R2 Fetches $20M for Chicago Riverfront REI Store

A joint venture of R2 and investment giant Goldman Sachs has landed a buyer for a North Side retail building that it converted from an industrial facility on the Chicago River.

The venture sold the 40,000-square-foot REI store at 1422 North Kingsbury Street, which has been a flagship location for the outdoor gear retailer since 2019, for about $20 million to California investor Tom Funke, Crain’s reported.

The sale price, equating to nearly $500 per square foot, is about what was expected when the building hit the market in September. REI has a long-term lease that runs through July 2034.

Tough lending standards and high interest rates have stymied commercial sales in Chicago, but the sale underscores the appeal of net lease deals featuring properties with long-term tenants.

Such assets ensure reliable cash flow, and that was likely a motivating factor in Funke’s decision to purchase, especially in a market that’s been plagued by plummeting property values.

The REI store has a projected net operating income of $1.2 million in 2024, according to JLL, the brokerage that facilitated the deal. That translates to a first-year return, or capitalization rate, of 6.1 percent for the buyer based on the sale price.

“The smart money knows that Chicago real estate has significant long-term value,” R2’s Jason Trailov told the outlet. “Our flagship REI store was a unique product in a growth submarket. That’s a winning recipe for demand, even in a tough market.”

The transaction was part of a 1031 exchange, which leverages tax benefits for real estate investors, allowing them to defer taxes on property sales by reinvesting proceeds into similar properties. In this instance, the buyer utilized proceeds from the sale of an apartment building in Encinitas, California to acquire the Chicago site.

Nationwide, the retail market is off to a hot start in 2024, with sales increasing by 116 percent year-over-year in January, the outlet reported, citing MSCI Real Assets. A sluggish sales period in 2023 likely inflates that figure, though.

—Quinn Donoghue