On Chicago’s Magnificent Mile, where property sales already are rare, a pending deal stands out as one likely to be watched by real estate investors throughout the world.
An expected ownership change at 830 N. Michigan Ave. is viewed as a barometer for an area that, until struggles in recent years, has been one of the nation’s best-known and highest-rent shopping corridors — and one that has attracted big dollars from real estate investors across the globe.
Local firms Saxony Capital and Farpoint Development recently struck a deal to buy a huge, vacant retail building at 830 N. Michigan Ave. for just over $40 million. That is less than one-quarter of the 117,400-square-foot property’s last sale price from 2013.
At just over $340, it’s also the lowest price per square foot since 1997 on any retail property on the mile-long stretch of North Michigan Avenue that is the city’s best-known shopping destination, according to CoStar data.
“If you want to buy high-street retail in Chicago right now, the Mag Mile is on sale,” said analyst Brandon Svec, CoStar’s national director of retail analytics.
If the sale is completed as expected, the turnaround plan by developers is likely to be considered a pricing indicator, according to industry professionals, as investors try to determine whether they’ve found the bottom of the market.
Should the answer be yes, others could be reassured to invest once again on the avenue where properties often have sold for thousands of dollars per square foot.
‘Optimistic Purchase’
“It’s the first post-pandemic investment salvo,” said David Stone, a longtime retail broker at Chicago-based Stone Real Estate. “It’s an optimistic purchase, but I think the market has already bottomed out. It’s smart and savvy, but also a little courageous.”
Northfield, Illinois-based Saxony and Chicago-based Farpoint have yet to comment on the deal or their plans for the six-level space.
Circumstances around the highly discounted sale have been building for years, because of factors including the rise of e-commerce, COVID-19, the decline of department-store-anchored vertical malls, worries about crime in the city and reduced foot traffic amid the remote-work movement.
Michigan Avenue also has lost luxury retailers such as Cartier, Chanel and Bottega Veneta to nearby Oak Street.
Because of that, Svec describes the 830 N. Michigan deal as part of “a necessary repricing” on the street.
“This is what needs to happen to keep the street vibrant and relevant,” he said.
The building last sold to shopping-mall giant GGP for $166 million in 2013. Brookfield Properties has owned it since its takeover of GGP in 2018.
Record-High Vacancy
Retailers Topshop, Columbia Sportswear and, most recently, Uniqlo have left the property in recent years, leaving Brookfield with a huge hole to fill amid record-high vacancy on the avenue.
The percentage of retail space that is vacant or otherwise available for lease is now 32.2%, according to brokerage Cushman & Wakefield.
Investors will be watching to see how upcoming retail openings on the avenue fare, including a huge Aritzia women’s clothing store in a former Gap flagship building and Alo Yoga’s first Chicago shop in part of a former Disney Store space.
Brookfield already has walked away from its investment in the Water Tower vertical mall nearby, after Macy’s left that property’s largest retail space. It is now owned by former lender MetLife, which also is Brookfield’s lender on 830 N. Michigan.
At another vertical mall on the avenue, the Shops at North Bridge, Macerich last year handed its 50% ownership to its longtime investment partner on the deal, the Alaska Permanent Fund.
Excluding mixed-use property sales, the 830 N. Michigan deal will be just the 11th retail sale on the Mag Mile since 2013. The latest was Blatteis & Schnur’s $27.3 million deal for shops at the base of 909 N. Michigan Ave. That equates to about $4,694 per square foot, according to CoStar data.
Until the 830 N. Michigan sale is completed, the lowest price in the past decade has been Texas-based Silvestri Investments’ $94 million purchase of the Nieman Marcus flagship at 737 N. Michigan Ave., at $481 per square foot. That is less than half the next-lowest price per square foot.
The 830 N. Michigan deal is the only one during that time involving a standalone, fully vacant retail property.
Brookfield and MetLife chose to each take a financial hit on a sale of 830 N. Michigan, at a price well below the remaining debt on the property, rather than potentially spending years and big dollars bringing in new tenants.
Coming in Low
For new owners coming in at a much lower cost basis, though, the path to success looks far clearer, according to people familiar with the street.
“For that real estate at that price, it looks like a really astute purchase,” said Cushman & Wakefield broker Michael Marks, who specializes in retail property sales. “It’s all about what happens next. The thesis either gets validated or invalidated based on the rent they achieve and the business plan they execute on.”
Unlike high-dollar deals made during a boom leading up to a pandemic slowdown, 830 N. Michigan’s future owners have money left over to pour into upgrading the building. They also can make a profit at rents well below traditional highs, when top deals have exceeded $500 per square foot, according to real estate professionals.
“There’s an old expression that you make money on the buy,” Marks said. “I think that holds true here. Nobody wants to throw good money after bad. If you’re coming in at a much lower basis, it allows you to do things that owners at a much higher basis couldn’t do. The math wouldn’t work before. Now the math is on their side.”