Central Grocers Inc. is preparing to move this weekend to a new, $75-million distribution center in the far southwest suburbs, even though the sale price of its longtime location near O’Hare International Airport has fallen by more than a third, to $31 million.
When the wholesale grocery co-operative known as Centrella agreed in June to buy the facility in Joliet, it planned to finance the deal with the proceeds from the sale of its 44.2-acre complex at 11100 W. Belmont Ave. in Franklin Park.
But those proceeds have gotten a lot smaller since then because of the recession and the very tight market for loans on development sites and large, vacant properties.
The deal has been “action-packed,” says Centrella CEO Jim Denges.
Last summer, Chicago-based industrial real estate owner Ridge Property Trust signed a letter of intent to buy the Franklin Park property for about $47 million before backing away, people familiar with the deal say.
Last month, Franklin Partners Inc., a small, Oak Brook-based industrial developer, signed a letter of intent to buy the same property for about $31 million, those sources say. That deal is expected to close in about three months.
A sharp decline last year in demand for top-quality warehouse space near the airport was a bigger factor in Ridge’s decision to walk away than the tough market for loans, says James Martell, chairman and CEO of the privately held real estate investment trust . He declined to comment on price.
And without demand from tenants, “those land prices dropped like a lead balloon,” he said.
Mr. Denges acknowledged a big drop in price between the two deals but declined to discuss specifics. Because the Franklin Park sale hasn’t closed, Centrella tapped its line of credit to complete the purchase of the new building, in the Cherry Hill Business Park in Joliet, he said. The company is still seeking permanent financing for the purchase.
The price for the state-of-the-art 920,000-square-foot facility was $75 million, or $81.50 a square foot, property records show. An executive with the seller, Rosemont-based developer Northern Builders Inc., did not return a call requesting comment.
Centrella plans to move operations to Joliet from Franklin Park this weekend, Mr. Denges said. The new facility is large enough to accommodate the operations of Hodgkins-based Certified Grocers Midwest Inc., which last year agreed to join Centrella.
Related story: Grocery distributors to merge, build Joliet hub
Meanwhile, Franklin Partners has hired Chicago-based real estate firm Paine/Wetzel ONCOR International to market the Franklin Park property, an eight-building, 970,000-square-foot complex.
Franklin Partners’ price is boosted by Centrella’s agreement to lease back the property for an undetermined time after it leaves, while Franklin Partners looks for new tenants. The leaseback provision also makes the acquisition more attractive to Franklin Partners’ prospective lenders, many of whom are reluctant to finance speculative projects.
Unlike Ridge, which planned to raze the site and build new warehouses, Franklin Partners is taking a more pragmatic approach, looking to lease the buildings individually, says Rodger Chenore, an executive vice-president with Paine/Wetzel.
When the air cargo business was booming, land prices and building rents soared near the airport.
“We are not really attacking the air cargo business,” Mr. Chenore says. “We just happen to be there with buildings we think they can use, at a price that’s significantly less than new construction.”
Donald J. Shoemaker of Franklin Partners could not be reached for comment. His father, Donald L. Shoemaker, a longtime developer and also a partner in the firm, died Feb. 21 at age 74, according to the Chicago Tribune.
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