with a $26.5 million deal for an Elgin office complex in March 2012. It has since added the Oak Brook Office Center for $33 million, the Crossings complex in Oak Brook for $35.7 million and a Deerfield building for $15.6 million.



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