Retail REIT buys vacant building on Michigan Ave.
(Crain's) — Better known as a strip mall owner, Kimco Realty Corp. has purchased a vacant, 12-story office building on a forlorn stretch of North Michigan Avenue, between the Chicago River and Randolph Street.
An affiliate of New Hyde Park, N.Y.-based Kimco bought 168 N. Michigan Ave. for $13 million from a joint venture that includes Mercantile Capital Group LLC, according to property records filed Jan. 16 with the Cook County Recorder of Deeds.
Kimco, one of the nation's largest owners of retail real estate, has accumulated a portfolio of 183 million square feet, focusing largely on run-of-the-mill properties, such as grocery-anchored shopping centers in suburban locations.
The real estate investment trust's plan for the 76,000-square-foot structure a few steps from Millennium Park could not be determined. Kimco executives in Rosemont and New York did not return calls requesting comment.
The Mercantile Capital venture bought the building in August 2006, with tentative plans to either renovate the office space or entirely redevelop the dilapidated terra-cotta structure into a hotel or senior housing facility. But the venture never made much progress on the project, and is now walking away with a handsome profit on a highly leveraged investment.
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I. Steven Edelson, a principal in Northbrook-based Mercantile Capital, did not return a call requesting comment.
The acquisition is apparently part of a new focus on urban investment and development for Kimco. On Jan. 9, the same Kimco subsidiary that bought 168 N. Michigan also completed the $9.3-million purchase of the historic Germania Club building in Old Town.
Related story: Germania Club building sold to shopping center firm
Kimco has previously disclosed the existence of a fund focused on New York City, but the REIT's interest in such opportunities in Chicago has emerged only through the Michigan Avenue and Old Town deals.
Kimco has a well-established investment management business, buying and selling properties on behalf of investment clients, such as pension funds. Such investments account for roughly 40% of Kimco's portfolio, according to a Feb. 6 report by REIT research firm Green Street Advisors Inc.
Kimco's investment management business was at one time focused on top-quality, so-called core assets. But in recent years, Kimco has broadened its scope to include opportunities in South America, Mexico and Canada, as well as New York, Green Street notes.
"The ingenuity the REIT has displayed in growing its business is admirable. Nevertheless the human capital the REIT will devote to these unconventional offerings may weigh on profitability," Green Street says.
As of Dec. 31, Kimco held a 42-property, nearly 4.8-million-square-foot portfolio of retail real estate assets. Before the recent acquisitions, the only Chicago assets in that portfolio were a grocery-anchored center at 87th Street and the Dan Ryan Expressway and a Kmart at 5033 N. Elston Ave.
In October, WBS Equities LLC had a contract to buy 168 N. Michigan, which the Chicago-based real estate firm was looking to flip. It could not be determined if Kimco bought WBS' contract or signed a fresh agreement with the Mercantile Capital venture.
