Brookfield-backed firm pays $30M for River North restaurant, nightclub

Sterling Bay sells building after $25M went into transforming building reopened in 2018

Fundamental Income's Chris Burback, Sterling Bay’s Andy Gloor and 632 North Dearborn, Chicago (Fundamental Income, Sterling Bay)
Sterling Bay’s Andy Gloor, Fundamental Income's Chris Burbach and 632 North Dearborn, Chicago (Fundamental Income, Sterling Bay)

A venture backed by Brookfield Asset Management bought a restaurant and nightclub in a historic building in River North that was transformed by Chicago developer Sterling Bay.

Phoenix-based Fundamental Income paid about $30 million for the 34,000-square-foot building at 632 North Dearborn Street, Crain’s reported, citing people familiar with the deal. The property is a 130-year-old Romanesque Revival building that’s been home to Tao Group’s Chicago outpost since 2018.

It was the second purchase of an historic building by Fundamental, a two-year-old firm focused on buying properties leased to single tenants on long-term deals. That’s a business model threatened by accelerating inflation, because some rents may not rise at the same pace over the course of a lease.

In October, Fundamental paid $45 million for the historic Three Arts Building in the Gold Coast. It’s leased on a long-term basis to Restoration Hardware.

The move also shows how the retail market is changing, with experience-based assets such as restaurants, clubs and entertainment facilities fetching higher valuations than before the pandemic, while storefronts face challenges from the rise of e-commerce and muted downtown foot traffic amid the health crisis.

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“Obviously there have been Covid impacts on restaurants and entertainment as a whole, but in a post-COVID world, operators like Tao and experiential assets like this are going to thrive,” Fundamental CIO Alexi Panagiotakopoulos told Crain’s.

For Sterling Bay, the deal marks the completion of a cashout delayed in April 2020, when a deal to sell the property fell through as the pandemic struck. The developer bought the property for $11.5 million in 2014, and it was kept vacant while a joint venture of Sterling Bay’s hospitality arm Four Corners and Tao Group spent $25 million to transform the property ahead of its 2018 reopening.

Tao inked a 20-year lease at the time, and the rent rises 6 percent every three years as part of the deal, though the base price is unclear.

Since its start in 2020, Fundamental Income says it’s spent more than $600 million on real estate.

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DRW founder and CEO Don Wilson with the historic property (Restoration Hardware, DRW)
Gold Coast Three Arts Club building sells to Brookfield Asset Management-backed fund
Brookfield's Bruce Flatt (Brookfield, iStock)
New York
Brookfield to spin off asset management business

CORRECTION, May 25, 2022, 2:15 p.m.: The final paragraph of this story has been corrected to show that Fundamental says it has spent more than $600 million on real estate.

CORRECTION, May 27, 2022, 1:45p.m.: The sixth paragraph of this story has been corrected to show that Panagiotakopoulos is the CIO.