Investors to Pay $17.6 Million for Big Suburban Shopping Centers

By: Abraham Tekippe | February 27, 2013

Credit:  Chicagorealestatedaily powered by Crain’s Chicago Business

Two local investors have agreed to pay a combined $17.6 million for three shopping centers in Downers Grove and Villa Park, part of the liquidation process in a bankruptcy case involving the Qualteq Inc. credit and gift card company.

An affiliate of Chicago-based private-equity firm Dillon Kane Group LLC is one of two so-called stalking-horse bidders, or preferred buyers, for the properties, two of which were scheduled to be sold at auction Monday morning, according to documents filed in U.S. Bankruptcy Court in Chicago.

The Dillon Kane venture agreed to pay $6.6 million for University Plaza Mall, a 213,000-square-foot shopping center in west suburban Downers Grove, court records show. An affiliate of Northbrook-based Frontline Real Estate Partners LLC, meanwhile, agreed to pay $6.3 million for the 353,000-square-foot North Park Mall in Villa Park and $4.7 million for the 190,000-square-foot Meadowbrook Shopping Center in Downers Grove, according to court documents.

The properties are part of an industrial and retail portfolio that Northbrook-based Hilco Real Estate LLC is selling on behalf of a court-appointed trustee in the Qualteq bankruptcy case. The portfolio also includes the former Michael Jordan’s Restaurant building at 500 N. LaSalle St. in River North — the soon-to-be home of Gino’s East — as well as 440,000 square feet of industrial space in the west and southwest suburbs.

Executives at Dillon Kane and Frontline did not return calls.

Because no other bids were submitted for Meadowbrook Shopping Center, which was 85 percent leased as of last August, the Frontline venture has been designated the winning bidder for the property, according to a recent filing. All successful bids must be approved by the court.

Like the other shopping centers, which are occupied primarily by smaller, local tenants, Meadowbrook has been marketed as a so-called value-add opportunity — a cheaper, riskier asset in need of renovation but with a potentially higher return on investment.

Whoever ends up buying the property faces the challenge of repositioning it in a crowded retail market, said William A. Shiner, founder and CEO of Wilmette-based Shiner Group LLC, which specializes in retail development.

“The major retail market is not at that location anymore, so if someone’s coming to the market, they’re going in another location,” said Mr. Shiner, an investor in a nearby Walgreens. “Certain centers in the wrong place and the wrong size . . . are going to have to be redeveloped in a way that’s different than their current state.”

And while the retail market since the recession, many suburban landlords continue to fight an uphill battle as they work to lease up their buildings, he said.

“Since ’09, which was probably the low point, every year’s gotten a little bit better but it’s not great,” he said. “Like everything else, there are going to be winners and losers.”

Buyers are also circling the portfolio’s industrial properties.

Midwest Industrial Funds Inc., led by Justin Fierz and Michael Androwich of Lee & Associates of Illinois LLC, has agreed to pay $5.6 million for two industrial properties in Downers Grove: a 72,400-square-foot warehouse at 1400 Centre Circle Drive and a 70,000-square-foot building at 5200-5220 Thatcher Road, according to court documents.

Citing “prolonged negotiations” with the Rosemont-based firm, the trustee postponed the auction of those properties, as well as the rest of the portfolio, until March 11, records show.

Buyers are also circling the portfolio’s industrial properties.

A Hilco executive did not return messages requesting comment, nor did the trustee or the trustee’s lawyer.

Qualteq, part of a group of companies led by the Veluchamy family that was once one of the area’s biggest minority-owned businesses, filed for Chapter 11 bankruptcy protection in August 2011.

While the companies were “historically profitable,” they suffered as the result of litigation against founder Pethinaidu Veluchamy, former chairman of now-defunct Mutual Bank of Harvey, and his wife, Parameswari, according to a disclosure statement filed last March.

That litigation resulted in judgments of more than $43 million against the couple in favor of Bank of America N.A. over unpaid loans, court records show.

Mr. and Mrs. Veluchamy also have been named as defendants in a filed in October 2011 by the Federal Deposit Insurance Corp. over the 2009 failure of Mutual Bank of Harvey, which the family owned, according to court records. Both the FDIC case and a Chapter 7 bankruptcy case filed by the couple are pending.