The owner of two adjacent storefronts on Chicago’s Magnificent Mile is close to defaulting on a $55.5 million mortgage after Gap left one last year and their combined vacancy rate spiked to 74 percent.
The loan to the owner of the buildings, Irish investment firm ECA Capital, was transferred to special servicer SitusAMC, a firm hired to handle failing mortgages, Crain’s reported, citing trade publication Commercial Real Estate Direct.
Landlords on and near the Magnificent Mile are facing lenders over troubled loans after the pandemic dealt a blow to commercial property values. ECA’s loan woes are the latest sign of distress for urban retail across the nation.
The struggling storefronts are in Chicago’s most famous shopping strip, where vacancy rates have risen to about 25 percent, more than twice the 2018 rate. In San Francisco’s Union Square, the former Disney Store property sold for a major loss this year, as did a big stake in the North Bridge mall on the Mag Mile.
“The borrower could be faced with an extended lease-up period for the vacant space and the 2022 lease expiry for the remaining tenant could also present a challenge given the market dynamics,” ratings firm DBRS Morningstar said in a report last May about the loan tied to 545 and 555 North Michigan.
Gap occupied the three-story, 46,000 square foot building at 555 North Michigan Ave., from 2000 until its lease expired in November 2020, and the store closed in January 2021. Tourbillion, a luxury watch retailer owned by Swatch, leases about 16,000-square feet at 545 N. Michigan and is subleasing it to bootmaker UGG, Morningstar said. The lease and sublease both expire in December.
Retailers including Macy’s, Uniqlo, Disney and Express left the Mag Mile over the past several years. Some of it has started to be refilled: candy store It’Sugar moved into the former Disney Store space. Chicago officials and landlords are putting resources into reviving Michigan Avenue through Streeterville, including by chopping up large storefronts into multiple smaller spaces that could appeal to local retailers.
Officials have characterized the Mag Mile’s north end as more in need of assistance than its southern portion, which hosts ECA’s property.
The loan carries a 4.7 percent interest rate and matures in 2027, Crain’s reported. It’s unclear whether ECA will work to lure new tenants and pay off the loan to hold onto the property or if it’s willing to surrender the keys and walk away.
[Crain’s] – Sam Lounsberry