• Allstate Headquarters Campus in Chicago Suburbs Eyed as Distribution Center Site

    Allstate wants to sell its headquarters campus in Northbrook, Illinois. (CoStar)
    Allstate wants to sell its headquarters campus in Northbrook, Illinois. (CoStar)

    By Ryan Ori
     
    Insurance giant Allstate’s headquarters campus in Chicago’s suburbs could be headed for a new life as a sprawling distribution center in a high-profile deal that highlights the disruption the pandemic is having on commercial real estate.
     
    Industrial developer Dermody Properties is negotiating to buy the 186-acre campus in Northbrook, Illinois, for more than $200 million, according to people familiar with the deal.

    If Dermody completes the purchase, it could put in motion one of the most dramatic redevelopments of a U.S. corporate office complex, resulting in Allstate’s office buildings being replaced with a distribution center with millions of square feet of new industrial buildings. The talks come as demand for industrial real estate surges as a result of the acceleration of online purchases due to the coronavirus.

    No matter the outcome in Allstate’s case, decades-old suburban campuses such as Allstate’s are likely to continue attracting attention from industrial developers, said Eric Feinberg, co-head of Savills’ Chicago office.

    “It would take a lot of money to invest in some of these outdated buildings as offices,” Feinberg said. “Would a developer rather spend $150 to $200 a foot in upgrading those buildings with the hopes of attracting a corporate tenant in suburban Chicago, where demand is anemic anyway? Or do you invest less money where you know there’s going to be a user?”

    The negotiations raise the question of where Allstate, which has been based at the Northbrook campus on Sanders Road since 1967, will move its headquarters.
    Allstate leases 102,000 square feet in Chicago’s Merchandise Mart, also known as theMART, and it leases a much smaller space in the nearby River Point office tower at 444 W. Lake St.

    Details of Dermody’s plan are emerging a month after Allstate disclosed plans to sell its longtime headquarters. The company indicated the planned sale is related to people continuing to work from home, but Allstate provided few other details. In a statement at the time, Allstate said it planned to keep “a significant presence in the Chicago area.”

    Neal Driscoll, Midwest Region partner for Dermody, and an Allstate spokeswoman did not respond to requests for a comment.

    Multiple Buildings

    The campus includes the 850,000-square-foot main headquarters building at 2775 Sanders Road. Other structures include a 590,000-square-foot building the insurer owns at 3075 Sanders Road just south of the primary building.

    The site, along Interstate 294 and amid wealthy North Shore households, could be desirable to retailers such as Amazon that want to quickly deliver online orders.
    But an industrial plan is likely to get pushback from suburban officials, real estate professionals say.

    The campus has a Northbrook address, but it is in unincorporated Cook County between the suburbs of Northbrook, Glenview and Prospect Heights. Glenview has the right to annex the Allstate campus into the village if Allstate were to sell it, the Journal & Topics newspaper has reported.

    The exact price Reno, Nevada-based Dermody is set to pay could not be determined. Crain’s Chicago Business, which previously reported the talks, estimated it would sell for more than $200 million.

    Even factoring in extensive parking for trailers, the site is large enough to build 3 million square feet or more of warehouses.

    Allstate’s move to sell the campus comes amid a historic high 95.3 million square feet of available office space in the Chicago area, or 18.7% of the total supply, according to CoStar data.

    Industrial Space Demand

    There has been 29.7 million square feet more industrial space leased in the Chicago area than vacated in the past year, a record level of absorption that is more than twice levels seen over the past five years, according to CoStar data. Chicago-area vacancy is 5.4%, the lowest level in more than two decades.

    Chicago’s suburbs in recent years have lost several prominent companies in moves to downtown Chicago, including McDonald’s, Kraft Heinz, Motorola Mobility, United Airlines and Motorola Solutions.

    While older buildings such as Allstate’s are viewed as challenging to lease to new office tenants, the northern suburbs are strengthened by the large presence of drug giants such as Abbott, AbbVie and Baxter.

    When Takeda Pharmaceutical moved headquarters workers to the Boston area, Takeda was able to quickly sell its newer, high-end campus in Deerfield last year for $115 million.

    The buyer of the 70-acre campus was Ireland-based Horizon Therapeutics, which moved its U.S. headquarters from nearby Lake Forest.

    The broker who sold the Takeda campus, Savills’ Feinberg, said industrial developers expressed interest in redeveloping vacant land on the campus.


    Source: CoStar Group, www.costar.com