The deal adds to what has been a busy year for local shopping center sales, even as rising inflation and interest rates and turbulent financial markets have disrupted commercial real estate over the past few months. Shopping centers, especially those with grocery stores or other retailers less vulnerable to e-commerce competition, have mostly recovered from the trauma of the COVID-19 pandemic, even if many today are attracting middling prices.
Marshfield Plaza was expected to sell for about $40 million, but the venture that bought the property paid $30.2 million, or about $116 per square foot, according to the deed. Christian Williams, one of the CBRE brokers who arranged the sale, attributed the lower price to two factors.
One, the property hit the market in February, just before the financial markets tumbled and interest rates jumped, spooking many investors. Second, Marshfield Plaza is eligible for more than $9 million in tax-increment financing payments from the city, an incentive factored into the $40 million price estimate. But PGIM received one payment of about $1.8 million in April, reducing the amount left over for a future buyer, Williams said.
PGIM representatives did not respond to a request for comment. Mehrdad Mottahedeh, the leader of the venture that acquired the shopping center, didn’t return a call.
Mottahedeh is an executive at Allied Dynamics, a Farmingdale, N.Y.-based turbine manufacturer. His venture acquired the firm through a 1031 exchange, a transaction that allows investors to defer capital gains taxes on the sale of one property if they reinvest the proceeds in another one, Williams said. Mottahedeh’s group, which financed the acquisition with a $21 million loan from Wells Fargo Bank, does not own any other properties in the Chicago area.
At $30.2 million, the venture paid the highest price for a shopping center on the South Side since June 2021, when Dallas-based Tabani Group paid $30.5 million for Chatham Ridge Shopping Center, a 175,800-square-foot property in Chatham on the South Side.
Sales of shopping centers have picked up in the Chicago area over the past year or so. The volume of local deals jumped to $1.56 billion last year, up from $778 million in 2020, according to MSCI Real Capital Analytics, a New York-based research firm. With sales totaling $993 million through the first half of 2022, transaction volume is on track to eclipse last year’s total.
Marshfield Plaza, which stretches from 115th to 119th streets on the west side of I-57, has bounced back from multiple setbacks over the past few years. Target closed a big store there in 2018. Though Target owned the store and didn’t pay rent to PGIM, the closing was a blow to neighboring retailers in the shopping center that depended on Target to attract shoppers to their stores.
The store sat empty until a Chicago investment firm, DL3 Realty, bought it and converted it into a Blue Cross & Blue Shield community center and office, selling the property for $20 million to a New York investor last year.
Marshall’s also closed its store at Marshfield Plaza in 2019. But dd’s Discounts leased the 26,000-square-foot space last year. Discount apparel chain Forman Mills has also agreed to take over a 64,000-square-foot space in the property from Burlington, which is not renewing a lease for the space that expires next February.
The shopping center “has taken its lumps over the years,” said Williams, a senior vice president at CBRE. PGIM “did a very nice job of stabilizing it.”
Marshfield Plaza was 94.1% occupied at the end of the second quarter, up from 85.6% two years earlier, according to real estate data provider CoStar Group. The property includes a Jewel-Osco grocery and drugstore that’s owned separately and was not part of the sale.