Home News Brookfield-backed firm buys River North landmark from Sterling Bay

Brookfield-backed firm buys River North landmark from Sterling Bay

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This is the latest in a series of bets on single-tenant buildings for long-term rentals by fundamental income, a two-year-old venture backed by real estate investment giant Brookfield Asset Management, to buy and sell real estate. Specializes in renting to. .. Such transactions are popular in the uncertainty of the COVID-19 pandemic as a long-term and stable source of income.

Fundamental Income made a similar Chicago bet in October. Paid almost $ 45 million For historic Gold Coast buildings that house repair hardware on long-term leases.

According to Cook County real estate records, in the case of Sterling Bay, the sale of the building is a summary of a project that purchased real estate in 2014 from the operator of Castle, the nightclub of the building at the time, for $ 11.5 million. After several years of vacancy as a joint venture with Four Corners, a branch of Sterling Bay’s hospitality, the Tao Group spent another $ 25 million to convert the former Chicago Historical Society building into Tao Chicago, which opened in 2018. Did.

According to marketing material from Cushman & Wakefield, who brokered the sale, Madison Square Garden, the owner of the Tao Group, will operate the restaurant until September 2038, without the option of canceling or shrinking to pay the building owner rent. At that time, I signed a 20-year contract.

Alexi Panagiotakopoulos, chief investment officer of the company, attracted the Fundamental Income, which Tao-branded cashiers saw the purchase as “a really good opportunity to stay in a property that seems to be successful.” “Obviously, COVID had an impact on restaurants and entertainment as a whole, but in the post-COVID world, operators like Tao and such experiential assets will flourish.”

According to data from research firm MSCI Real Assets, Fundamental Income has been actively engaged in sale and leaseback transactions since its launch in April 2020, acquiring more than 12 properties totaling more than $ 230 million. ..

Such long-term single-tenant properties (known in real estate terminology as net lease transactions) have recently encountered a major enemy of inflation. This reduced the value of long-term rents trapped by the landlord. This is historically a risk. Net lease transactions, and the possibility that tenants will collapse and leave large empty properties for the landlord.

Panagiotakopoulos acknowledged the headwinds of inflation, but said his company was paying particular attention not to fix leases where rents were rising too slowly. “Many people buy real estate on net lease spaces, which may not really be understood.”

The monetary details of Tao’s lease are unknown, but according to Kushman, the deal entails a 6% rent escalation every three years. Located on the northwest corner of Deanborn Street and Ontario Street, the property also benefits from the Class L property tax designation earned by Sterling Bay for the refurbishment of Chicago’s landmarks. The incentive has reduced property taxes for owners by $ 2.5 million over 12 years.

Initially Sterling Bay Sell ​​the building for sale Shortly after the restaurant opened, a deal was signed for sale in early 2020, shortly after the restaurant opened, but it collapsed with the outbreak of a pandemic, according to sources familiar with the property.

Developers who have built a reputation in Chicago by redeveloping vintage properties have unloaded properties related to the hospitality sector during the pandemic. Other Sterling Bay ventures recently sold the Talbot Hotel on the Gold Coast and the former Ace Hotel in the Fulton Markets area.

Michael Marks, Managing Director of Cushman & Wakefield, sold Tao Chicago real estate on behalf of Sterling Bay.

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