The Real Deal Chicago

Toys “R” Us pain could soon be felt around Chicago area

Some landlords could default on loans when the toy store chain stops paying rent
April 06, 2018 03:00PM

(Credit: Wikipedia, Max Pixel, Pixabay)

When Toys “R” Us announced its liquidation last month,  it was expected that some Chicago area retail landlords would be hit hard.

Among them could be Chicago-based Bonnie Investment Group, owner of Bricktown Square, a 292,000-square-foot shopping center in the Montclare neighborhood on the West Side, according to Crain’s.

The firm has a $2.2 million annual commitment to pay back a $32 million mortgage for the property. The loss of Babies “R” Us, its largest tenant there, could push the firm toward default on the loan.

Things started going south for Bonnie at Bricktown Square last year. That’s when Sports Authority went bankrupt and about 36,000 square feet at the center went dark. Bonnie has been able to break up the space and has found a discount apparel retailer to take about 22,000 square feet that had been Sports Authority’s.

But the loss of Babies “R” Us, which has a 45,000-square-foot spread at Bricktown Square — one of more than 700 stores Toys R Us is closing as part of its bankruptcy — could be more than the property can financially bear.

Numbers cited by Crain’s show the center took in a net cash flow before debt service of about $2.23 million in 2016 — when it had more than $489,000 a year in base rent coming in from Babies “R” Us.

Similar centers across the metro area could also find themselves in trouble in the coming months, as Toys “R” Us’ failed Chapter 11 bid impacts about 30 stores here.

The recent lower-than-expected bid by Brookfield Property Partners to buy Chicago-based mall owner General Growth Properties served as a reminder that the industry is struggling to find an answer to the ways e-commerce is reshaping how people buy things.

The Toys “R” Us liquidation won’t hit every landlord as hard as it will likely hit Bonnie.

Connecticut-based Starwood Capital Group holds a ground lease for a 43,000-square-foot Toys “R” Us store at Louis Joliet Mall in Joliet.

Tom Fink, senior vice president and managing director at the research firm Trepp, told Crain’s the bankruptcy should be a “non-issue” for Starwood, since the rent Toys “R” Us brought in amounts to a small piece of the pie at the large indoor mall.

But at Oakridge Court Shopping Center in Algonquin, Toys “R” Us has a much larger, 64,000-square-foot space that accounts for nearly half of the center’s 146,000 rentable footprint. The loss of that much rented space all at once could spell trouble for the owners, Madison, Wisconsin-based E.J. Plesko & Associates and Chicago-based Equibase Capital Group. The joint venture developed the center in 2008, and holds an $18.7 million mortgage on it. [Crain’s] – Scott Klocksin