Yet the low price doesn’t come as a huge surprise in the COVID-19 era, which has been cruel to retail properties. Retailers have closed stores across the country amid a broad shift in shopping patterns, with more consumers embracing the convenience of online shopping and spending less at brick-and-mortar stores. The trend was already underway but accelerated after the pandemic swept across the nation in 2020.
It doesn’t help that Webster Place includes a movie theater—Regal Cinemas—a sector hit hard by the pandemic, and a bookstore—Barnes & Noble—a business that already was in a steep decline before COVID. Another big tenant, Webster Place Athletic Club, closed in 2019. The shopping center was just 68.5% occupied last fall, according to an RPT quarterly report.
With retail facing an uncertain outlook, many investors are wary of the sector these days. But Novak Construction, which acquired Webster Place from RPT, isn’t one of them. Chicago-based Novak is primarily a contractor, but the firm has been loading up on retail properties lately, taking over former Sears stores in Portage Park and Galewood and pushing forward with plans to redevelop them. A Novak venture also paid $25 million for a prominent Loop retail property about a year ago.
It’s unclear what the firm has in mind for Webster Place—Novak executives did not return phone calls—but the property needs an owner with vision and money. With proximity to wealthy neighborhoods, including Lincoln Park, Bucktown and Old Town, it’s “a phenomenal piece of real estate,” said Mitch Goltz, co-founder and principal of GW Properties, a Chicago developer that considered bidding on the property.
“It’s a very well-located asset that needs to be in the hands of an owner that can reposition it,” he said. “The bones are there. You just have to figure out a way to reactivate the pieces.”
One potential solution: adding apartments to the property. In 2018, RPT floated plans to build two 20-story towers just south of the shopping center that would have included residential, office and retail space.
But the company never went through the process of obtaining zoning for the project. Current zoning allows for construction of 168,000 additional square feet at Webster Place, according to a marketing brochure from Jones Lang LaSalle, which brokered the sale for RPT. That, combined with a 1.1-acre site next door that wasn’t included in the sale, could accommodate a major residential project.
JLL and RPT representatives did not return phone calls.
Adding apartments to languishing shopping centers has become a popular turnaround strategy for developers, injecting some new energy into dreary properties and diversifying their revenue streams beyond risky retail. Novak has gotten into the game, with plans to convert part of the former Portage Park Sears into 207 apartments.
Novak could also refill Webster Place’s existing retail space with new tenants less vulnerable to competition from e-commerce. Potential uses include medical offices and distribution, according to a JLL marketing brochure aimed at prospective tenants.