Brookfield Property hands over Water Tower Place shopping center in Chicago to lender MetLife

It’s a step that would have been unthinkable before the COVID-19 pandemic swept through the city, triggering a wave of store closures on the Magnificent Mile, Chicago’s most important shopping district, and at Water Tower Place, its first vertical mall. Nearly a quarter of all commercial space on Mag Mile is vacant today, more than double its vacancy just four years ago.

By abandoning the mall, Brookfield recognizes that the time, effort and money required to revive the struggling property would not be worth it. Another factor: Water Tower Place lost so much value that its stock investment was wiped out. It is worth less than the more than $300 million in debt owed there. Many real estate investors drowning in debt often wave the white flag and move on.

“Water Tower Place will no longer be part of Brookfield’s portfolio,” the company said in a statement. “After numerous discussions to carefully assess and identify all available options moving forward, we have determined that it is best to focus Brookfield’s resources on other opportunities within our portfolio.”

A Brookfield spokeswoman declined to comment beyond the statement.

New York-based Brookfield is transferring ownership of Water Tower Place to the property’s lender, MetLife Investment Management, a unit of New York-based insurer MetLife.

“Water Tower Place is a high-quality real estate asset well positioned in the Chicago market,” a spokesperson for MetLife Investment Management said in a statement. “While we cannot comment on the specifics of this transaction, MetLife Investment Management has a proven track record in institutional real estate and a dedicated team in the Chicago area. We look forward to discussing the future of this iconic shopping destination with our customers and other key stakeholders. »

Water Tower Place, a nine-story, 818,000-square-foot mall at 845 N. Michigan Ave., lost several tenants post-pandemic, including Banana Republic, Aritzia and Riley Rose. The Foodlife food hall and the Mity Nice Bar & Grill on the mall’s mezzanine level also closed in 2020.

After Macy’s decided to close its department store in Water Tower Place early last year, Brookfield began work on a major overhaul of the mall. At one point, Target even considered taking over part of the 324,000 square foot Macy’s space.

MetLife, meanwhile, was willing to be patient, agreeing to extend the maturity date of Brookfield’s mortgage on the property, most recently to April 1 this year. Ultimately, however, Brookfield decided not to go ahead with his plan. Now it’s up to MetLife to turn the mall around, possibly with a partner, or simply sell it.

Water Tower Place was a retail pioneer in Chicago, the city’s first indoor mall when it opened in 1975, part of a large mixed-use complex that included condominiums, offices and the Ritz- Carlton Chicago. Chicago-based real estate investment trust General Growth Properties owned Water Tower Place through a joint venture for more than a decade before Brookfield took it over through its buyout of GGP in 2018. Brookfield is also owns the Oakbrook Center and Northbrook Court shopping centres.

Water Tower Place’s financial decline became evident in 2020, when Brookfield bought out its joint venture in the property, UBS Trumbull. Brookfield posted a $15.4 million loss from the deal and listed Water Tower on its balance sheet at $394 million, according to the company’s 2020 annual report. The deal illustrated how much the shopping center sector had fallen since 2013, when UBS acquired its stake in Water Tower. This deal valued the property at $819 million.

Brookfield’s decision to abandon Water Tower isn’t the only sign of financial distress on the Mag Mile. Macerich, a Californian REIT, recently decided to transfer its 50% stake in the Shops at North Bridge mall to its partner, posting a loss of $28 million in the process. And approximately $55 million in debt secured by buildings at 545 and 555 N. Michigan Ave. – released last year by Gap – were recently transferred to a special loan officer, a warning that a default could be on the horizon.

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