Michigan Avenue, Chicago Apple Store retail parcel now up for sale by landlord

Posted:
in General Discussion edited March 20
The landlord behind Apple's flagship Michigan Avenue store in Chicago is putting the building up for sale, only months after its completion and opening.




Walton Street Capital has turned to Eastdil Secured to market the store, along with 10,000 square feet of retail space in 401 N. Michigan Avenue, a 35-story tower next door, the Wall Street Journal said on Tuesday. Sources for the paper said that Walton is aiming to generate as much as $175 million.

In 2017 the company paid $370 million for the Apple store and the whole of 401, the former still being under construction at the time. Walton is expected to hold on to 401's office space.

Last week Eastdil was allegedly talking with potential buyers for the Apple store at the Mipim real estate conference in Cannes, France.

Due to its clout, Apple is currently paying a rent "well below" the average $400 to $500 per square feet of other businesses in the Michigan Avenue area, the Journal's sources claimed. A change in landlords could affect rates, though Apple is one of the few U.S. retailers thriving as more shopping moves online, even able to produce a "halo" effect with nearby stores.

Apple Michigan Avenue opened in October to much fanfare, including a visit by CEO Tim Cook and retail head Angela Ahrendts. Shortly after it launched, however, the store's glass facade was responsible for some migratory bird deaths, which forced the company to dim lights.

A glitch in the roof's heating system required Apple to cordon off areas with falling snow and ice. A window at the store developed a crack, which grew larger over time given the temperature swings, before it was replaced.

Comments

  • Reply 1 of 13
    sflocalsflocal Posts: 4,287member
    Due to its clout, Apple is currently paying a rent "well below" the average $400 to $500 per square feet of other businesses in the Michigan Avenue area, the Journal's sources claimed. A change in landlords could affect rates, 
    How would Apple's rent be affected with a new landlord?  They signed a lease, which is most likely for several years, (if not 10 years), and probably has a clause in there somewhere regarding renewal terms too, and any future landlord must honor it.

    My understanding is that prior to Apple, there was no structure there except a plaza.  The landlord just blew it up to make way for Apple to build their building.  So to say that Apple is paying rent "well below the average" is misleading because the owner was getting zero rent for that section anyways.

    Either way, I wonder what the reason for the sale was.  My guess whoever owned it wanted to simply cash out and live on an island somewhere.  That's some prime real estate for sure.
    randominternetpersonjbdragonStrangeDayspscooter63
  • Reply 2 of 13
    mpantonempantone Posts: 1,346member
    While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.

    Contracts are agreements between two parties, in this case Renter A (Apple) and Owner W (Walton Street Capital). At least here in California, if the ownership changes, the contract between the two parties is voided. Whether it be in residential real estate or commercial real estate, typically the leases need to be renegotiated. There's probably a law that states that the previous contract is in effect on a month-to-month basis.

    Let's say Renter X is renting space ($3000 month) for a bar in Owner A's Building A. Owner A sells Building A to Owner B. The lease agreement between Renter X and Owner A is now voided and a new contract must be negotiated with Owner B.

    Let's say Owner B decides he wants to raze the existing property and build new condominiums; this happens all the time. Owner B gives 60-day notice to Renter X that the building is set for demolition and they have 60 days to move out.

    In a different scenario, let's say Owner B wants to increase the rent to $10,000/month. The old agreement is void so either Renter X needs to negotiate new terms or move out. Again, this is very commonplace here in California.

    I am not sure how real estate contracts are interpreted in Illinois.

    In this case, the new owner of the property might tell Apple that rent is going up to $600/sq. ft. Apple can choose to move elsewhere. They are paying less than the average commercial retail rental rates for the area ($400-500), let's say Apple is paying $300. Perhaps a different landlord down the street would be happy to have a prestigious tenant such as Apple. Or maybe the new owner of the existing property says, "Yeah, let's keep the terms the same rather than let the property go empty and hope we can find a new long-term tenant who will pay more."

    The article over at MacRumors about the same topic provides a little more detail.

    Saying that Apple pays significantly less rent is not misleading. They are paying "well below" average commercial rent in the same neighborhood.

    The AppleInsider article states that Walton Street Capital intends on keeping the office space property in the nearby tower; it has nothing to do with retiring and moving to an island. Walton Street Capital are just selling the retail spaces. It is likely that this owner simply want to get out of the commercial retail rental market. Retail is shrinking so it is becoming more challenging to make sure commercial retail spaces are occupied. Splitting the office real estate from the commercial retail real estate might have been in Walton Street Capital's original plans.
    edited March 20
  • Reply 3 of 13
    sflocal said:
    Due to its clout, Apple is currently paying a rent "well below" the average $400 to $500 per square feet of other businesses in the Michigan Avenue area, the Journal's sources claimed. A change in landlords could affect rates, 
    How would Apple's rent be affected with a new landlord?  They signed a lease, which is most likely for several years, (if not 10 years), and probably has a clause in there somewhere regarding renewal terms too, and any future landlord must honor it.

