An REI store perched along the north branch of the Chicago River is for sale in a move that could test demand for properties with long-term cash flow at a time when many real estate deals are difficult to finance.
Chicago-based developer R2 and investment partner Goldman Sachs have hired JLL brokers to seek a sale of the 40,085-square-foot building leased to the outdoor gear retailer at 1422 N. Kingsbury St. on the city’s North Side, R2 CEO Matt Garrison confirmed.
Garrison said the owners are confident that the unique building, which he describes as “a unicorn,” will find a buyer despite overall challenges in financing real estate deals throughout the country. In Chicago, it has been more than a year since the last downtown office tower sale, the result of low demand and over a year of rising interest rates.
“High quality assets tend to transcend market conditions,” Garrison said in an email to CoStar News. “It’s a nice mix of basis, affordable rent for the tenant, credit and term in a hard-to-replicate location. This makes it a bit of a unicorn, and unicorns are valuable regardless of the noise.”
REI has about 10½ years remaining on its initial lease, according to JLL materials. Net operating income for the building is more than $1.2 million, with 10% rent increases coming every five years and the first bump coming in about a year, according to JLL.
The tenant also has three five-year extension options.
Sumner, Washington-based REI moved to the property, which R2 converted from warehouse space, from a nearby location in 2019.
The back side of the building includes a ramp leading to the river, from which customers can rent and launch kayaks and canoes, and a floating garden that is part of the ongoing “Wild Mile” initiative to increase recreational use of the once-gritty section of the river.
Despite turbulence in real estate markets, liquidity remains strong for hard-to-replicate properties leased to high-credit tenants such as REI, said Alex Sharrin, one of the JLL brokers marketing the property.
"This is purpose-built real estate for REI, which has zero bank debt, and this is their flagship for Chicago and the entire Midwest," Sharrin said. "They chose this location because it's right on the river in a picturesque location. There's a great commitment to location here."
Noting the recent $231.5 million sale of the 492-unit apartment tower at 727 W. Madison St. to Spanish billionaire Amancio Ortega and continued interest in Chicago properties from other international investors, Sharrin said he "wouldn't be surprised if we saw foreign capital emerge for this deal."
Garrison declined to say how much the owners invested in the redevelopment or how much he expects in a sale.
R2 and Goldman Sachs bought the former parking structure at 1422 N. Kingsbury for $6.7 million in 2015, according to CoStar data. The REI store includes 58 parking spaces in an attached garage.
Crain’s Chicago Business, which first reported the building going on the market, estimated the property could sell for $20 million to $25 million.
R2 is a longtime investor in the area on and around Goose Island, the industrial island just across the river from the REI site. Other major retailers nearby include a Whole Foods store, one of two Apple stores in the city and rows of retail properties on and around nearby Clybourn Avenue. Across the street from REI, trampoline park operator Sky Zone recently leased a former Buy Buy Baby store.
The REI flagship is an area of the city poised for major changes, with Canadian developer Onni Group planning to build thousands of apartments on and near the southern tip of Goose Island. It is not far from the upcoming first casino in Chicago.
To the north, R2 is one of the developers of the Salt Shed, a former Morton Salt warehouse converted into a riverfront concert venue. A Goose Island brewery also is coming to the project.
Last year, R2 sold a former industrial building on Goose Island that it converted to offices to a Hines fund for $47 million.
South of its Goose Island investments, R2 is working on a deal to buy the 41-story office tower at 150 N. Michigan Ave. for about $70 million, far below the nearly $121 million it last sold for in 2017.
For the Record
The sellers are represented by JLL brokers Sharrin, Keely Polczynski, Michael Nieder and Mohsin Mirza.