After losing key tenants, Mag Mile landlord lands Verizon

After losing key tenants, Mag Mile landlord lands Verizon
By: Micah Maidenberg

Facing a potential cash crunch, the owner of a prominent Magnificent Mile retail property has snagged a major new tenant in the nick of time.

Verizon Wireless has signed a lease to open a store at 840 N. Michigan Ave., said Camille Julmy, vice chairman at Chicago-based U.S. Equities Realty LLC and a member of the venture that owns the building.

Best known as home to Swedish clothier H&M, the four-level, 87,136-square-foot property has a strong location on the city’s top shopping strip. But fashion house Escada shuttered its store there after declaring bankruptcy in 2009, reopening later on Oak Street.

Illustrating that even Mag Mile landlords’ returns get hammered when a big tenant like Escada closes, net cash flow before debt payments at the building plunged to $4.9 million last year, down from $7.9 million in 2009, according to a report about a loan on the building from Bloomberg L.P.

That was more than last year’s debt service of $4.4 million, but the property’s cash flow has likely fallen further this year after the expiration of leases with other tenants, including the Rochester Big & Tall chain.

The ownership group was late on a loan payment in July, according to the Bloomberg report on the $61.5 million loan, which was packaged into a commercial mortgage-based securities (CMBS) offering and sold to investors.

The lease with Verizon Wireless, owned by of a venture between New York-based Verizon
Communications Inc. and Newbury, England-based Vodafone Group PLC, should help stabilize the
building.

‘SPECTACULAR CREDIT’

“Verizon is like AT&T and the other national cellular concepts — their credit is spectacular. It’s as strong as you can get from the landlord perspective,” said Daniel Jacobson, senior director in the Chicago office of real estate services firm Cushman & Wakefield Inc.

Current rents on North Michigan Avenue range from around $400 to $500 per square foot for first floor space to $80 to $100 per square foot for upper-floor space, Mr. Jacobson said.

Mr. Julmy declined to discuss the Verizon deal besides confirming it. He said the decline in cash flow at 840 N. Michigan Ave. was due to Escada moving out, and said he was surprised the loan report listed a late payment. The property has performed well, he argued.

“The loan is not due for a while,” Mr. Julmy said, referring to its December 2033 maturity date. “We’re in great shape.”

Rochester’s move from the property was planned, Mr. Julmy added, allowing the owners to create a 5,300-square-foot retail space on the building’s ground level.
Furthermore, Hennes & Mauritz A.B., the Swedish parent of H&M, recently extended its lease, Mr. Julmy said, declining to discuss specifics.

The Bloomberg report says that H&M, which occupies close to 46,000 square feet over four floors in the building, now has a lease through August 2018. An H&M spokeswoman declined to comment.

STORE DETAILS UNCLEAR

It’s unclear what kind of store Verizon Wireless plans, or how large it will be. A Verizon Wireless spokeswoman would not discuss the outlet beyond confirming the lease.

But large consumer-oriented companies, including Verizon Wireless’s Dallas-based competitor AT&T Inc., have embraced the marketing potential of flagship-style stores on high-traffic corridors such as the Mag Mile.

Verizon Wireless will likely open a store with some flourish, given the amount in rent the company willbe required to pay for its space, said John Vance, vice president of Stone Real Estate Corp., a Chicago-based retail broker.

“I assume Verizon is saying, ‘We’re going to showcase a flagship store, showing what Verizon Wireless can do as a telecommunications and technology leader in the industry,” he said.

It’s also unclear if Verizon Wireless will keep open its current outlet at 500 N. Michigan Ave. The building’s owner, Santa Monica, Calif.-based mall investor Macerich Co. plans to redevelop the office building as part of an expansion of its Shops at North Bridge mall next door.

A Macerich spokeswoman did not respond to calls.