COVER STORY, JUNE 2007

USER FRIENDLY
Midwest office and industrial tenants, for different reasons, are driving projects closer to the region’s major transportation corridors.
Kevin Jeselnik

Across the Midwest, there is a wealth of development along many of the region’s major highways and interstates. Office tenants are increasingly attracted to locations that offer convenient access for their employees, and highly visible space within a Class A facility minutes off of a prominent stretch of interstate offers just that. Intuitively, industrial users — particularly distribution and logistics firms — have always sought space along interstates to alleviate excess travel time and aid in the transportation of any goods and materials. Heartland Real Estate Business has spoken with a collection of developers, brokers and architects about a number of projects going up along transportation corridors from Minneapolis to St. Louis, where one of that city’s most heavily trafficked roadways — Interstate 64 — is undergoing an expansive overhaul.

I-64

St. Louis-based NAI Desco is one of a number of firms developing new office and industrial projects along the Interstate 64/Highway 40 corridor west of downtown St. Louis. The company is part of the team developing three Class A, 66,000-square-foot office buildings at 17401 North Outer 40 Drive in Chesterfield Valley, Missouri.

The Missouri Department of Transportation is now beginning an immense 4.5-year project to rebuild and upgrade an approximately 10-mile stretch of I-64 in western St. Louis. The $535 million endeavor will see the six-lane corridor, known to locals as Highway 40, taken down to only two lanes in 2008 and 2009, and area residents are preparing for an extended period of highly congested traffic on one of their most-traveled highways. The roadway is a major link to downtown St. Louis from the growing west side of the market, and many employers are fearful of the effect longer travel times will have on their employees and productivity.

This concern, and a general drive to offset the difficulties this project will create, has lead to a booming development pipeline in and around the west St. Louis County suburb of Chesterfield, which is just west of the affected stretch of I-64.

According to David Morris, a senior vice president of Grubb & Ellis|Gundaker Commercial, activity in this burgeoning submarket has finally picked up as the interstate upgrade gets underway. “I thought that employers would have reacted a little more quickly to avoid the trouble, but things are picking up steam now,” he says. In addition to working from home and tackling arduous detours, some businesses have gone as far as to open satellite offices on the west side, so that employees can avoid the now more-than-1-hour drive into the city.

Those businesses hoping to find quality space west of the roadwork will soon find numerous new options along I-64, as speculative construction has picked up as of late. Jack Holleran, one of the founders of St. Louis-based Holleran Duitsman Architects (HDA) has had a hand in three new projects that have been developed along I-64, and has been a part of planning and developing the corridor for the past 25 years. His partner, Mark Duitsman, has designed more than 23 office projects in the area.

“The last 2 years have shown dramatic improvement, and the office market has shown signs of a comeback,” Holleran says. “[This stretch of I-64] really is one of the major Class A corridors for the whole metro area.”

According to Holleran, I-64 was greatly improved in the 1970s, which lead to its growth as a major office submarket. Though the area will once again be mired in construction and delays, it will serve to reinvigorate the corridor when all is said and done in 2010. Thanks to the office market’s resurgence, much of the available space has been absorbed, and, until the newest projects were announced, there was no space open to large tenants.

HDA designed the 57,000-square-foot corporate building for Gundaker Commercial Group, which was finished last year and is located off I-64 in Chesterfield Valley, Missouri.

Morris’ own firm, Gundaker Commercial Group, recently completed a 57,000-square-foot corporate headquarters facility, which was designed by HDA. The building is located off I-64 on Chesterfield Business Parkway and Long Road. Gundaker occupies the 12,800-square-foot third floor, with Regus/HQ operating on the entire second floor and Premier Bank in 4,300 square feet on the ground floor.

Duke Realty Corporation and Gundaker are joining forces to acquire the 32-acre former Gumbo Jail site near the Spirit of St. Louis Airport in Chesterfield, with possible plans to demolish the existing structures and develop two 125,000-square-foot, Class A office buildings.

Sachs Properties, a Chesterfield-based developer, is developing Central Park Square I, a five-story, 100,600-square-foot office building set to open for occupancy next year on Chesterfield Parkway West. Rental rates for the $25 million spec project are listed at $30 per square foot. BSI is the general contractor; HOK is the architect.

Duke is also planning to begin construction this month on a $20 million, 140,000-square-foot office building in the Lakeside Crossing Business Park in Maryland Heights, Missouri, which is a little northeast of Chesterfield Valley. Duke is serving as the general contractor and Gray Design is the architect for the development of the four-story building, which is expected to be finished first-quarter 2008. Rent is projected to be $23 per square foot. 

