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EVANSTON, IL–As 2018 drew to a close, Steelbridge Capital sold 500 Davis St. for $32.4 million to a join venture composed of investor Randy Rissman and CBRE’s Bob Wislow. In less than 3 years, Steelbridge was able to nearly double its $18 million purchase price for the 10-story office building. Market experts say this deal, and others like it, show the viability of certain urban-like suburban locations. Locations like Evanston, IL and Clayton, MO.

“Evanston feels much more urban than suburban,” CBRE Senior Vice President James Otto, told GlobeSt.com. “Its proximity to the City of Chicago, Lake Michigan and Northwestern University provide character; its architecture, local dining and retail amenities, all in a transit-oriented environment, offers a vibrant walkability that’s often missed in other suburbs.”

It is precisely that urban-like but still suburban market that attract investors.

“What draws investors to places like Evanston is that you can get good operating fundamentals but pay less for the same kind of properties,” Gavin Campbell, founder and managing principal of Steelbridge, told GlobeSt.com.

According to CBRE market figures, the overall office vacancy rate in Evanston is 6.2%, with Class A vacancy at 5.4%. The overall suburban Class A vacancy rate at the end of Q4 was 14.4% while the Downtown Class A vacancy was 11.5%. (Otto points out that it’s worth noting the entire Evanston office market is less than 2 million square feet, which is about half the size of Willis Tower.)

“Evanston fundamentals are strong due to robust demand growth from Northwestern, great amenities, public transportation and strong supply constraints, so vacancy in the market has been below 10% for a little over four years,” Campbell said. “It is one of the strongest office submarkets in the entire country.”

Taking into account the market’s strength, what intrigued Steelbridge was the fact that rents in the area did not seem to be increasing as they traditionally do in other markets when the vacancy drops below 10%. When Steelbridge initially purchased the property the company did three things to position the 500 Davis St to excel in the market.

“First, we renovated the plaza and colonnade areas, a $600,000 project, to try to project on the exterior the great finishes on the interior that the market seemed to be missing,” Campbell said. “Second, we immediately set our rental rates to the high $30’s to test our thesis. And third we hired a great leasing team in Jason Streepy and Jack Riordan of NAI Hiffman.”

That bet paid off. Steelbridge was able to bring building occupancy from 85% to 96% and began inking leases in the high $30’s and then the mid $40’s by the time they sold the building. Now the best spaces in Evanston are asking nearly $50 per square foot, according to Campbell.

“At the end of the day the crux of the investment was our belief—proven out—that rents being achieved in our building and in the market in general were 25% to 35% below where they should have been,” Campbell said.

Steelbridge’s sale isn’t the only one in Evanston to illustrate this trend.

As GlobeSt.com reported in June, Golub & Co. and Investcorp sold Orrington Plaza, a 20-story office tower in downtown Evanston, IL. According to other reports, the building sale was valued at $91 million, outpacing the $61.5 million sale prince from 2013.

Evanston isn’t the only Midwest suburban office market that seems to be defying the odds. Experts cite Clayton, MO as another example of an urban-like suburban location that thrives.

Campbell said these suburban office markets are able to defy the odds for four main reasons – easy access to affluent areas, good public transportation, a strong university presence, and good retail and residential offerings.

“Clayton is one of the tightest office markets in all of the Midwest because it is an urban area and very centrally located,” Artie Kerckhoff, first vice president at CBRE, tells GlobeSt.com “The city is packed with amenities with terrific walkability on top of being a closer commute for the majority of its workforce. Access to public transportation and county government offices are also major draws for professional service and law firms.”

The robust Clayton market has no slow down in sight. In 2020 a new 550,000-square-foot building will enter the market. The state-of-the-art tower is expected to be 100% pre-leased before the doors open. And many of the spaces that will be vacated when companies re-locate to the new building have already been spoken for.

“It’s good be in Clayton and it’s hard to get in if you’re not already there,” Kerckhoff said. “There is a high barrier to entry that has attracted capital from across the US.”

The Midwest isn’t alone in this trend. Earlier in the week, GlobeSt.com published an article about a similar trend taking place in Atlanta.