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CHICAGO – Newcastle Limited* represented the 73 owners of the South Water Market Unit Sales, LLC, in the $35,000,000 sale of Chicago’s historic 78-year-old, 1,300,000 SF, 14-acre South Water Market produce terminal. The sale closed on July 11, announced Michael R. Haney, President of the Chicago-based real estate firm, retained by the association to provide disposition services. Newcastle Limited is a national real estate advisory and development firm serving not-for-profit organizations, institutions, investors, corporations and governmental agencies.
The six, circa: 1920s, terra-cotta-clad, three-story warehouse buildings that comprise South Water Market will be retained, fully renovated and retrofitted as part of the residential development plan by the buyer, The Enterprise Companies, a Chicago-based real estate developer and loft-conversion pioneer. The new development, named University Commons, highlights the excellent Near West Side location of the five-city-block property, situated between 14th Place and 15th Place and between Morgan Street and South Racine Avenue, immediately east of University Village. The property is bounded by the Chicago ABLA residential communities on the north and west; a Burlington Northern Santa Fe Railroad embankment on the south; University Village and the University of Illinois Chicago’s South Field Sports Complex on the east.
The original market was started in the late 1800s on South Water Street at East Wacker Drive and State Street, but was closed down on August 27, 1925, and moved to its present terminal to make way for the construction of Wacker Drive. Designed by the architectural firm of Fugard & Knapp, the new South Water Market terminal was subdivided into 166 units and sold to merchants on a fee-simple basis. The market property is comprised of six long buildings, each with between 23 and 33 bays, raised loading platforms and broad canopies. For decades it served as Chicago’s main wholesale fresh produce market, distributing food to restaurants and grocery stores across the city.
Over the last 40 years, there have been many failed attempts to achieve consensus for relocating the terminal and redeveloping the site. In 1963 Arthur Rubloff offered to build a new market and buy the old site. His offer was rejected. Since then there have been more than a dozen additional unsuccessful offers to redevelop the site.
The first goal of relocating the terminal was accomplished last year when CenterPoint Properties Trust (NYSE: CNT), in partnership with the City of Chicago, developed the new 25.7-acre, $58,000,000, state-of-the-art, 436,224 SF industrial condominium complex, called the Chicago International Produce Market. The new produce market is located a couple of miles southwest of South Water Market on Wolcott Street, just south of Blue Island Avenue. The new building has 36 individual units, each with 12,117 SF. The Chicago International Produce Market officially opened on September 21, 2002, and is already 100 percent sold.
“When we were retained to represent the owners’ association in May of 2002, the property was over 90 percent occupied. We brought the property to market in November of 2002. By the time of the offers deadline on January 17, 2003, the property was less than 50 percent occupied. When we officially turned over the property to the new owner, only approximately 15 merchants remain on leases of varying durations with The Enterprise Companies,” said S.L. van der Zanden, Managing Director of Newcastle Limited and Project Manager for this transaction.
Newcastle worked closely with the owners, the Chicago Department of Planning & Development, the Landmarks Preservation Council of Illinois, and Alderman Daniel Solis (25th Ward) to prepare this property for disposition. “Our company specializes in highly complex real estate transactions involving consensus-building, property-transformation solutions. Complexity issues associated with the South Water Market transaction were numerous, but topping the list has to be the number of owners. We dealt with 73 owners in order to build consensus for the sale, the sealed-bid disposition strategy, the pricing and terms of the winning offer, the language in the documentation, and the coordination of 73 separate closings,” said van der Zanden.
Another complicating factor came to light during the buyer’s due diligence period. “A careful review of the title revealed a 1925 deed provision restricting the use of the property to a produce market. In order to waive this restriction and make way for redevelopment, we reviewed legal precedent and the economic realities, then worked with the owners, the buyer and Chicago Title Company to minimize risk and build consensus,” he said.
The third major complication was the architectural and historical significance of South Water Market. The complex was number 12 on the Illinois Landmark Preservation Council of Illinois’ “Chicagoland Watch List” for 2002 and is one of the 9,600 buildings on the “Orange” list of potentially significant buildings in the context of the surrounding community, complied by the City of Chicago’s Commission on Chicago Landmarks in its comprehensive 1995 Chicago Historic Resources Survey. “We worked diligently to generate interest from prospective developers with the experience to re-use the buildings in order to avoid the inevitable delays and uncertainties inherent in the demolition of any property,” van der Zanden said.
“We are absolutely ecstatic with the outcome of this disposition. It’s easy to save a highly visible, high-styled monument building, but to have such a complete preservation scheme worked out for a vernacular industrial complex like South Water Market is a tougher job for developers,” said David A. Bahlman, President, Landmarks Preservation Council of Illinois. According to him, our culture’s reverence for history has broadened significantly over the last 50 years. “This egalitarian movement demonstrates that we value all human activity, recognizing that the grocery distributor is as important as the bank president,” he said.