    My understanding is that prior to Apple, there was no structure there except a plaza.  The landlord just blew it up to make way for Apple to build their building.  So to say that Apple is paying rent "well below the average" is misleading because the owner was getting zero rent for that section anyways.

    Either way, I wonder what the reason for the sale was.  My guess whoever owned it wanted to simply cash out and live on an island somewhere.  That's some prime real estate for sure.
    Having worked only a couple of blocks from there, the above ground was a plaza and trees.  Underground was a food court?  Only went down there once and it seemed like the same area.  You can still see the plaza in Apple maps (2D and 3D) as of this comment.
  • Reply 4 of 13
    mpantone said:
    While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.

    Contracts are agreements between two parties, in this case Renter A (Apple) and Owner W (Walton Street Capital). At least here in California, if the ownership changes, the contract between the two parties is voided. Whether it be in residential real estate or commercial real estate, typically the leases need to be renegotiated. There's probably a law that states that the previous contract is in effect on a month-to-month basis.

    Let's say Renter X is renting space ($3000 month) for a bar in Owner A's Building A. Owner A sells Building A to Owner B. The lease agreement between Renter X and Owner A is now voided and a new contract must be negotiated with Owner B.

    Let's say Owner B decides he wants to raze the existing property and build new condominiums; this happens all the time. Owner B gives 60-day notice to Renter X that the building is set for demolition and they have 60 days to move out.

    In a different scenario, let's say Owner B wants to increase the rent to $10,000/month. The old agreement is void so either Renter X needs to negotiate new terms or move out. Again, this is very commonplace here in California.

    I am not sure how real estate contracts are interpreted in Illinois.

    In this case, the new owner of the property might tell Apple that rent is going up to $600/sq. ft. Apple can choose to move elsewhere. They are paying less than the average commercial retail rental rates for the area ($400-500), let's say Apple is paying $300. Perhaps a different landlord down the street would be happy to have a prestigious tenant such as Apple. Or maybe the new owner of the existing property says, "Yeah, let's keep the terms the same rather than let the property go empty and hope we can find a new long-term tenant who will pay more."

    The article over at MacRumors about the same topic provides a little more detail.

    Saying that Apple pays significantly less rent is not misleading. They are paying "well below" average commercial rent in the same neighborhood.

    The AppleInsider article states that Walton Street Capital intends on keeping the office space property in the nearby tower; it has nothing to do with retiring and moving to an island. Walton Street Capital are just selling the retail spaces. It is likely that this owner simply want to get out of the commercial retail rental market. Retail is shrinking so it is becoming more challenging to make sure commercial retail spaces are occupied. Splitting the office real estate from the commercial retail real estate might have been in Walton Street Capital's original plans.
    I'm pretty sure your summary of real estate law is completely wrong.  Otherwise, from the tenant's perspective no lease would be worth the paper it's printed on.
    jbdragonlibertykrsStrangeDaysbuzdotspscooter63
  • Reply 5 of 13
    sflocalsflocal Posts: 4,287member
    mpantone said:
    While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.

    Contracts are agreements between two parties, in this case Renter A (Apple) and Owner W (Walton Street Capital). At least here in California, if the ownership changes, the contract between the two parties is voided. Whether it be in residential real estate or commercial real estate, typically the leases need to be renegotiated. There's probably a law that states that the previous contract is in effect on a month-to-month basis.

    Let's say Renter X is renting space ($3000 month) for a bar in Owner A's Building A. Owner A sells Building A to Owner B. The lease agreement between Renter X and Owner A is now voided and a new contract must be negotiated with Owner B.

    Let's say Owner B decides he wants to raze the existing property and build new condominiums; this happens all the time. Owner B gives 60-day notice to Renter X that the building is set for demolition and they have 60 days to move out.

    In a different scenario, let's say Owner B wants to increase the rent to $10,000/month. The old agreement is void so either Renter X needs to negotiate new terms or move out. Again, this is very commonplace here in California.

    I am not sure how real estate contracts are interpreted in Illinois.

    In this case, the new owner of the property might tell Apple that rent is going up to $600/sq. ft. Apple can choose to move elsewhere. They are paying less than the average commercial retail rental rates for the area ($400-500), let's say Apple is paying $300. Perhaps a different landlord down the street would be happy to have a prestigious tenant such as Apple. Or maybe the new owner of the existing property says, "Yeah, let's keep the terms the same rather than let the property go empty and hope we can find a new long-term tenant who will pay more."

    The article over at MacRumors about the same topic provides a little more detail.

    Saying that Apple pays significantly less rent is not misleading. They are paying "well below" average commercial rent in the same neighborhood.