The development of the Spirit Valley Industrial Park is underway in Chesterfield Valley, Missouri. The third building slated for development in the park is an office condominium facility that is divisible from 4,800 square feet.

Another local firm, NAI Desco, is making a big splash in the west side submarket, with a diverse collection of office and industrial space aimed at both large and small users. Dan Hayes, a principal with NAI Desco, is heading up these developments, the most significant being the 52-acre Spirit Valley Business Park in Chesterfield Valley. Spirit Valley is easily accessible to I-64 off of Olive Street Road.

Hayes has plans to fill the park, which is located in the west end of Chesterfield Valley, with light industrial and flex users on 1.5- to 20-acre sites. Approximately one-third of the land is under contract with various users. Rental rates are expected to range from $6.50 to $8 per square foot. The buildings will offer approximately 30 to 50 percent finished office space; all the infrastructure is in place and Hayes expects site work to begin this month. An office/warehouse condominium building is the third project that will be developed, and will offer for-sale space ranging from 4,800 to 55,000 square feet. Delivery is expected first-quarter 2008; pricing starts at $110 per square foot.

“There are a couple of other projects underway in this particular area of Chesterfield Valley right now, and the Spirit of St. Louis Airport is really the anchor drawing projects in,” Hayes says. Another reason development activity is increasing is the presence of major retail. THF Realty’s Chesterfield Commons is a major attraction in the area, and that has helped the industrial and office markets grow as well.

“Chesterfield Valley is really the strongest submarket with the ‘ownership mentality,’” Hayes says. To capitalize on all of the interest, NAI Desco is also bringing its own Class A office product to the market, with the development of three buildings totaling 66,000 square feet. Delivery of this project, which is located at 17401 N. Outer 40 Drive in Chesterfield Valley, is expected in second quarter 2008. Hayes expects the project to be 35 to 50 percent pre-sold before ground is broken, and it is being geared toward new users seeking Class A space outside of the Interstate 270 loop.

With all this activity, commercial tenants desperate to avoid the snarling traffic that the I-64 work will bring over the next 4 years can find a site to fit their needs.

I-65/I-70

Duke Realty Corporation is developing its first speculative bulk distribution facility within AllPoints at Anson, the industrial component of Anson, a 1,700-acre mixed-use community underway along Interstate 65 in Boone County, Indiana. Fully built out, AllPoints can accommodate up to 7.4 million square feet of industrial product.

Duke Realty Corporation is also busy in Indiana, where the company has joined with Browning Investments to develop two expansive mixed-use communities along Interstate 65 in Boone County and off of Interstate 70 in Plainfield. Each project includes a large industrial park component — AllPoints at Anson comprises 616 acres that will eventually house 7.4 million square feet of industrial space, which Duke will develop. “AllPoints at Anson is a highly visible, state-of-the-art development that will eventually be home to a total of 24 industrial buildings, and be part of Duke’s master-planned new town development located directly off of I-65, just northwest of Indianapolis,” says Charlie Podell, senior vice president of Indiana industrial with Duke. The first speculative building at Anson is expected to break ground this month. The facility is a 630,573-square-foot bulk distribution building with 80 dock doors, 50-foot by 50-foot interior bays and 94 trailer spaces.

Browning is handling the industrial component at AllPoints Midwest, which is capable of housing 12 million square feet of industrial space over 925 acres in Plainfield. The park is adjacent to the Indianapolis International Airport, and features access to a CSX intermodal rail facility, I-70 and Ronald Reagan Parkway. The first building at AllPoints Midwest broke ground in March and totals 646,380 square feet of bulk distribution space. It also features 36-foot clear ceiling heights, a 140-foot truck court and up to 108 dock doors. Completion is expected in October.

I-39

The I-39 Logistics Corridor, an approximately 100 mile stretch of Interstate 39 running north/south through central Illinois, is a burgeoning stretch of highway that really exploded in the last decade, thanks to careful planning and heavy promotion within the real estate community. Venture One Real Estate, and company principal Mark Goode, has been a part of the corridor’s emergence as a logistics and distribution hub for a number of years. I-39 connects all of the major east/west interstates and highways running through the Midwest, and serves as an access point that has only a quarter of the traffic other area interstates have. Its traffic count is approximately 20,000 to 25,000 cars a day, whereas the Interstate 55/Interstate 80 interchange in the Joliet/Bolingbrook, Illinois, area sees approximately 150,000 cars per day.

Venture One is currently developing the Rock 39 Industrial Park, a 323-acre, master-planned park zoned for industrial use and annexed into Cherry Hill, Illinois, approximately 1 hour west of Chicago. The land was acquired in phases over the past 18 months, with Northside Community Bank providing acquisition funding. The park is geared for large users and will be cross-docked to allow for significant trailer storage.

