Wal-Mart gets deal on land for New Lenox store

By Thomas A. Corfman, Dec. 27, 2007

(Crain’s) - The developer of a planned shopping center in New Lenox has given Wal-Mart Stores Inc. a roughly 18% price discount on its site in the 500,000-square-foot development in a deal that demonstrates how anchor retailers command more favorable terms than smaller tenants.

McVickers Development LLC is moving ahead with plans for the project after buying 73.5 acres last month along Lincoln Highway at Williams Street. The land was purchased from two sellers for a combined price of $18.9 million, according to Will County property records. The bulk of the site, about 71.7 acres, was owned by a land trust controlled by James H. Warning, a longtime New Lenox real estate investor, according to sources and public records.

The price of nearly $6 a square foot is about half the price of some large commercial sites in New Lenox, says James Wirt, a lawyer and longtime real estate investor in the area. But the McVickers site is bounded by railroad tracks on two sides, limiting its access and possibly reducing its value, he says.

John McVickers, president of the Hoffman Estates-based development firm that bears his name, declines to comment on the land transactions. Menomonee Falls, Wis.-based retail developer Continental Properties Co. had considered developing the site several years ago.

Anchor retailers Wal-Mart and home improvement chain Menard Inc. will own their own stores in the development, which will also include retailers such as Petco, Staples and Aldi, according to a McVickers site plan.

The Wal-Mart will be about 200,000 square feet, while the Menards will be about 140,000 square feet, Mr. McVickers says.

He says a “significant amount” of the remaining 160,000 square feet is leased, but he declines to be more specific.

McVickers paid an average price per acre of nearly $257,600, according to real estate transfer tax forms. At the same time McVickers closed on its purchase, it also sold off land to the anchor tenants.

Bentonville, Ark.-based Wal-Mart paid a little more than $7 million, or just $218,000 an acre, for its 32.4-acre parcel, located in the middle of the project.

Eau Claire, Wis.-based home improvement chain Menard paid nearly $5.5 million, or $316,000 an acre, for a prime, 17.3-acre site next to Wal-Mart, property records show.

Subtracting the sales to the two anchor retailers, McVickers’ cost for the rest of the site, about 23.8 acres, is about $268,700 an acre. Typically, an anchor tenant such as Wal-Mart demands better financial terms because the company knows the developer can make it up by charging higher rents to the smaller tenants.

“In general, developers almost never, ever make money on the big boxes, and very often they lose money,” says Matthew Silvers, a principal in the Midwest brokerage arm of Northbrook-based Next Realty LLC, who represented McVickers in the acquisition.

Mr. Silvers says major retailers like Wal-Mart dictate how much they are willing to pay for land based on their forecast of a store’s profitability.

“They’ve got their own economic analysis, and that’s just going to be what they can pay for the land, and the developers have to deal with it,” Mr. Silvers says.

The balance of the site, about 1.8 acres, was owned by Trinity Foundation, a Joliet social services agency.