“Everyone is pleased with the outcome of this sale,” said Gene Ruffolo, who along with Peter Testa, serve as Co-Managing Partners of South Water Market Unit Sales, LLC, formed two and a half years ago to spearhead the successful disposition effort. “No one person made this happen. It was a team effort of our owners, the city, the preservationists, our attorneys and our real estate advisors,” said Ruffolo, who made a special point of acknowledging the efforts of attorney, Mark T. O’Toole with Foran Nasharr & O’Toole LLC, who introduced the managing partners to Newcastle Limited and acted as legal counsel for the 73 sellers.
Commenting on why the disposition effort was successful this time around, Ruffolo mentioned the association’s efforts to secure the cooperation of 73 owners before it retained Newcastle. “Newcastle presented the owners with a 100-page spiral notebook that included a comprehensive overview of the market, all environmental issues and an honest and straightforward description of the property. It contained all the facts we needed to make decisions. We are very grateful for Newcastle’s integrity, honesty, persistence and the quiet way in which they worked,” he said.
“Although the city’s ‘orange’ designation allows us to demolish the existing structures on the property, we are saving these historical buildings without requesting official landmark status,” said Ron Shipka, Jr., Principal of The Enterprise Companies. The family-owned company specializes in residential developments that emphasize a sense of responsibility for preserving the character of Chicago’s neighborhoods. The firm redevelops distinguished landmark and architecturally significant buildings in addition to building new loft, townhouse, single-family, mid-rise and high-rise projects, which reflect state-of-the-art design and technology.
According to Shipka, redevelopment of the 850-unit loft condominium project, valued at approximately $250,000,000, will include the addition of a fourth level allowing both single-story and townhouse configurations. One-bedroom/one-bath plans, ranging in price from approximately $150,000 to $200,000, will comprise 30 percent of the units; two-bedroom/two-bath plans from $240,000 to $325,000 will comprise 55 percent of the units; and three-bedroom/two-bath plans from $350,000 to $450,000 will make up the balance. Amenities include rear yards, covered decks or patios, balconies, penthouse rooftop decks and underground parking.
“We are offering Chicago something it very much needs – affordable pricing. In a residential market, characterized by development costs of $275 PSF to $300 PSF – and between $500 PSF and $600 PSF for lakefront properties – we are basing our pricing structure on $250 PSF,” said Shipka. In addition, the developer is introducing a new “extra room” concept in each unit. “People don’t want their computer stations in their bedrooms or living rooms, so we are providing extra private space in each unit to accommodate this requirement,” he said.
Designed by Chicago architect, Pappageorge/Haymes Ltd., University Commons will be developed in six phases. The first phase of 150 units will be offered for sale beginning in January of 2004. “Timing of subsequent phases will be determined by market demand. Absorption of 850 units – one of the city’s largest planned unit developments – is a challenge; however, we believe the project’s close proximity to the Loop and its nostalgic appeal, combined with a lack of existing affordable alternatives, will be the keys to our success,” Shipka said.
Immediately east of South Water Market is University Village, a $75,000,000, 68-acre, mixed-use development that is Chicago’s fastest-growing residential community. When completed, University Village will consist of 930 new residential units, 120,000 SF of retail space, public parks, and UIC dormitories and academic buildings. The South Water Market site is within close proximity to nearby institutions including the University of Illinois at Chicago, Rush/St. Luke Medical Campus, Illinois Medical District and the prestigious St. Ignatius College Preparatory High School. The surrounding communities of Little Italy, Greektown, Pilsen, and Chinatown provide the dynamic cultural diversity of ethnic restaurants and entertainment. The site has exceptional access to I-94, I-90, I-55 and I-290 and is within walking distance of University Marketplace, a new 120,000 SF retail corridor.
In addition to the South Water Market disposition, Newcastle recently represented Baxter International in a sealed-bid disposition of a 70-acre development property in Lake County; represented Loyola University Chicago in the disposition of its 17-acre Mallinckrodt Campus to the Wilmette Park District; and represented the Eleanor Women’s Foundation in the disposition of its 1550 North Dearborn Parkway building to The Latin School of Chicago. The company is currently representing Loyola University Chicago in the development of a 24,800 SF high-rise site within its Water Tower Campus.
About Newcastle Limited
Chicago-based Newcastle Limited is a national commercial real estate firm serving governmental agencies, institutions, not-for-profit organizations, corporations and private investors. The firm’s strategic advisory, development and investment services are designed to reduce project risk and maximize asset value. To learn more about Newcastle, call Mike Haney at (312) 252-1401 or visit the company websiteat www.newcastleinvestors.com.