Michigan Avenue, Chicago Apple Store retail parcel now up for sale by landlord

AppleInsider said:

Due to its clout, Apple is currently paying a rent "well below" the average $400 to $500 per square feet of other businesses in the Michigan Avenue area, the Journal's sources claimed. A change in landlords could affect rates, 

How would Apple's rent be affected with a new landlord?  They signed a lease, which is most likely for several years, (if not 10 years), and probably has a clause in there somewhere regarding renewal terms too, and any future landlord must honor it.

My understanding is that prior to Apple, there was no structure there except a plaza.  The landlord just blew it up to make way for Apple to build their building.  So to say that Apple is paying rent "well below the average" is misleading because the owner was getting zero rent for that section anyways.

Either way, I wonder what the reason for the sale was.  My guess whoever owned it wanted to simply cash out and live on an island somewhere.  That's some prime real estate for sure.

While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.

Contracts are agreements between two parties, in this case Renter A (Apple) and Owner W (Walton Street Capital). At least here in California, if the ownership changes, the contract between the two parties is voided. Whether it be in residential real estate or commercial real estate, typically the leases need to be renegotiated. There's probably a law that states that the previous contract is in effect on a month-to-month basis.

Let's say Renter X is renting space ($3000 month) for a bar in Owner A's Building A. Owner A sells Building A to Owner B. The lease agreement between Renter X and Owner A is now voided and a new contract must be negotiated with Owner B.

Let's say Owner B decides he wants to raze the existing property and build new condominiums; this happens all the time. Owner B gives 60-day notice to Renter X that the building is set for demolition and they have 60 days to move out.

In a different scenario, let's say Owner B wants to increase the rent to $10,000/month. The old agreement is void so either Renter X needs to negotiate new terms or move out. Again, this is very commonplace here in California.

I am not sure how real estate contracts are interpreted in Illinois.

In this case, the new owner of the property might tell Apple that rent is going up to $600/sq. ft. Apple can choose to move elsewhere. They are paying less than the average commercial retail rental rates for the area ($400-500), let's say Apple is paying $300. Perhaps a different landlord down the street would be happy to have a prestigious tenant such as Apple. Or maybe the new owner of the existing property says, "Yeah, let's keep the terms the same rather than let the property go empty and hope we can find a new long-term tenant who will pay more."

The article over at MacRumors about the same topic provides a little more detail.

Saying that Apple pays significantly less rent is not misleading. They are paying "well below" average commercial rent in the same neighborhood.

The AppleInsider article states that Walton Street Capital intends on keeping the office space property in the nearby tower; it has nothing to do with retiring and moving to an island. Walton Street Capital are just selling the retail spaces. It is likely that this owner simply want to get out of the commercial retail rental market. Retail is shrinking so it is becoming more challenging to make sure commercial retail spaces are occupied. Splitting the office real estate from the commercial retail real estate might have been in Walton Street Capital's original plans.

sflocal said:

AppleInsider said:

Due to its clout, Apple is currently paying a rent "well below" the average $400 to $500 per square feet of other businesses in the Michigan Avenue area, the Journal's sources claimed. A change in landlords could affect rates, 

How would Apple's rent be affected with a new landlord?  They signed a lease, which is most likely for several years, (if not 10 years), and probably has a clause in there somewhere regarding renewal terms too, and any future landlord must honor it.

My understanding is that prior to Apple, there was no structure there except a plaza.  The landlord just blew it up to make way for Apple to build their building.  So to say that Apple is paying rent "well below the average" is misleading because the owner was getting zero rent for that section anyways.

Either way, I wonder what the reason for the sale was.  My guess whoever owned it wanted to simply cash out and live on an island somewhere.  That's some prime real estate for sure.

Having worked only a couple of blocks from there, the above ground was a plaza and trees.  Underground was a food court?  Only went down there once and it seemed like the same area.  You can still see the plaza in Apple maps (2D and 3D) as of this comment.

mpantone said:

While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.

Contracts are agreements between two parties, in this case Renter A (Apple) and Owner W (Walton Street Capital). At least here in California, if the ownership changes, the contract between the two parties is voided. Whether it be in residential real estate or commercial real estate, typically the leases need to be renegotiated. There's probably a law that states that the previous contract is in effect on a month-to-month basis.

Let's say Renter X is renting space ($3000 month) for a bar in Owner A's Building A. Owner A sells Building A to Owner B. The lease agreement between Renter X and Owner A is now voided and a new contract must be negotiated with Owner B.

Let's say Owner B decides he wants to raze the existing property and build new condominiums; this happens all the time. Owner B gives 60-day notice to Renter X that the building is set for demolition and they have 60 days to move out.

In a different scenario, let's say Owner B wants to increase the rent to $10,000/month. The old agreement is void so either Renter X needs to negotiate new terms or move out. Again, this is very commonplace here in California.

