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Thursday, 11 August 2016

Acadia Realty to Pay $146.9Mln for Retail Space at Chicago's Sullivan Center

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Commercial Real Estate Direct Staff Report

Acadia Realty Trust has agreed to buy the 176,000 square feet of retail space at Chicago's Sullivan Center for $146.9 million, or $834.65/sf.

The Rye, N.Y., REIT pursues what it calls "street retail" properties, which are those along retailing corridors in major cities, such as Chicago and Washington, D.C. It's buying the space from a venture of Madison Capital and KKR & Co. The venture had purchased Sullivan Center, which has a total of 943,944 sf at One South State Street, earlier this year for $267 million from El-Ad Canada Inc.

The property is encumbered by $113.5 million of CMBS debt that was defeased earlier this year with proceeds of a $207.6 million mortgage from Blackstone Mortgage Trust that pays a rate pegged to Libor plus 435 basis points and has a final maturity in 2021. Acadia said it would be buying the retail space free of debt, so a big chunk of the loan could be paid off. It's not clear yet whether Blackstone would allow the Madison/KKR team to release the retail portion of the property from the loan's collateral. If it doesn't, it could put the prospective sale to Acadia at risk.

The space that Acadia is buying is in the building's two lower floors and basement level. It is 99 percent occupied and anchored by Target, which occupies 146,764 sf through 2028, and DSW, which occupies 21,106 sf through 2022. The Target store was the first City Target location in the retailer's portfolio when it opened in 2012. It is smaller than typical Targets and is designed specifically to draw urban customers.

Target and DSW pay an average of nearly $30/sf, for a total of $5.2 million in annual rent for their space. Other tenants in the retail space include Carhart Retail, which occupies just more than 4,000 sf; Vapiano, in 5,771 sf, and Flat Top Grill, with 4,106 sf.

Sullivan Center previously was known as the Carson Pirie Scott Building, which was constructed in 1865 by the department store company. It operated as a department store until Carson Pirie Scott closed in 2007. The building was acquired by Joseph Freed and Associates in 2001, which then embarked on a massive renovation that involved converting the building's upper 12 floors into 743,852 sf of office space. The renovation had a price tag of nearly $230 million.

Freed ultimately had to give up a big stake in the building to Winthrop Realty Trust and El-Ad, which had acquired debt against it at a discount. Earlier this year, Winthrop and Freed had sold their stake to El-Ad, which subsequently sold it to the Madison/KKR venture.

The property takes up nearly a full city block bordered by State, Madison and Monroe streets and Wabash Avenue.

Acadia, which is in the process of raising what could be $550 million of equity for its latest opportunistic investment vehicle, has plenty of liquidity to complete its purchase. It carried some $110 million of cash or equivalents on its balance sheet as of the end of June and has $216 million of available credit under a number of facilities. Meanwhile, it's looking to raise what could be $175 million through a common-stock offering.

Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.


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Additional Info

  • Syndicate to Realpoint: No
  • Cities: Chicago
  • States: Illinois
  • Sector: Retail
  • Subject: Property Acquisitions (ACQ)
  • Valuation: Between $100 million and $150 million
  • Private: No
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