Warehouse demand brings attention to South Side properties

For real estate developers and investors around Chicago, the best-laid plans often involve warehouses.

It is a humble use and not without controversy, but the push for shipping and storage across the metropolitan area has been the hottest thing in property development in years. It’s led to a proliferation of mega-sized buildings, often 1 million square feet, in the suburbs and developers scouring the city for well-placed parcels.

Size matters.

In the Back of the Yards community is a large parcel ticketed for a warehouse and distribution complex. The address on the zoning application is 4435 S. Western Blvd., but the property runs mostly behind commercial sections along Western, including a Home Depot at 47^th Street and Western. At more than 30 acres, the development site is larger than some Chicago parks. For an industrial user, it backs up conveniently against the Norfolk Southern Railway right-of-way.

The property, however, is fully occupied by a company that’s been there for years. It’s Wheatland Tube, a manufacturer of pipes, electrical conduit and other products.

Wheatland is part of Chicago-based Zekelman Industries. Executives did not reply to messages about plans at the site. Craig Chico, president and CEO of the Back of the Yards Neighborhood Council, said Wheatland will be leaving the area, although when isn’t certain.

Recalling a presentation from Wheatland more than a year ago, Chico said, “They’re looking for space where they can get all their operations under one roof and be more efficient. Most likely, that will be outside the city.”

Property records show Wheatland sold its three buildings in 2021 to New York-based Brookfield Properties for $24.39 million. A source familiar with the property said the deal was a sale-leaseback that allowed Wheatland to stay for the time being.

Brookfield’s diverse property portfolio includes retail space on Michigan Avenue and the office floors above the Macy’s on State Street. In 2022, Brookfield handed ownership of Water Tower Place to its lender after Macy’s and other stores left the premises during the pandemic.

Last December, Brookfield submitted to city authorities its zoning proposal for the Wheatland site. It is due for a Chicago Plan Commission hearing Thursday. The company wants to replace what’s there with three buildings totaling 589,000 square feet. The plan for 721 vehicle parking spaces and 82 loading docks suggests the large scope of the project.

Brookfield did not reply to requests for comment.

Chico said while it’s unfortunate when a longstanding factory leaves a neighborhood, replacing it with a warehouse should bring a small reduction in air pollution. The Chicago Sun-Times has reported Wheatland is among dozens of companies for which the city has dropped pollution citations without explanation.

Warehouses often draw criticism for their truck traffic. But Chico said the redevelopment should bring few problems, as trucks can maneuver within the property and spend less time on city streets. In Back of the Yards and McKinley Park, MAT Asphalt has gotten far more attention for pollution complaints.

A source said the redevelopment could eventually bring in 400 jobs but no tenants are signed yet. Brookfield would have flexibility on starting the project. It’s asking for a “business planned development” designation that gives developers six years to begin a project before a site reverts to its former zoning.

It’ll want to move faster than that, but developers could soon find logistics is no longer the slam dunk it has been. Some experts believe vacancy rates will start increasing because of a coming surge in speculative projects — those without tenants signed in advance. Banks nervous about exposure to commercial real estate also could start passing up proposals.

But the Chicago area’s industrial appeal is still something to behold. The real estate firm Colliers said in 2022, the area led the nation in net industrial leasing, with 40.6 million square feet absorbed. Colliers said the demand allowed rental rates to increase 14% during the year.

Most of the action was in big-box warehouses that sprawl near Interstates 55 and 80. But Colliers said rent hikes were greatest in so-called “infill” city sites.

A short drive from the Wheatland property is a site at 328 W. 40^th Pl. that’s vacant, according to a zoning application from The Missner Group in Des Plaines. It wants to build a 181,000-square-foot warehouse for multiple tenants. Missner has been a busy investor in the South Side, with recent projects at 3900 S. Normal Ave. and 1032 W. 43^rd St.

Also on tap in the city is 1237 W. Division St., a planned warehouse that’s unusual because it will have two floors, with loading docks on each one.

If history is any guide, the projects will keep coming until developers and their financiers get nothing but echoes out of all that new space.

Anthony Vazquez/Sun-Times