The Wall Street Journal
Construction crews will begin excavating a site overlooking Interstate 294 in Chicago's north suburbs next month to prepare for an unusual event in this ailing commercial real estate market: a new office building.
Astellas Pharma Inc., a Japanese pharmaceutical company, will break ground on a $150 million two-building campus that will be the new headquarters for North American and South American operations. GlenStar Properties of Chicago, which sold Astellas the land, has remained the building's developer.
Most developments are stuck on drawing boards these days because the conventional bank construction financing market is dead. The Astellas project is among the few able to move forward because it is going to be occupied by a company with a strong balance sheet.
The Astellas development also is notable because of the Illinois concrete construction bargains the company was able to achieve. Labor unions and vendors have been so desperate for business they have been willing to cut costs. Nationwide, the cost of building an office building has dropped about 4.8% in March from a year earlier, according to the Bureau of Labor Statics Producers Price Index.
"There was never a better time to buy," says Collette Taylor, manager of facilities for Astellas.
The $150 million price tag on the 425,000-square foot Astellas project is roughly 20% less than the $180 million to $190 million range that the building might have cost closer to the peak of the building boom a few years ago, according to David Graff of MB Real Estate, which is managing the project for Astellas.
Thanks to the lower costs, Astellas was able to afford a trophy-style design by a brand name architect, Goettsch Partners, which will stand out in the suburbs where less-costly precast concrete buildings are more the norm. "You don't see many buildings like this in the suburbs," says Mr. Graff.
Astellas' will pay about $11 million for the glass curtain-wall that cost $13 million in 2008, he said. The savings enabled the company to buy slightly more land and build a covered parking structure, where each space will cost $1,200 rather than $1,600. Structural steel was purchased for $7 million, down from the $11 million expected cost..
Other items on the company's wish list didn't have to be cut because of the savings, says Joseph Dolinar, a partner with Goettsch Partners.
But the savings on construction costs for companies like Astellas means Illinois concrete contractors are slicing their margins very thin to win business, says Ken Simonson, chief economist with the Associated General Contractors of America. With costs of some materials such as copper and diesel fuel on the rise again, some contractors are getting pinched.
"It's extremely tough for most contractors," says Mr. Simonson. This year he expects many of them to go out of business.
Astellas, which makes the drug Prograf that is used by transplant patients, has been expanding at its Americas' headquarters in Deerfield, Ill., since the Japanese company was formed in 2005 by a merger of Yamanouchi Pharmaceutical Co., Ltd. and Fujisawa Pharmaceutical Co. Ltd. It began exploring expansion options in 2007 and acquired the site from GlenStar in the fall of 2009.
Until banks get back to financing concrete construction, more companies will have to pay for their own new buildings, says Jack McKinney, president of the Chicago real estate services firm of J.F. McKinney & Associates. He adds that the shift makes sense given that corporations can often borrow money at lower costs than developers. Ms. Taylor declined to say how the company was financing the project.
Mr. McKinney notes that in the 1970s buildings like Chicago's Sears Tower, now known as Willis Tower, were paid for and built by their corporate tenants. If that trend returns, developers will be more involved in building, rather than owning projects, he says. It could prove less lucrative, but it would reduce risk, he notes. "Half a loaf is better than no loaf."
Astellas Pharma Inc., a Japanese pharmaceutical company, will break ground on a $150 million two-building campus that will be the new headquarters for North American and South American operations. GlenStar Properties of Chicago, which sold Astellas the land, has remained the building's developer.
Most developments are stuck on drawing boards these days because the conventional bank construction financing market is dead. The Astellas project is among the few able to move forward because it is going to be occupied by a company with a strong balance sheet.
The Astellas development also is notable because of the Illinois concrete construction bargains the company was able to achieve. Labor unions and vendors have been so desperate for business they have been willing to cut costs. Nationwide, the cost of building an office building has dropped about 4.8% in March from a year earlier, according to the Bureau of Labor Statics Producers Price Index.
"There was never a better time to buy," says Collette Taylor, manager of facilities for Astellas.
The $150 million price tag on the 425,000-square foot Astellas project is roughly 20% less than the $180 million to $190 million range that the building might have cost closer to the peak of the building boom a few years ago, according to David Graff of MB Real Estate, which is managing the project for Astellas.
Thanks to the lower costs, Astellas was able to afford a trophy-style design by a brand name architect, Goettsch Partners, which will stand out in the suburbs where less-costly precast concrete buildings are more the norm. "You don't see many buildings like this in the suburbs," says Mr. Graff.
Astellas' will pay about $11 million for the glass curtain-wall that cost $13 million in 2008, he said. The savings enabled the company to buy slightly more land and build a covered parking structure, where each space will cost $1,200 rather than $1,600. Structural steel was purchased for $7 million, down from the $11 million expected cost..
Other items on the company's wish list didn't have to be cut because of the savings, says Joseph Dolinar, a partner with Goettsch Partners.
But the savings on construction costs for companies like Astellas means Illinois concrete contractors are slicing their margins very thin to win business, says Ken Simonson, chief economist with the Associated General Contractors of America. With costs of some materials such as copper and diesel fuel on the rise again, some contractors are getting pinched.
"It's extremely tough for most contractors," says Mr. Simonson. This year he expects many of them to go out of business.
Astellas, which makes the drug Prograf that is used by transplant patients, has been expanding at its Americas' headquarters in Deerfield, Ill., since the Japanese company was formed in 2005 by a merger of Yamanouchi Pharmaceutical Co., Ltd. and Fujisawa Pharmaceutical Co. Ltd. It began exploring expansion options in 2007 and acquired the site from GlenStar in the fall of 2009.
Until banks get back to financing concrete construction, more companies will have to pay for their own new buildings, says Jack McKinney, president of the Chicago real estate services firm of J.F. McKinney & Associates. He adds that the shift makes sense given that corporations can often borrow money at lower costs than developers. Ms. Taylor declined to say how the company was financing the project.
Mr. McKinney notes that in the 1970s buildings like Chicago's Sears Tower, now known as Willis Tower, were paid for and built by their corporate tenants. If that trend returns, developers will be more involved in building, rather than owning projects, he says. It could prove less lucrative, but it would reduce risk, he notes. "Half a loaf is better than no loaf."
