GlenStar Properties LLC

A few years ago, a pair of principals from the Chicago office of GVA Williams branched out into investment and development, acquiring a handful of properties in suburban Chicago. Soon Rand Diamond and Larry Debb, both top industry professionals and Chicago area veterans, were preparing to go under contract for the Cumberland Centre, a 321,500 square foot office complex near O'Hare.

"We said, 'Here's what we're willing to pay,'" recalls Debb. The two investors had a keen sense of the property's real value, and they weren't prepared to enter a bidding war with other potential buyers.

The seller pointed out that Debb and Diamond were third in the bidding order and invited the two men to bump up their bid. They refused.

"We know what the value is to us," Debb explains. "This is the price we believe it's worth."

The Cumberland Centre went under contract with the first bidder, and the sale promptly fell apart. Again the REIT invited Debb and Diamond to up their offer, and again the pair refused to go higher, adamantly sticking to the firm value they'd already placed on the property.

The second bidder went under contract, and still the deal failed to materialize. After seeing two potential sales disintegrate before their eyes, the REIT's brokers returned to Debb and Diamond, who were only too happy to close on the deal - for their price. The Cumberland Centre remains in their portfolio today and is an example of the patient, disciplined market approach this development team brings to the Chicago region.

A spin-off idea
The story of GlenStar Properties LLC goes back to 1997, when Diamond and Debb left their respective companies to join GVA Williams as principal brokers. The duo had been college roommates, friends and partners for years, and their ambition naturally led them to dabble in investment and development around Chicagoland. Diamond ran GVA William's downtown office, and Debb worked the suburban submarkets with partner John Kosich.

As the investment team acquired more properties - including Cumberland Centre and the International Tower at O'Hare - they saw the need to give GVA Williams' development arm its own market identity.

"As we started doing more, we realized there was some confusion in the marketplace as to what GVA Williams was," Diamond recalls.

At the same time, it was clear both Diamond and Debb wanted to pursue the development business full-time. Kosich, while staying close to the development side of the business, elected to continue to brokerage at GVA Williams. A split was needed, and GlenStar was the result.

But before the development arm could spin off completely, Diamond and Debb recognized the need to bring in a third partner - someone with proven capabilities and a keen track record for closing deals.

That partner turned out to be Michael Klein, who formerly ran Insignia's/ESG's Chicago shop and opted out of the firm's 2003 merger with CB Richard Ellis.

"That was sort of a catalyst for me to look at other opportunities," Klein says of the merger. "There was nothing wrong with CB, it's just that I'd been at big companies. I'd been at a brokerage firm, and I wanted to get back to the development."

Closing the deals
With Klein on board, the small development firm moved quickly to pursue two unlikely deals: 263 Shuman Boulevard in Naperville and 55 East Monroe Avenue in Chicago's CBD.

Each was unique in its own way: the Naperville property was a vacant office property that nonetheless offered the chance to land a major corporate client, and the Monroe Avenue office tower had recently suffered a minor income stream catastrophe when a key tenant vacated space. GlenStar's principals saw opportunity and pounced on the deals.

"There's two kinds of buyers," Debb says. "One is the buyer that wants a steady income stream, a building that's 90-plus percent occupied. Then there's buyers like us, that prefer buildings that are half empty, that have some real upside and need some help, need some handholding."

GlenStar's purchase of 263 Shuman - an empty building in a submarket glutted with vacant space - is the stuff of leasing legend. Within a year of the purchase, the firm had negotiated a lease with OfficeMax to convert and occupy the entire 361,000 square foot building, in what was arguably the largest suburban office transaction in recent memory.

Klein attributes the firm's success with the OfficeMax deal to the small, nimble nature of GlenStar's development team; with just three principals, the firm was able to negotiate directly with the city of Naperville, the broker and the incoming tenant.

"We're the decision makers," Debb affirms. "If something goes wrong, you call me directly, you don't call my boss' boss' boss' boss."

"It's a big change for a lot of people," Klein agrees. "Just as we felt it was unique working with them, they felt it was unique working with us. They had the developer's ear, and we'd go to them and say, 'Here's what we're thinking, what do you guys think?'"

Doing diligence
Within months of OfficeMax signing for the building, GlenStar sold the asset to Wells Real Estate Funds, a Georgia-based owner with which GlenStar has had a long relationship.

While the 263 Shuman property garnered headlines around chicago, the firm also closed on 55 East Monroe, a Class A tower in the East Loop that's currently in the midst of GlenStar's $400 million redevelopment effort.

The 50-story tower is also an example of the firm's savvy property valuation: the seller, a German investment group, disclosed that the underground parking lot had structural problems demanding a thorough renovation. But the suggested repair price was far lower than what Diamond, Debb and Klein assessed in their due diligence prior to the bid.

"They said it was a $1 million problem," Debb says. "Well, it was a $9 million problem, and that all affected our purchase price."

The tower at 55 East Monroe is being converted to a combination of residential space (floors 35 and above) and office space. Despite a tepid condo market nationwide, GlenStar reports in November that their property has seen the CBD's top condo sales for the fourth week in a row.

Regardless of GlenStar's pick-and-choose deals and the personal nature of the development team, Debb shakes off the notion that the firm is a boutique developer.

"I never quite understood what that meant, to be honest with you," he says. But the fact remains: for better or worse, GlenStar Properties is on Chicagoland's radar now, and that can only mean more phone calls, more lunches - and ultimately, more deals.