30 Jan Spirit Realty sells Broadview Village Square to Bridge33 Capital
The owner of a large shopping center in west suburban Broadview sold the property after losing some key tenants, leaving the job of filling the empty space up to the Seattle company that bought it.
Spirit Realty Capital, a Dallas-based real estate investment trust, sold Broadview Village Square, a 194,000-square-foot property at Cermak Road and South 17th Avenue, to Bridge33 Capital at the end of December, according to a deed filed with Cook County.
For Seattle-based Bridge33, the acquisition represents another contrarian bet on retail real estate, a category that has fallen out a favor with investors amid a wave of store closings and retail bankruptcies.
“We’re not scared of retail,” said Julio Siberio, head of acquisitions for Bridge33. “We’re excited about it, actually.”
Bridge33 paid $14.9 million for the shopping center, the deed shows. That’s 60 percent less than the $37.2 million value at which Spirit was carrying the property on its books at the end of 2018, according to a Spirit Securities & Exchange Commission filing. The price also is about one-quarter the $58 million the shopping center fetched in 2007, just before the recession.
While that looks like a whopping decline in value, one factor may explain a big part of the change: Spirit retained ownership of a 135,000-square-foot Home Depot store within the shopping center, Siberio said.
It’s unclear what the Home Depot is worth. A Spirit executive did not respond to requests for comment.
Yet the property’s high vacancy rate depressed its value, too. In 2015, Sports Authority and OfficeMax closed stores there, according to a Bloomberg loan report. By 2016, the property wasn’t generating enough cash flow to cover its debt payments, the report says. About 37 percent of the shopping center is available for lease, according to Mid-America Asset Management, the Oakbrook Terrace-based firm that handles leasing there.
That’s what attracted Bridge33, which seeks out turnaround candidates in the retail property market. Broadview Village Square has most of the characteristics the firm likes in shopping center, including a high vacancy rate, which offers an opportunity to boost its value, Siberio said.
“The demographics (in Broadview) are strong,” he said. “You have really good population density, you have strong anchor tenants . . . we like the lease-up opportunity.”
The shopping center’s tenants include Ross Dress for Less, Marshall’s and PetSmart. Developed in 1994, the property also includes Target and Ashley Furniture stores and a Lifetime Fitness, which are owned by other parties and were not included in the sale to Bridge33.
Rising vacancies and falling shopping center values have become more common in recent years, even as the broader commercial real estate market has flourished. Store closings and bankruptcies have blown big holes in some properties, depressing their rental revenue, and many investors are shying away from the sector, worried that the rise of e-commerce will continue to put pressure on brick-and-mortar retail.
As a result, shopping center values in many markets, while up significantly from their lows of the recession, have failed to reach pre-recession levels. An index of Chicago-area shopping center values compiled by Green Street Advisors, a Newport Beach, Calif.-based research firm, is still about 18 percent below its prior peak before the real estate bust.
“Given the operational headwinds many retailers are facing, the fundamental backdrop for the strip center sector will remain challenged, though high-quality centers should be the relative winners over the long run,” Green Street says in a recent report.
Bridge33’s goal “is to buy the winners,” Siberio said. “We do see opportunities in retail where others are shying away from it.”
The firm recently raised a $220 million fund to finance new investments, primarily in the retail sector. At Broadview Village Square, Bridge33 is already courting retailers for the property’s vacant space and is encouraged by the reception so far, Siberio said.
“The conversations happened sooner than expected and were more positive than expected out of the gate,” he said, declining to elaborate.
Bridge33 has pounced on some other struggling shopping centers in Illinois, paying $19.1 million last year for Woodscreek Commons, a 210,000-square-foot property in Algonquin that landed in foreclosure in 2017. The investment firm in 2017 acquired Northland Plaza in DeKalb, another shopping center that had fallen into foreclosure.
By contrast, Broadview Village Square shows no outward signs of financial distress. Cook County records show Spirit paid off a $31.5 million mortgage on the property in January 2017.
Spirit took over Broadview Village Square through its 2013 acquisition of Cole Credit Property Trust II, which acquired the shopping center in 2007.