    The AppleInsider article states that Walton Street Capital intends on keeping the office space property in the nearby tower; it has nothing to do with retiring and moving to an island. Walton Street Capital are just selling the retail spaces. It is likely that this owner simply want to get out of the commercial retail rental market. Retail is shrinking so it is becoming more challenging to make sure commercial retail spaces are occupied. Splitting the office real estate from the commercial retail real estate might have been in Walton Street Capital's original plans.
    I'm pretty sure your summary of real estate law is completely wrong.  Otherwise, from the tenant's perspective no lease would be worth the paper it's printed on.
    I'm a landlord in SF (apartment building) for +20 years and while rent laws differ from state to state, and even city to city, one thing that changes little is a lease agreement.  The new landlord generally has to honor any prior lease agreement and the only way to kick Apple out from there is to essentially buy out their lease, and that of course can only happen if Apple agrees to it.  

    mPantone's reasoning is wrong.  If OwnerA sells to OwnerB, OwnerB would be unable to remove RenterX until the lease expires - at the earliest.    At that point, RenterX and OwnerB would renegotiate a new lease, or RenterX moves out.  If the (residential) property falls under rent control like here in San Franciso, New York, Berkeley, etc.. then a TenantX can stay as long as they want, regardless of the length of the lease.  All a fixed-length lease does in residential situation is that it guarantees (up to a point) that rent will be paid during the lease time, meaning if a renterX signs a one-year lease and wants to leave in 3 months, renterX is on the hook for all 12 months until OwnerB can re-rent the unit.

    Commercial properties don't usually fall under those kind of restrictions.  OwnerB can raise the rent on Apple as much as they want, but only AFTER the lease term expires.   The ball is in Apple's court until then.
    aaronsullivanjbdragonrandominternetpersonbuzdots
  • Reply 6 of 13
    Rayz2016Rayz2016 Posts: 4,340member
    mpantone said:
    While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.


    This is unlikely to be the case. The agreement stands until the lease expires because Apple is a sitting tenant. 

    After that, the new owners can negotiate. 
    aaronsullivanbuzdots
  • Reply 7 of 13
    jbdragonjbdragon Posts: 1,891member
    Rayz2016 said:
    mpantone said:
    While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.


    This is unlikely to be the case. The agreement stands until the lease expires because Apple is a sitting tenant. 

    After that, the new owners can negotiate. 
    I would have to agree.  A contract is a contract.  The new buyer would have to abide by the current contracts in place.  They just don't go up in a puff of smoke when the place is sold to a new owner.  If that's the case, I could see a number of ways to sell the building but really still own the building and then jacking up rates!!!  That's just not going to fly.

    The other thing is because Apple is there, it brings people to that area making the rates go up as it's driving traffic up.   Once Apple is gone, all those businesses in the area are going to take a huge hit and maybe disappear as they can't afford the rent anymore.  After all, people do most of their shopping Online.   You want too much money from Apple after the lease expires, Apple says "No Way" and LEAVES and no one wants to rent there for what Apple was paying, let alone the new rates.  

  • Reply 8 of 13
    buzdotsbuzdots Posts: 445member
    mpantone said:
    While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.

    I can assure you Apple's contract will not be up for renegotiation until the current term has expired, plus any extensions or holdover clauses that may have been written into the lease.  Commercial leases are apples and oranges to residential leases and in every state (even California) fall under a completely different set of state statutes.  Do not even think of this agreement in residential terms - or having any Federal jurisdiction except ADA (and only that because the building is new construction.)
    edited March 20
  • Reply 9 of 13
    So, the building spans 20,000 square feet x $4-500 per month... 8-10million dollars per month !? Why doesn't Apple just buy it? It pays for itself within 2 years!
    Never understood why people rent long term.

    (20,000 sq ft source: https://www.macrumors.com/2017/10/19/apple-previews-michigan-avenue-store/ )
  • Reply 10 of 13
    zoetmbzoetmb Posts: 2,341member
    adm1 said:
    So, the building spans 20,000 square feet x $4-500 per month... 8-10million dollars per month !? Why doesn't Apple just buy it? It pays for itself within 2 years!
    Never understood why people rent long term.

    (20,000 sq ft source: https://www.macrumors.com/2017/10/19/apple-previews-michigan-avenue-store/ )
    No.  Commercial leases are annually based.  When someone says a retail lease is $400 sq/ft, that's per year, so if it is 20,000 square feet, that's $8 million per year.   Still a lot of money though considering that it's almost $22,000 per day, although Apple might be paying a lot less.    
  • Reply 11 of 13
    mpantonempantone Posts: 1,346member
    Well, I stand corrected.

    Thanks to everyone here for correcting my wrong assumptions!
  • Reply 12 of 13
    mpantone said:
    Well, I stand corrected.

    Thanks to everyone here for correcting my wrong assumptions!
    No, your assumptions are correct.  It absolutely varies by lease/contract and sale.  Prime example...We were living in an apartment, apartment was sold.  We were given a 90 day notice to move out due to new ownership, but only had to give a 24 hr notice once we actually moved out (as opposed to a 30 day notice).

    It always shows the importance of reading your lease terms.
    edited March 22
  • Reply 13 of 13
    they sell the retail piece to focus on their core, which is most likely office. If they pay $300 SF x 20k=$6 mm year. apple is gold in the real estate investment market and the asset would trade at a super low capitalization rate, if they can sell they asset for $175 mm the capitalization rate is 3.43%, which is the annual return if the buyer paid all cash based on the annual income. whoever buys this will pay all cash and will finance it internally is my best guess.
Sign In or Register to comment.