Northbrook Court lender may want to sell the mall

A “For Sale” sign might tell the story better. Amid a brutal pandemic that has crushed mall owners across the country, Northbrook Court lender Barings has questioned brokers for a potential mall sale, according to people familiar with his plans. In capitulation, the owner of the mall, a joint venture run by Brookfield Property Partners, stopped paying his mortgage months ago, people say.

Brookfield and Barings are trying to find a way to cut their losses at what once seemed like a rock-solid investment: a regional mall near some of Chicago’s wealthiest suburbs with sales exceeding $ 700 per square foot, near the Chicago Market Summit. But the steady increase in online shopping and the sudden hit of COVID-19 have exposed vulnerabilities at malls like Northbrook Court, a 986,000 square foot property at 1515 Lake Cook Road.

The decision to explore a sale raises doubts over Brookfield’s $ 250 million turnaround plan, approved by the village in 2019. The “big things” of the redevelopment included 315 apartments, a grocery store and a food court. Funded with nearly $ 22 million in village tax funding, the project offered a promising avenue for Northbrook Court and a model for other shopping centers trying to survive a wave of department store closures and the threat of e-commerce. .

Brookfield put the project on hold after the pandemic but told village officials it plans to move forward this summer, village president Sandy Frum said. The business seems elusive now.

“We have engaged various stakeholders to determine a viable path forward for ownership that best serves the interests of all parties involved,” Brookfield said in a statement.

A spokesperson for the company declined to answer questions and representatives for Barings did not respond to requests for comment. Frum says the project has not received any money from the village.

New York-based Brookfield owns a 45 percent stake in Northbrook Court in a joint venture with the New York State Common Retirement Fund, a retirement plan for New York State employees. A representative of the fund did not respond to requests for comment.

The coronavirus pandemic has been particularly difficult for shopping center owners, especially in its early months, when many shopping centers have closed and many retailers have refused to pay their rent. Homebound consumers have purchased even more products online, accelerating the abandonment of traditional retailers. Store closings and retailer bankruptcies have jumped. The owners of several local malls, including Gurnee Mills, Lincolnwood Town Center and Yorktown Center in Lombard, have stopped repaying their loans. An index of U.S. shopping center values ​​created by California-based research firm Green Street Advisors has fallen 20% from pre-pandemic levels.

Northbrook Court also suffered losses. Lord & Taylor closed its 126,000 square foot store there in December, leaving the mall with one department store, Neiman Marcus, a chain that went bankrupt in September. At least 17 tenants inside the mall have left in the past nine months, including Corner Bakery, Abercrombie & Fitch, Banana Republic and Victoria’s Secret, according to the property’s website and a June 2020 rental plan. Excluding department stores, Northbrook Court’s occupancy rate fell to 68% from 85% in June.

It is not clear whether an investor would pay enough for the mall to allow the Brookfield company to repay its outstanding debt to Barings, based in Charlotte, North Carolina. The mall’s mortgage balance, which matures in November, is around $ 117 million, according to Brookfield’s 2020 annual report.

Brookfield took over Northbrook Court and two other large local shopping centers, Water Tower Place and Oakbrook Center, as part of its 2018 takeover of Chicago-based GGP. A publicly traded real estate investment company with around $ 88 billion in assets, Brookfield has the financial strength to turn around a struggling mall.

But the company has made it clear that it will not donate money to lost causes. In January, Brookfield sold its North Point shopping center in suburban Atlanta to a lender, even after getting approval for a redevelopment that would have included 300 apartments.

Built in 1976, Northbrook Court has rebounded from past disruptions, such as the loss of the mainstays of department stores Sears, JC Penney and I. Magnin. But it didn’t follow the Old Orchard Center in Skokie, which isn’t closed like Northbrook Court and became a more attractive destination for many retailers after Nordstrom opened a department store there in 1994.

The 2003 opening of the Glen Town Center in Glenview also “siphoned off some sales,” said John Melaniphy, president of Chicago consulting firm Melaniphy & Associates.

“We were usually reaching a saturation point,” he says.

Internet shopping and then the pandemic compounded the challenges for the Northbrook court. A new owner will have to return to the drawing board and explore a wide range of uses for the site, including residential, office, hotel and recreation, says Melaniphy.

There is still room for retail in a redeveloped Northbrook Court, but for categories isolated from e-commerce competition, like grocery stores, restaurants and home improvement, he says. Whoever is responsible, Melaniphy does not bet against property.

“It’s always the darkest before dawn,” he says. “Basically it’s good real estate.

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Peggy P. Gilmore