A deal where everyone won

August 06, 2014  |  Bianca Herron  |  Print Article  |  Email this Article

Martin Stern

Martin Stern

In 1955, the family trust that owned the one-acre site at 110 N. Wacker Drive leased the land to Morton Salt, who built a new headquarters building. It was a 99 year lease at $45,000 per year. The difficulty that ensued for the family was that it was a fixed amount without any escalations.

According to Martin Stern, senior managing director in CBRE/U.S. Equities Realty’s Chicago office (and advisor to the family trust since 1990), “When General Growth went into bankruptcy, it came out of it with a lot of good operating shopping center properties. But all of the real estate, including this building and lease for the land underneath it, went right to a new company, the Howard Hughes Corporation.”

Fast forward 59 years, with 40 years left on the lease, the family trust owns the land, the lease is controlled by Howard Hughes, and the building is rented by General Growth Properties, who was part of a joint venture that bought the property from Morton Salt, and who then used the building as its own headquarters.

The family was potentially facing 40 years of minimal returns on the lease.

On the other hand,” Stern said. “It’s one of the most developable sites, maybe the best office site remaining in the city of Chicago. So we were looking to sell the land, subject to the lease, in a way that would increase value.”

With so many risks and uncertainties about when someone might be interested in buying and what happens at the end of the lease, Stern said, the family wanted to monetize the value of the land, without placing the burden of dealing with the property on children and grandchildren.

So CBRE/U.S. Equities Realty began looking for a way to capture the value of the property. They conversed with Howard Hughes about buying the property for a while, according to Stern, but they either said they had no interest in buying before the end of the lease term, or offered a very low price.

“We didn’t put the property formally on the market because it’s a complicated story, but we quietly marketed it to people we thought would understand the story, and be willing to take the risks related to it. There were a lot of companies and individuals in a better position to take those risks than our clients were.”

CBRE/U.S. Equities Realty found a buyer, represented by Jordan Shtulman at Steam Capital Partners, for $12,250,000. Stern said the present value was significantly higher than what their clients would have gotten had they been forced to wait.

The Howard Hughes Corporation had a right of first refusal to match the terms and conditions of any offer received, which they exercised, and the sale was closed on July 18th.

Although the Howard Hughes Corporation trumped the buyer, there was a stipulation in the buyer’s contract, in case it happened, to receive a fee for the trouble that they went through to make the offer.

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