Green Street, a research firm based in Newport Beach, Calif., says it would expect a mall with such strong sales to sell with a cap rate in the 4%-range.
One explanation: Green Street says the property taxes of the mall at 520 N. Michigan Ave. are estimated to increase almost $5 million upon reassessment, a cost that’s likely to be born primarily by the landlord and upper-floor tenants as Nordstrom won’t be on the hook for the increase and many of the strong, ground-floor tenants have recently signed long-term leases.
Still, Green Street likes the purchase by Macerich Co., a publicly held real estate investment trust based in Santa Monica, Calif., whose stock ticker is MAC.
“MAC’s decision to acquire North Bridge appears sound,” writes Green Street’s Jim Sullivan in the note. “MAC paid an appropriately lower purchase price given the material real estate tax reassessment … North Bridge also adds some luster to MAC’s portfolio, as this mall’s operating metrics are exceptionally strong.”
Macerich announced yesterday that it had closed on the purchase of the 680,933-square-foot mall, forming a joint venture with the Alaska Permanent Fund Corp., a $39-billion fund financed by the state’s oil revenue.
The acquisition also includes a combined 1,200 parking spaces and 133,615 square feet of office space just west of the mall.
The property was sold by a joint venture that includes Chicago-based John Buck Co., which developed the Magnificent Mile’s newest mall in 2000 as part of the North Bridge mixed-use project that also includes a hotel and restaurants.
Buck’s co-owners were a Morgan Stanley real estate fund and Westfield Group, the Australian company that operated the mall.
Macerich, which has a stake in 71 regional malls nationwide, is making its first foray into Chicago with the acquisition.
“North Michigan Avenue is one of the best retail streets in the world,” says Edward Coppola, Macerich’s chief investment officer, in an interview. “We felt this was just a wonderful opportunity. This is a generational type asset that doesn’t trade very much.”
After a slow start when the mall opened, fueled by concerns it was too far south of Water Tower Place and the other Mag Mile malls and an economic recession in 2001, North Bridge stabilized its tenant mix and has become a top performing mall.
Sales at stores that are 10,000 square feet or less are a hefty $839 per square foot, according to Macerich, and the Nordstrom department store is one of the Seattle chain’s top five stores.
A $515-million price tag means North Bridge’s value has rocketed 63% from 2003, when Westfield’s investment valued the property at $315 million.
John O’Donnell, Buck’s president and chief operating officer, says in an interview that there were about a half-dozen bidders for the property when it was put up for sale last summer and that Macerich locked in its deal last fall.
Related story: California firm to buy Shops of North Bridge
The sale comes as Buck is set to become more of a buyer than seller, says Mr. O’Donnell, as he expects real estate prices are likely to fall in coming years.
“We’ve sold much more than we’ve bought the last three years,” Mr. O’Donnell says. “We expect over the next three years to be buyers. We anticipate there will be price reductions.”
One additional carrot for the mall’s new owner: included in the $515-million price is the assumption of an existing $205-million loan that matures in July 2009 and carries an interest rate of 4.67% – far lower than today’s going rates.
Macerich’s Mr. Coppola says the North Bridge acquisition fits the company’s strategy of buying top performers.
Macerich and the Alaska fund, for instance, in 2005 acquired the Tysons Corner Center outside Washington D.C., one of the country’s strongest malls.
“Our specialty and experience has always been in taking existing properties and making them better,” Mr. Coppola says. “It’s much easier to make an excellent property even better than to make a bad property good
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