“Perfect Storm” Driving Up Retail Assets
CHICAGO—The modest pace of development can't keep up with demand, and when well-located centers like Skokie Commons hit the market, buyers swarm in and drive up prices.
The recent sale of Skokie Commons, a brand-new 93,000 square-foot shopping center on Chicago’s North Shore anchored by a Mariano’s, for $43.75 million is just the latest illustration that the market for grocery-anchored retail is as hot as it’s ever been. The overall improvement in the economy, combined with the modest pace of new development and the sheer amount of capital searching for deals has created the “perfect storm,” experts say, driving prices up and cap rates down whenever well-located product hits the market.
“We’ve never seen a market this aggressive,” Brandon Duff, regional director of Stan Johnson Co., tells GlobeSt.com. Duff, senior director Brad Feller, and associate director Isaiah Harf, of the firm’s Chicago office, handled the transaction. “We had tremendous activity from institutional groups, REITs and private investors.”
This was not a surprise, as a deep bench of prospective buyers tends to show up whenever centers anchored by innovative specialty stores like Mariano’s, Trader Joe’s, Fresh Market and others go up for sale. Skokie Commons, located at 7200 McCormick Blvd. in suburban Skokie, was particularly attractive because six of the eight tenants, which include Longhorn Steakhouse, Starbucks, and Noodles & Company, are publicly traded.
And even though the way Mariano’s re-imagined the grocery-store concept has always been well-regarded, after opening dozens of stores and establishing a real track record, Duff says its ability to draw in investors is increasing. “We’re now able to point to some of the strongest sales in the market.”
“We had over a dozen offers and really drove a controlled process that was quite competitive,” he adds.
JLL Income Property Trust ended up purchasing the property from NRG Touhy McCormick, LLC. An under construction bank out-parcel is under contract to be purchased for an additional $4.75 million in the near future. The acquisition was funded with proceeds from a $24.4 million mortgage for 10 years bearing an interest rate of 3.31%. And the intense competition drove to cap rate down into the low 5s, Duff says. “The buyer demand is higher than we’ve ever seen it.”