“The sites, from 100 to 1,000 acres, can support from 200,000 to 1 million square feet of space, and in front of the park is a 125,000-pound load-bearing road,” Goode notes, illustrating Rock 39’s capacity to host logistics and bulk distribution users. The park is fully zoned, and the infrastructure and utilities are being put in place. Venture One has also applied for Foreign Trade Zone designation for the park. Goode likes this market because it has an industrial history, with great labor and municipalities that create a favorable business climate.

“It’s important to look at development in this way, by transportation corridors, because that is how companies think now,” Goode notes. More and more, distribution and logistics firms are planning their facilities around a region’s highway systems, and brokers and developers are beginning to integrate this approach into their operations.

I-94

Carlson Real Estate Company is developing The Oaks Business Park at the intersection of Interstates 94 and 694 in Oakdale, Minnesota. The park will feature a total of 650,000 square feet of office and high-finish flex space upon completion, including a two-story office building.

Minnetonka, Minnesota-based Carlson Real Estate Company is developing The Oaks Business Park. Located in Oakdale, Minnesota, just northeast of the Interstate 94 and Interstate 694 interchange in Minneapolis’ eastern suburbs, the park will include up to 650,000 square feet of mid-rise office, high-finish flex space and office condominiums on 45 acres of developable land. NAI Welsh is handling the marketing for the park.

“There has been lots of growth in the east metro area,” says Wayne Teig, a vice president with Carlson. “It is the last frontier of green land that hasn’t been developed; most of the existing areas north and south of The Oaks have been developed.”

The Oaks Office Suites at The Oaks Business Parkin Oakdale, Minnesota.

The Oaks is located in an emerging business corridor along I-94, near the 3M headquarters campus, and amongst 2 million square feet of office product. The entire site was graded last summer and ground was broken for a 98,000-square-foot flex building, which will feature 18-foot clear ceiling heights and can be finished with up to 90 percent office or laboratory space. Carlson is looking to attract users in the 10,000- to 15,000-square-foot range for that building. The second project will be a two-story, 36,000-square-foot office condo building, divisible from 1,500 to 9,000 square feet.

Carlson also plans to construct a single-story, Class A office building. The brick-and-glass project will total 60,000 square feet, and have 10-foot ceilings and spaces ranging from 3,500 to 12,000 square feet. The building shell was finished in May. McGough Companies served as general contractor for the flex and office buildings; Bainey Group was the general contractor for the office condos.

Future plans call for a two-story, 80,000-square-foot office building; twin 60,000-square-foot office buildings; three more office condo buildings; as well as a 156,000-square-foot, Class A office property on the southwest corner of the site.

HUNT MIDWEST GOES UNDERGROUND TO PROVIDE LARGE-FORMAT INDUSTRIAL SPACE A rendering of a typical 100,000-square-foot building in Hunt Midwest’s SubTropolis underground business park in Kansas City, Missouri. Hunt Midwest has gone underground. The Kansas City-based real estate firm’s industrial park, SubTropolis, is located in underground space cleared by years of limestone mining — mining of the complex was finished in October of last year. It is the largest underground business complex in the world, and has more than 50 tenants in the warehousing, distribution, cold storage and light manufacturing industries. Spanning 1,100 acres and with 4.8 million square feet of space already built out, SubTropolis lives up to its name. The project is only approximately 25 percent full, and when complete will be able to accommodate a total of 20 million square feet. “One of the unique things about the park is that you don’t have any structural limitations,” says Dick Ringer, SubTropolis’ assistant general manager. “It is easy to expand any facility and the approval process is much simpler than those for typical above-ground sites.” To fit a space to a particular tenant, Hunt determines the size that the building will be, and simply builds four walls into the 16-foot space between the smooth limestone floors and ceilings. The lighting is that which you would find in a typical industrial warehouse, and the 25-square-foot columns are spaced 40 feet apart, leaving a large amount of open space for storage or manufacturing uses. Another unique benefit is that the underground space always maintains a stable temperature, which stays between 65 and 72 degrees Fahrenheit year-round. This makes SubTropolis especially attractive to companies storing and distributing temperature-sensitive products that may be affected by humidity or extreme heat or cold. Other  benefits include decreased cost of utilities and rents, as there is no need for heating or cooling utility costs. The park also has BNSF rail service feeding directly into the site, and also has foreign trade zone status. It is located off of Missouri Highway 210 and Interstate 435, approximately 5 miles from interstates 35 and 70. — Kevin Jeselnik