Leasing Industrial Space in Chicago: What Tenants Should Know

This guide does not give rents or vacancy, because those change and vary by building. It gives you the questions that decide where to look. Map your operation first: where your freight comes from and goes to, how your drivers run their routes, where your staff lives, and how often customers visit. Use real data, such as last year's shipments and employee home ZIP codes, instead of an impression of where the business is.

The region's size means that a small change in location can matter a lot. Moving a few miles can cross into a different county and a different municipality, change the workforce you can reach, and change a driver's route around congestion. Before you look at a single building, decide what would disqualify a location. Examples include a commute your key staff would not make, or a run your carriers would price higher.

These are broad search areas, not precise boundaries or rankings, and each contains many different buildings and municipalities. Treat them as a way to organize a search.

• O'Hare area: a natural starting point for operations tied to air cargo or to travel through the airport, and for those serving the north and northwest suburbs. It crosses municipal and county lines, so check each address. Ask whether older buildings meet your clear height, door and truck court needs.
• I-55 corridor: runs southwest from the city. Consider it for regional distribution and for operations with staff living southwest of Chicago. Check how each site connects to the interstate, and which local streets truck traffic must use.
• I-80 and Joliet: relevant to larger freight and long-haul routes, along with access to Will County. Your staff commute becomes a larger question for any operation with a workforce based closer to the city.
• South suburbs: serve operations tied to south side and Indiana routes, or those with an existing local workforce. Property in Cook County may raise the tax and incentive questions discussed below.
• Within the City of Chicago: close to customers and a dense labor pool, with potentially tighter sites. Pay attention to zoning, truck routes, low clearances, and the fit of older buildings.

Do not rely on a corridor's reputation. Test the actual building, its ramp access, and your actual routes at the hours you run them.

Check property tax early, because in a net lease it generally reaches the tenant. The Illinois Department of Revenue explains that most property in the state is assessed at 33 1/3 percent of fair market value, while Cook County uses a different system that assigns assessment levels to classes of property. It also says there is no set property tax rate in Illinois, since your bill depends on the equalized assessed value and on what local taxing districts need.

The Cook County Assessor says commercial properties such as office, industrial and retail buildings typically have a 25 percent level of assessment, set by county ordinance. Do not compare 25 percent with 33 1/3 percent and draw a conclusion. Those are assessment levels, not tax bills. Actual taxes depend on assessed value, equalization and local rates. Compare the actual bills for the actual buildings, and these rules can change.

Cook County also offers incentives that may affect an industrial property's assessment. Its page describes Class 6b for industrial use involving new construction, substantial rehabilitation or re-occupancy of abandoned property, with approved property assessed at 10 percent for 10 years, 15 percent for the 11th year and 20 percent for the 12th, against a standard 25 percent. It describes Class 8 for industrial or commercial development in Bloom, Bremen, Calumet, Rich or Thornton Township, with the same schedule. All applications must have the support and consent of the municipality. Requirements and terms can change, so read the current page and speak to your attorney.

• ✓What were the last few years of actual property tax bills for this building?
• ✓Does the building have an incentive class, and when does it expire or need renewal?
• ✓Who has to file affidavits or renewals, and what happens to our rent if the incentive ends?
• ✓Could a sale or renovation trigger a higher assessment, and is any of that increase capped or excluded in our lease?
• ✓Who can appeal the assessment, and who gets the refund if the appeal succeeds?
• ✓If a new incentive would help the deal, is the municipality willing to support it, and is the timing workable?

Have your tax attorney or CPA look at any building where taxes could swing the decision.

Each municipality has its own zoning and licensing rules. In the City of Chicago, the ordinance's manufacturing chapter separates M1, M2 and M3 districts, and the M1 purpose centers on activity within enclosed buildings, while M2 includes storage and work outside enclosed buildings. The city also runs an Interactive Zoning Map where you can search by address.

Chicago's business zoning page says every license, location expansion and change of location must be reviewed by its zoning division, and it warns against signing a lease until a zoning consultation and review verifies the proposed activity. That is good practice anywhere. In the suburbs, call the municipality or the county for unincorporated land, since a similar district name can have different rules.

1. Map freight, customers and employee homes, and test key truck routes at real operating hours.
2. Choose two or three corridors to compare instead of committing to one too early.
3. Run a broad search across direct leases, subleases and owners who may respond to a requirement.
4. Screen each building for zoning, truck access, loading, clear height, power and fire protection.
5. Collect tax bills and any incentive documents, then compare total occupancy cost.
6. Negotiate with more than one owner, and carry the due diligence findings into the lease.
7. Have your attorney confirm local licensing, zoning and lease language.

Do not compare a Cook County building and a collar county building on base rent alone. In a net lease, the tax bill can change which one costs less.

Tenant Advisory Group is based in Chicago and represents tenants and buyers, not landlords or sellers of investment property. For an industrial search here, we work across city and suburban markets, map the operation against the corridors, compare the total cost of the real options, and negotiate alongside your attorney, CPA and technical advisors. They decide the legal, tax and engineering questions, and we make sure the answers reach the deal.