CHICAGO-Michael Ashner, chairman and CEO of Boston-based Winthrop Realty Trust, confirmed Thursday that his firm, in a partnership with Toronto-based Elad Canada Inc., has now taken over control of the Sullivan Center in downtown Chicago. The former Carson, Pirie, Scott and Co. headquarters was being redeveloped by the troubled developer Joseph Freed – and successfully at that, with Target slated to fill a lot of space as a retail anchor in October – but he was in default on the Sullivan, and the venture bought out his note in December.
Ashner tells GlobeSt.com that Freed will still play a significant part in the property. Joseph Freed & Associates will continue to handle property management at the one-million-square-foot building, and Jones Lang LaSalle will handle leasing, Ashner says. “If the property does well, per our deal, Freed also has a set participation in the profit,” he says.
In a statement, Winthrop said its venture provided $128 million for the $140 million existing loan held by a consortium of banks led by PNC. In connection with the restructuring, the venture was issued a 65% future profits participation, in excess of all amounts due under a $47.5 mezzanine loan. If a $3 million principal payment is made on the mezzanine loan before Dec. 31, the interest rate and compounded return are increased to 15.5% and the profits participation is decreased to 60%.
The steel-framed building was designed by Chicago icon Louis Sullivan after the Great Fire of 1871. Carson’s closed in 2007. Freed purchased the building 11 years ago, and has invested more than $190 million in renovations.
Freed was more recently mired with default issues with another downtown Chicago property, the retail portion of Block 37, with Bank of America eventually taking over the new center. Freed has been in default on the Sullivan Building for almost a year. A spokeswoman for Freed tells GlobeSt.com that the company has no comment about the Winthrop-Elad deal.
Target said earlier this year that it will lease 125,000 square feet of the building’s 200,000 square feet of retail, as one of four urban store format test sites, with plans to open in October 2012. DSW also plans to occupy retail there. The office space, about 77% leased, includes the School of the Art Institute of Chicago, architecture firm Gensler, City Year and the Illinois Department of Employment Security.
The Winthrop-Elad venture has agreed to provide about $4.4 million to fund the costs associated with the completion of the two retail anchors, as well as for 80% of additional tenant improvements, leasing commissions and capital expenditures not funded under a new $100 million mortgage loan. Ashner says he believe the most valuable part of the building will be the almost-full retail space by the end of the year. “I think it will do very well,” he says.
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