Dec
18

Mag Mile Landlord Plans Big Retail Expansion

December 18, 2013
 - 500 N. Michigan Ave. Photo from CoStar Group Inc.

500 N. Michigan Ave. Photo from CoStar Group Inc.

The owner of the Shops at North Bridge plans to spend as much as $45 million converting part of an office building next door (shown above) into retail space and possibly connecting it to the big vertical mall.

Santa Monica, Calif.-based Macerich Co., which acquired the 24-story office tower at 500 N. Michigan Ave. last year, sees an opportunity to take North Bridge “to the next level,” according to its CEO, at a time when retail rents on the Magnificent Mile are five or six times what office tenants will pay for space.

The mall owner expects to spend between $30 million and $45 million remaking the 24-story office tower, according to a recent investor presentation. Macerich didn’t provide specifics, but Chairman and CEO Arthur Coppola said on a conference call with analysts last year that it planned to “consolidate the first five levels of office space into a new three-level iconic, probably 40,000- to 45,000-square-foot retail store.”

He said the firm may connect the space to North Bridge, the 680,000-square-foot mall at 520 N. Michigan Ave., and described the project as a “very important piece to the re-positioning and taking North Bridge Mall to the next level.”

North Bridge, whose tenants include Nordstrom Inc. and Eataly, is 91.5 percent occupied, according to a recent securities filing. A Macerich spokeswoman did not return calls.

Macerich’s decision to clear out the lower levels of the office tower only to face the challenge of filling a multi-level retail space illustrates the lure of Mag Mile rents and the lack of big spaces in the market right now.

“They’re merely responding to a constrained marketplace,” said Greg Kirsch, principal in the Chicago office of Newmark Grubb Knight Frank. “They’re seeing retailers coming to the marketplace that can’t be accommodated.”

A multi-story retail space on the Magnificent Mile would fetch net rents of $120 per square foot between the three floors, up more than 71 percent vs. two years ago, when rates for multiple floors were about $70 per square foot, Mr. Kirsch said.

Office space in the property is being offered for $26 to $33 per square foot on a gross basis, according to real estate data provider CoStar Group Inc.

Still, Macerich isn’t the only landlord on the Mag Mile with a big retail space to fill. Chicago-based General Growth Properties Inc. paid $166 million for the retail building at 830 N. Michigan Ave., which has around 60,000 square feet available.

Stockholm, Sweden-based pension fund manager Alecta also is trying to find a retailer to fill in at least 36,000 square feet at 717 N. Michigan Ave., where Saks Inc. is closing its men’s store in January.

This post was originally published on ChicagoRealEstateDaily.com on Dec. 11, 2013.

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