Investing In Neighborhood Retail, Chicago-Style

L3 Capital's investment on Chicago's Southport Avenue includes Suvarna Chiropractic, Cerato and Free People.

L3 Capital invests in what it calls prime urban retail, which includes a lot of street retail in the premier cities. "We own retail properties in several neighborhoods in New York City, Los Angeles and Chicago," said Greg Schott managing piincipal.

At the end of last year, L3 made its first investment in its hometown of Chicago. The company bought four retail buildings along a flourishing four-block retail stretch of Southport Avenue in the Lakewood neighborhood. The cost was $13 million for 17,000 sq. ft.

Tenants include Free People, Lululemon and Southport Grocer & Café, plus renters in the apartments above the street-level retail.

Six months later, L3 bought three mom properties spanning 6,500 sq. ft. on the same stretch of Southport Avenue for $6 million. Tenants are Coobah, a Latin and Cuban fusion restaurant, a boutique called Cerato and a Standard Bank Branch.

0bservers say L3 paid a premium. For instance, the capitalization rate or yield on the second transaction is 4.5%, the lower end of yields for prime urban street retail. 0f course, yields on retail properties rise and fall depending on the income produced.

L3 looks for value-added opportunities, and the Southport investment is just that. The largest L3 Southport building, about 5,500 sq. ft., is vacant. "Southport is a strong retail neighborhood," Schott Said. "We're looking at that building as an opportunity to scrape and rebuild or to upgrade depending on the tenant."

Which means more income and a higher cap rate.

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