It’s step that would have been unthinkable before the COVID-19 pandemic swept into town, setting in motion a wave of store closures on the Magnificent Mile, Chicago’s most important shopping district, and at Water Tower Place, its first vertical mall. Nearly a quarter of all Mag Mile retail space is vacant today, more than double its vacancy just four years ago.
By relinquishing the mall, Brookfield is acknowledging that the time, effort and money required to revive the struggling property wouldn’t be worth it. Another factor: Water Tower Place has lost so much value that Brookfield’s equity investment has been wiped out. The mall is worth less than the more than $300 million in debt owed on it. Many real estate investors drowning in debt often wave the white flag and move on.
“Water Tower Place will no longer be part of Brookfield’s portfolio,” the company said in a statement. “After many discussions to carefully assess and identify all available options to move forward, we’ve determined that it is best to focus Brookfield’s resources on other opportunities within our portfolio.”
A Brookfield spokeswoman declined to comment beyond the statement.
New York-based Brookfield is transferring ownership of Water Tower Place to MetLife Investment Management, a unit of the property’s lender, New York insurer MetLife.
“Water Tower Place is a high-quality real estate asset that is well-positioned in the Chicago market,” a MetLife Investment Management spokesman said in a statement. “While we cannot comment on specifics of this transaction, MetLife Investment Management has a proven track record in institutional real estate and a dedicated team in the Chicago area. We look forward to discussing the future of this iconic shopping destination with our clients and other key stakeholders.”
Water Tower Place, a nine-story, 818,000-square-foot mall at 845 N. Michigan Ave., lost multiple tenants after the pandemic hit, including Banana Republic, Aritzia and Riley Rose. The Foodlife food hall and the Mity Nice Bar & Grill on the mall’s mezzanine level also closed in 2020.
After Macy’s decided to close its big department store at Water Tower Place early last year, Brookfield started working on a major makeover of the mall. At one point, Target even considered taking over part of the 324,000-square-foot Macy’s space.
MetLife, meanwhile, was willing to be patient, agreeing to extend the maturity date on Brookfield’s mortgage on the property, most recently to April 1 of this year. Ultimately, however, Brookfield decided against moving forward with its plan. Now, it’s up to MetLife to turn around the mall, possibly with a partner, or just sell it off.
Water Tower Place was a pioneer in Chicago retailing, the first indoor mall in the city when it opened in 1975, part of a big mixed-use complex that included condominiums, office space and the Ritz-Carlton Chicago. Chicago-based real estate investment trust General Growth Properties owned Water Tower Place through a joint venture for more than a decade before Brookfield took it over through its 2018 takeover of GGP. Brookfield also owns the Oakbrook Center and Northbrook Court malls.
Water Tower Place’s financial decline became clear in 2020, when Brookfield bought out its joint venture in the property, UBS Trumbull. Brookfield recorded a $15.4 million loss from the deal and put Water Tower on its balance sheet at $394 million, according to the company’s 2020 annual report. The deal illustrated how far the mall sector had fallen since 2013, when UBS acquired its stake in Water Tower. That deal valued the property at $819 million.
Brookfield’s decision to relinquish Water Tower isn’t the only sign of financial distress on the Mag Mile. Macerich, a California REIT, recently decided to transfer its 50% stake in the Shops at North Bridge mall to its partner, recording a $28 million loss in the process. And about $55 million of debt secured by buildings at 545 and 555 N. Michigan Ave.—vacated last year by Gap—was recently transferred to a special loan servicer, a warning that a loan default could be on the horizon.