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Chicago firm buying billions in real estate from retailers on the brink

Oak Street Capital’s plan involves leasing back the properties

An illustration of Oak Street Capital’s Marc Zahr
An illustration of Oak Street Capital’s Marc Zahr

With every crisis comes opportunity. Private equity firm Oak Street Real Estate Capital has $5 billion and plenty of opportunities.

Marc Zahr and co-founder Jim Hennessy are telling companies in distress to sell them their property and lease it back, according to a report from Crain’s. The firm recently struck a $725 million deal in Ohio with Big Lots. The deal allows the retailer to pay down debt, and Oak Street gains control over four distribution centers, which will be leased by Big Lots, according to Crain’s.

Oak Street has completed or is finalizing deals with seven publicly-traded companies to buy roughly $1 billion of real estate and subsequently rent it back to the companies, Zahr said. With additional financing, Oak Street plans to scoop up about $3 billion worth of property, Crain’s reported.

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Still, there’s risk on Oak Street’s end: the leases are typically for 15 to 20 years, and there’s a good chance the companies can’t survive a recession.

In January, Oak Street bought 2.1 millions square feet of space from struggling retailer Bed Bath & Beyond. It leased it back to the company. Some retailers have resisted such real estate plays: Target fought off an attempt in 2008, for instance. The retailers need the underwriting to allow them flexibility to maneuver through uncertain times.

Oak Street is backed by major public pension funds like the Illinois Municipal Retirement Fund and the Chicago teacher’s fund. It’s on track to close its fifth fund with a cap of $2.5 billion, according to Crain’s. [Crain’s] James Kleimann

 

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