The Arboretum is one of several local shopping centers to run into debt trouble since the onset of the COVID-19 pandemic, unable to cover loan payments as tenants closed stores and stopped paying rent. In September 2020, UnionBank filed to foreclose on the property, which also wound up in foreclosure after the Great Recession.
By selling the Arboretum’s debt, UnionBank can recover some of its investment and let an investor that specializes in distressed retail properties wrap up the foreclosure and launch a major redevelopment of the shopping center. It’s unclear what an investor would pay for the loan, but the property’s value has fallen enough that its debt almost certainly is worth less than $66.3 million.
Barring a miracle, UnionBank will record a loss on the investment, and so will a venture of Miami-based Starwood Capital Group that owns the Arboretum. The Starwood venture paid $93 million for the shopping center in 2015, financing the acquisition with the loan from UnionBank.
Starwood, a big private-equity firm led by real estate luminary Barry Sternlicht, has suffered big losses in the retail property market, deciding last year to relinquish ownership of nearly two dozen shopping malls to its lenders, including the Louis Joliet Mall in Joliet. In the Chicago area, Starwood still owns the Chicago Ridge Mall, which has lost tenants in recent years but isn’t facing loan trouble.
A person familiar with the Arboretum said Starwood is cooperating with UnionBank in the foreclosure case, which is pending in Cook County Circuit Court. Starwood and UnionBank representatives declined to comment. A JLL broker did not return a call.
Many shopping centers were struggling before the pandemic, as online shopping gained popularity and many retailers closed brick-and-mortar stores or went out of the business. But pandemic pushed many segments of the industry into a full-fledged crisis. With consumers confined mostly to their homes and governments imposing restrictions on all but essential retailers, like grocery stores, many retailers shut down. Some stopped paying rent altogether, while others asked their landlords for rent relief.
Though a new owner of the Arboretum would likely launch a major turnaround plan, the firm appointed receiver of the property last year, Chicago-based Peak Properties, is trying avert any more trouble at the shopping center until then.
“Our job is to stabilize it, lease it and renew as many leases as we possibly can,” said Peak Managing Partner Mike Zucker. The property is about 75% occupied, he said.
Multiple tenants at the Arboretum, including Xsport Fitness, Pearle Vision and Potbelly Sandwich Works, have asked for a break on rent, according to report Peak filed in the foreclosure case in July.
One big tenant, Pinstripes, which leases more than 34,000 square feet at the Arboretum, restructured its lease in May, reaching a deal that included upfront payments by the bowling alley operator, forgiveness of some unpaid rent and modified future rent payments, according to the report. Several other tenants, including Sur La Table, Ann Taylor Loft and Gymboree, have filed for bankruptcy protection, which allows them to break leases.
The receiver and JLL, which handles leasing at the Arboretum, also have held rent-relief talks with movie chain iPic Theatres, which closed its cineplex there, according to the receiver’s report. But Peak isn’t willing to cut a deal unless iPic commits to reopening, and iPic is balking, saying the theater is unprofitable and doesn’t have enough employees to open, the report says. Peak has hired a law firm to sue iPic over unpaid rent, according to the report.