The Dirt Lawyer's Blog Archive

Generally speaking, this is when you take a skyscraper and carve it up into separate legal properties so you can have different owners of a building if you wanted. Of course, this is exceptionally complicated (plenty of legal fees!), but the rewards can make it worthwhile. The John Hancock Center in Chicago has already been legally subdivided into retail, office and condominium portions, but we'll use that as an example since Golub & Company (part of the JV that owns the building) has announced that they are going to sell off the retail portions of the building, consisting of floors 1, 2 and the plaza and floors 94, 95 and 96. I guess they'll keep the office, which is what those guys know best. As the story says, this is very creative. Other buildings on Boul Mich have the same structure, sometimes for legal reasons but other times also to separate the retail and office portions of a property for property tax purposes. Why? Because if in a net lease a tenant pays it...

It was really a matter of when, not if, right? 20% of the stores are closing, they have DIP financing and may even be able to pay some creditors. Four stores are closing in Chicago : three in the north/northwest 'burbs (Palatine, Schaumburg and Skokie) and the Michigan Avenue store at 600 N., a location that commands high rents. What typically happens in a Chapter 11 is that the leases get rejected by the debtor, leaving the landlord out of luck. This probably won't be the last BK, even if the economy picks up. The question now is who is next .

That's what the Sun-Times said yesterday . Since my clients are doing deals near downtown I guess that's good news for me. But the rents are going to be much pricier, with the tradeoff that there are plenty of rooftops nearby. Yet some things are not selling. According to the story retail leasing at Trump Tower is slow because of high prices being quoted. (No shock about the price there, plus 401 Wabash is not Boul Mich, the Donald notwithstanding. That does not mean it will not change, but we'll have to see.) The other interesting news here is talk about a retail repositioning at Presidential Towers, which Pete Vilim and David Schwartz at Waterton Associates LLC picked up last year. They have a first rate team doing the work so I am not surprised. And what is going on with Metra Market? I'd heard rumors the project was dead, but the story talks about the project as if it were alive, so I will go with the latter assumption until proven otherwise. (I want Metra...

Here's an interesting story on a Spanish billionaire, Amancio Ortega, buying 730-750 North Michigan Avenue for $350 million. Why is it interesting? Even in this "down" market, the seller did not budge on its price and ended up getting a 40% unlevered return in three years. Not bad. It also shows that foreign money thinks that not only our companies are cheap, but so is out dirt...yes, it is still cheap, especially given exchange rates. Now, we had a frenzy of foreign buyers here in the 1990s, as I recall. Some did well, others didn't because they dumped out at the wrong time. But it wasn't the end of the word then and it isn't now.

Well, well, well...this story just gets more and more interesting! In order to "de-mall" 700 N. Michigan and bring in Zara, the landlord wants to evict the current tenant, Talbott's. The legal theory? landlord can throw the tenant out if it demolishes or "substantially renovate" the building. This seems like a substantial renovation to me, but if I were the tenant I think I'd have some pretty clever and arguable defenses. Let's see if the tenant comes up with anything good before (presumably) this case settles.

I have posted in the past regarding 700 N. Michigan and the saga to lease the mall up. Today's news is probably good in that the owners seem to have gotten beyond that to a large degree by deciding to " de-mall " the mall. With Spanish retailer Zara reportedly taking 30,000 sf and replacing Talbott's, the owners have apparently decided that enough is enough with a traditional mall. The atrium and common areas will be replaced largely with more tenant space (thus decreasing the load factor that is usually charged to tenants as part of taxes and operating expenses, and all the space fron the fourth (and maybe even the third) up to the eighth will be marketed for a hotel use. The bad news on a hotel is that the low floors with no views are not exactly prime. The good news is a prime location and demand for rooms, and maybe view is not that important anyway. Look at the Peninsula. Not the greatest views if any, but it is hands-down my favorite downtown hotel. All in all? ...

I observed back in May that there might be some significant changes on Chicago's Michigan Avenue because of the loss of Lord & Taylor and Virgin Megastore and Best Buy's termination of lease negotiations at the star-crossed 700 N. Michigan. Well, the changes are a'comin', and they appear to be roots-based. Yes, it is back to fashion and accessories , and let's face it: that is what made Michigan Avenue famous, just as it did Fifth Avenue and Rodeo Drive (no matter how much rent the Apples and Sonys of the world want to pay). Potential new tenants include two Ralph Lauren concepts and Zara. Much as I am an electronics and gadgets junkie, that is what malls are for. Give me clothes when I am shopping up and down the avenue.

Boy, it sure seems that 700 N. Michigan is just one star-crossed vertical shopping center. (For the record, I actually like the place and used to frequent its food court.) Best Buy has decided to terminate lease negotiations , and may look elsewhere, perhaps at the nearby old CompUSA location. I'd like to see BB consider other areas near downtown as well. But the writing is there: it seems people are going to electronics retailers less and less. I know I am.