Retail Centers Sought By 'Value-Added' Buyers

CHICAGO-A new 53,030-sf retail center at North and Sheffield avenues, two miles from the Central Business District on the fringe of the still-hot Lincoln Park neighborhood, is being offered at $264 per sf by CB Richard Ellis. At the other end of the spectrum, a 134,095-sf center anchored by a Big K-Mart in Sycamore, on the edge of the west suburbs, can be had for $29.83 per sf, in large part because the retailer has a $3-per-sf lease on its space, says Inland Real Estate Sales senior vice president Charles Hold.

Otherwise, sales prices in the market range from $50 per sf to $125 per sf, and are trading at capitalization rates of 9.5% to 11%, says Hold, whose parent company, Inland Real Estate Corp., owns 10 million sf of retail space in the Midwest.

“The neighborhood centers are being bought by value-added buyers,” Hold tells GlobeSt.com. “They’re hoping to come in and change the tenancy – they see something the previous owner didn’t.”

Those value-added buyers tend to be small partnerships, Hold adds, rather than REITs, which seem to be staying away from neighborhood centers. While buyers at the upper end of the spectrum are looking at a five-to-10-year holding period, those value-added operators who can substantially raise net operating income can sell in two to three years at a profit somewhat proportional to the NOI bump, Hold notes.

Besides Sycamore Square at $4 million, Inland is offering a 63,000-sf center in southwest suburban Bolingbrook for $4.4 million and a 61,803-sf retail center in north suburban Round Lake Beach for $4.1 million.

Hold notes retail construction is occurring in Naperville as well as Bolingbrook.

Back in the city, Centrum Properties Inc. and Angelo Gordon and Co. are building a $50-million retail fashion and office development on the other side of the North and Sheffield intersection, with 130,000-sf of retail space, representing 65% of the total $250-per-sf project. Gap, J Crew, Victoria’s Secret, Banana Republic, California Pizza Kitchen and a yet-to-be named, “high-end” health club are among the tenants.