Newcastle buys 9 Andersonville retail properties

By Alby Gallun, July 09, 2008

(Crain’s) — Newcastle Ltd., known mainly for buying North Side apartment buildings, has paid $22.5 million for a portfolio of properties on Clark Street in Andersonville, becoming the eclectic strip’s largest retail landlord in a single transaction.

The Chicago-based firm acquired nine properties in June from the 5100 to the 5400 block of Clark, Andersonville’s main drag, according to a deed filed with the Cook County Recorder.

Newcastle bought the buildings, which include the home of Hamburger Mary’s restaurant and the Andersonville Galleria, from Chicago-based investor Raymark Venture LLC, which spent $11.5 million acquiring the properties from 2002 through 2007, property records show.

The transaction is likely to draw attention in Andersonville, where retailing has become a hot political topic as the neighborhood has become more affluent in recent years. Though homegrown merchants have flourished along Clark Street, worries that big national retailers would invade their space and push up rents prompted city officials to consider a ban on chain stores there two years ago.

The idea never gained traction, but neighborhood leaders stress that they want to preserve the strip’s unique character. Newcastle President and CEO Michael Haney says he does, too.

“In my opinion, what makes that a successful retail area in large part has to do with its tenancy,” he says. “It would not be in the landlord’s best interest to change that chemistry that has really evolved organically.”

The acquisition was good news to Jill Siegel, managing director of Andersonville Development Corp., the development arm of the Andersonville Chamber of Commerce.

“We think it’s a great signal of the value and appreciation of local and independent business, which has long been the hallmark of Andersonville,” she says.

Newcastle bought properties totaling 71,000 square feet, including some office space, all of it leased, Mr. Haney says. That works out to a price of $317 a square foot. Tenants include Sir Spa, a spa at 5151 N. Clark; Urbanest, a furniture retailer at 5228 N. Clark, and the Galleria, a collection of artist, antique and jewelry shops at 5247 N. Clark.

Average retail rents in the neighborhood have risen from around $20 a square foot about five years ago to the mid-$30 range today, with a few landlords getting $50 a square foot, says Raymark Principal Mark Falanga. Mr. Falanga and his partner Ray Pesavento began acquiring their Andersonville properties in 2002, typically from longtime merchants who owned the buildings and were ready to cash out. The duo then fixed up the properties and found new tenants.

“We sold because we felt (Newcastle) would be terrific stewards in carrying forth what we assembled there,” Mr. Falanga says.

Newcastle has raised money from large institutional investors like Iowa-based Principal Financial with the strategy of investing it in small to mid-sized properties in Chicago neighborhoods — assets that normally don't draw interest from big institutions. The firm has invested about $250 million so far, most of it in North Side apartment buildings. In January, Newcastle paid $122.5 million for a seven-building, 886-unit apartment portfolio in Lakeview and Lincoln Park.

Related story: Newcastle buys portfolio of Chicago apartment buildings

As in previous acquisitions, Newcastle did not borrow money to buy the Andersonville portfolio. Mr. Haney says he expects to place debt on the properties later on, probably at about 60% of their value.