Loja Pays $95M for Chicago Stores

CHICAGO—Developers still remain a bit shy of creating new retail, and this lack of new supply has made investors eager to purchase existing stores in solid submarkets. Walnut Creek, CA-based Loja Real Estate has just purchased a portfolio of four Chicago grocery store properties from Dominick's Finer Foods, LLC, for about $95 million. The four properties are anchored by either a Whole Foods or a Mariano's Fresh Market, the hottest grocer in the region, and sit within dense and relatively affluent neighborhoods.

“We like the dynamic of the Chicago market, especially in terms of its potential job growth,” Tom Engberg, the chief executive officer of Loja Real Estate, tells GlobeSt.com. “And these stores are not just in densely populated areas, but they are in areas which also have a limited supply of options.”

The acquisitions have a total of 238,462-square-feet of leasable space on 12.38 acres. They include three Marianos' located at 2021 W. Chicago Ave., 5201 N. Sheridan Rd., and 1900 S. Cumberland in suburban Park Ridge. The Whole Foods-anchored space is at 6009 N. Broadway Ave., and will open in the spring of 2015. These neighborhoods, especially the one around the store on Chicago Ave., "look like gentrifying markets with a lot of young people moving in,” says Engberg. Furthermore, each of the anchoring stores has signed a 20-year lease, giving Loja even greater security on the purchase.

Loja generally focuses on two types of properties when making investments. Properties such as these, anchored by grocery stores with triple net leases form one half and more risky, value-add properties provide the other. “The net lease program balances out that risk and provides the stable income portion of our portfolio.”

“We think Whole Foods has found a great niche in the market,” primarily by its focus on healthy foods, “and we think that they will remain very strong in this sector.” As for Mariano's, “they really do have the Chicago area figured out” by providing goods that are a notch higher in quality than more traditional grocers, but still at a reasonable price.

“The business in general is in the midst of a transition,” Engberg adds, and this transition may have helped slow down development as grocers struggle to learn what will work in the future. “Ten years from now, people will see 2013 and 2014 as a very important time.” Instead of designing groceries that attempt to appeal to the widest possible group of consumers, for example, the most vibrant grocers like Whole Foods increasingly market themselves to a niche and build a fierce brand-loyalty among its customers.

And the possible use of the Internet, which has already had tremendous impact on other retail, could scramble whatever preconceptions industry observers currently have. “The jury is still out on the Internet” and on whether the use of it will subtract from or augment the grocery business. Furthermore, the more traditional, middle-market grocers are getting squeezed between stores like Whole Foods or wholesalers like Costco. “They may hold out because they have the best locations,” but until the dust settles, developers will remain cautious, keep supply relatively low, and thereby boost the fortunes of investors like Loja.

Guy Ponticiello from JLL represented the seller in this transaction, which brought Loja's acquisitions this year to over $170 million. And Engberg adds that it also means the company, which owns two other local properties, one in Evanston and the other in Libertyville, both occupied by a Trader Joe's, now has its highest concentration of grocery investments in the Chicago area. “I'm just as happy as I can be about that.”