I am not sure how real estate contracts are interpreted in Illinois.

In this case, the new owner of the property might tell Apple that rent is going up to $600/sq. ft. Apple can choose to move elsewhere. They are paying less than the average commercial retail rental rates for the area ($400-500), let's say Apple is paying $300. Perhaps a different landlord down the street would be happy to have a prestigious tenant such as Apple. Or maybe the new owner of the existing property says, "Yeah, let's keep the terms the same rather than let the property go empty and hope we can find a new long-term tenant who will pay more."

The article over at MacRumors about the same topic provides a little more detail.

Saying that Apple pays significantly less rent is not misleading. They are paying "well below" average commercial rent in the same neighborhood.

The AppleInsider article states that Walton Street Capital intends on keeping the office space property in the nearby tower; it has nothing to do with retiring and moving to an island. Walton Street Capital are just selling the retail spaces. It is likely that this owner simply want to get out of the commercial retail rental market. Retail is shrinking so it is becoming more challenging to make sure commercial retail spaces are occupied. Splitting the office real estate from the commercial retail real estate might have been in Walton Street Capital's original plans.

I'm pretty sure your summary of real estate law is completely wrong.  Otherwise, from the tenant's perspective no lease would be worth the paper it's printed on.

randominternetperson said:

mpantone said:

While I am not a real estate attorney, my guess is that Apple's contract may need to be renegotiated with the new landlord.

Contracts are agreements between two parties, in this case Renter A (Apple) and Owner W (Walton Street Capital). At least here in California, if the ownership changes, the contract between the two parties is voided. Whether it be in residential real estate or commercial real estate, typically the leases need to be renegotiated. There's probably a law that states that the previous contract is in effect on a month-to-month basis.

Let's say Renter X is renting space ($3000 month) for a bar in Owner A's Building A. Owner A sells Building A to Owner B. The lease agreement between Renter X and Owner A is now voided and a new contract must be negotiated with Owner B.

Let's say Owner B decides he wants to raze the existing property and build new condominiums; this happens all the time. Owner B gives 60-day notice to Renter X that the building is set for demolition and they have 60 days to move out.

In a different scenario, let's say Owner B wants to increase the rent to $10,000/month. The old agreement is void so either Renter X needs to negotiate new terms or move out. Again, this is very commonplace here in California.

I am not sure how real estate contracts are interpreted in Illinois.

In this case, the new owner of the property might tell Apple that rent is going up to $600/sq. ft. Apple can choose to move elsewhere. They are paying less than the average commercial retail rental rates for the area ($400-500), let's say Apple is paying $300. Perhaps a different landlord down the street would be happy to have a prestigious tenant such as Apple. Or maybe the new owner of the existing property says, "Yeah, let's keep the terms the same rather than let the property go empty and hope we can find a new long-term tenant who will pay more."

The article over at MacRumors about the same topic provides a little more detail.

Saying that Apple pays significantly less rent is not misleading. They are paying "well below" average commercial rent in the same neighborhood.

The AppleInsider article states that Walton Street Capital intends on keeping the office space property in the nearby tower; it has nothing to do with retiring and moving to an island. Walton Street Capital are just selling the retail spaces. It is likely that this owner simply want to get out of the commercial retail rental market. Retail is shrinking so it is becoming more challenging to make sure commercial retail spaces are occupied. Splitting the office real estate from the commercial retail real estate might have been in Walton Street Capital's original plans.

I'm pretty sure your summary of real estate law is completely wrong.  Otherwise, from the tenant's perspective no lease would be worth the paper it's printed on.

I'm a landlord in SF (apartment building) for +20 years and while rent laws differ from state to state, and even city to city, one thing that changes little is a lease agreement.  The new landlord generally has to honor any prior lease agreement and the only way to kick Apple out from there is to essentially buy out their lease, and that of course can only happen if Apple agrees to it.  

mPantone's reasoning is wrong.  If OwnerA sells to OwnerB, OwnerB would be unable to remove RenterX until the lease expires - at the earliest.    At that point, RenterX and OwnerB would renegotiate a new lease, or RenterX moves out.  If the (residential) property falls under rent control like here in San Franciso, New York, Berkeley, etc.. then a TenantX can stay as long as they want, regardless of the length of the lease.  All a fixed-length lease does in residential situation is that it guarantees (up to a point) that rent will be paid during the lease time, meaning if a renterX signs a one-year lease and wants to leave in 3 months, renterX is on the hook for all 12 months until OwnerB can re-rent the unit.

Commercial properties don't usually fall under those kind of restrictions.  OwnerB can raise the rent on Apple as much as they want, but only AFTER the lease term expires.   The ball is in Apple's court until then.