Florida office investor warms up to Chicago

June 5, 2014

Beacon Investment Properties LLC took a decade to buy its first office building in the Chicago area, but the Florida-based real estate fund
manager is making up for lost time.

Managing member Ariel Bentata, who left behind a career as a lawyer to co-found the firm in 2003, remains on the hunt for new deals here even after a whirlwind of four acquisitions for nearly $233 million combined since Oct. 30. That includes two Loop towers, one in west suburban Naperville and one in northwest suburban Buffalo Grove.

Mr. Bentata, a native of Caracas, Venezuela, whose firm invests on behalf of wealthy individuals and institutional investors from South America and Israel,  believes Beacon’s foray into Chicago is well-timed, with high-yield deals available in the suburbs and downtown prices rising yet still a relative bargain compared with major cities on the coasts.

“We feel that Chicago has better opportunities than the gateway markets in the East and West,” said Mr. Bentata, 44, who is based in Florida. “Pricing feels very reasonable, trading well below replacement cost, with a rapidly expanding office-using employment base and a lot of educated workers. We see a great opportunity.”

After a law career that included a stint with MTV Networks Latin America Inc., Mr. Bentata decided to shift from investing on the side to helping create a real estate firm.

Hallandale Beach, Florida-based Beacon has built an 8 million-square-foot office portfolio with properties in its home area of South Florida, as well as Houston, Dallas, San Antonio, Minneapolis, Denver, Atlanta, Charlotte, N.C., and, most recently, Chicago. It has $1.4 billion in assets under management.

Late last year, Beacon spent $24 million on a building at 215 Shuman Blvd. in Naperville and $63.8 million on the tower at 20 N. Clark St. downtown. In May, it added Riverwalk II at 2100 E. Lake Cook Road in Buffalo Grove for $45 million and the tower at 200 W. Monroe St. in the Loop for $100 million.

Beacon looks to continue expanding its portfolio in 2014, including in Chicago, Mr. Bentata said.

He recently shared his perspectives on the Chicago-area office market. Here are edited excerpts of that interview:

Crain’s: What are the advantages of assembling a portfolio in the Chicago area, rather than just buying one building?

Mr. Bentata: There’s multiple aspects of that. There’s personnel you have in a market, taking advantage of your time when you travel to a city, and knowledge of a market and the brokers and principals who may want to do off-market deals with you. And there’s purchasing power with vendors.
After your initial flurry in Chicago, are you being presented with a lot more potential deals?
Yesterday, a broker told us, “That was the smoothest transaction of my life.” We close on time and we don’t retrade. We’re easy to deal with and we do things  quickly. That’s a message that has gotten out, and that causes people to call you. There are no committees or bureaucracies of any kind. When there’s a handshake there’s a deal, and the deal is going to get done quickly.

Chicago has seen a wave of new office buyers, particularly foreign investors. Why is that?
The U.S. is one of the best markets to invest in for many foreign associations. Chicago is at the top of mind for many foreign people. After New York and maybe (Washington) D.C., it’sone of the cities they recognize. The economics are much more compelling than New York or San Francisco or Boston or D.C., the other markets they are maybe considering. Cap rates are extremely low and yields are extremely low (in coastal cities). Some of these markets have hit
all-time highs. They are trading at many times above replacement cost. The economics in those markets are not as compelling.

Many investors in Chicago have focused either on downtown or the suburbs, but Beacon has done both. How do you view the dynamics of each market?
There’s obviously more risk in the suburbs with the vacancy. We view those deals as providing better returns. In the CBD, you generally have buildings that have more (rent) roll, sometimes they’re older, sometimes they need more amenities. In the suburbs we’re finding Class A assets that are in great shape, with less rollover. You’re still getting a good yield. In the suburbs you need to buy Class A buildings with good floor plates, amenities and location. The suburbs have more risk, less absorption and more vacancy, so you need to be more careful with the properties you choose.

Do you think the brisk pace will continue for office deals in Chicago?
I think you’ll see a great deal of volume. People are taking advantage of great interest rates, and sellers are taking advantage of a robust market and pricing they haven’t seen in a long time. But pricing is still very sensible in Chicago, and there is a nice rental growth rate, especially in the CBD.

 

 

From: chicagobusiness.com