Wednesday, January 14, 2009

Target's Next Big Sale: Real Estate

By Michael Brush, MSN Money

One of the discount retailer's biggest investors is pushing a plan to spin off its land, saving Target huge sums in taxes and boosting its stock price. Will the company go along? Read On


  1. Before everyone gets going on what this means for Wilson Yard. The answer is nothing, especially since we've yet to see any evidence that Target has an agreement to purchase the land. Hugh can correct me if I'm wrong but I don't believe Target (or any future resident of Wilson Yard, or any TIF for that matter) can buy the land until after the building is completed. The developer owns it until then.

    Separately, this story is talking about a very common practice in retail. The sale and leaseback of owned property. It's something retailers do to generate value when actual retail sales are faltering.

    They also slow expansion, which is something Target has announced. THAT potentially effects Wilson Yard.

  2. Yes. Target is slowing retail expansion---except at Wilson Yard. (Or so we are told.) Why? The deal was too good to pass up. Why? Tax dollars. Lots of them.

  3. I was half asleep when I heard it on WBEZ this morning...but I think the City Council has approved yet another TIFF fund... to create a slush fund for Daley's Olympics! Will there be ANY money left for schools, parks, city services, etc?????

  4. Actually, Target has finalized the purchase. It was completed in the end of October. here's a snippet from the CBS2 Article and a link below:

    "Uptown residents who have waited years for progress at the Wilson Yard development site are finally getting good news. Target Corp. is officially in the deal and plans a 180,000-square-foot store on two levels by the fall of 2010.

    Target closed on the purchase of property in Wilson Yard, acquiring it from the site's developer Holsten Real Estate Development Corp. Terms were not disclosed."

  5. yes, the olympic story is true....I think the aldermen approved it unanimously.

  6. ... creating $10 billion to $15 billion in value out of thin air ...

    Creating value out of nothing? Yep, that worked really well in the housing market. Can't fail here!

  7. Again, this is a good question for Hugh, but I question the CBS story quoted.
    First, the rules of the TIF require the developer to develop the land, then sell or lease it the interested parties.
    Second, if the transaction closed, the details would be public. Not "Terms were not disclosed," as cited in the post above...

  8. Back in 2006 Mayor Daley said no public funds would be used to the Olympics. So that would make him..a..whats the, Liar.

    Dear God, this is Chip, please give the Olympics to some other city and please give us all new elected officials during the next election. Amen

    How can anyone except the elite be for this? The average Joe tax payers get screwed and the poor and underprivileged get money taken from all their programs. We all will suffer because Richard and his buddies want to watch a few athletes in spandex run around a track in Washington Park?

  9. " ... we've yet to see any evidence that Target has an agreement to purchase the land."

    pls try to keep up

    Cook County Recorder of Deeds

    October 2008

    0829440161 Warranty Deed from Wilson Yard Development I LLC to Target Wilson Yard QALICB LLC

    0829440162 Lease from Target Wilson Yard QALICB LLC to Target Corporation

    0829440163 Operation Agreement between Target and WY Entities

  10. the issue raised by the orginal post, the MSNBC report, is:

    is Target's project in WY a future Target store or a lucrative taxpayer-subsidized real estate windfall for Target stockholders?

  11. Right CD.
    Our tax money pays for the sports pavilions...then corporations get naming rights.
    Meanwhile, schools stagnate, CTA fares go to $4 per ride, Police and Fire depts. funding get cut back...oh, and Helen gets a pay raise.
    I keep hearing that support for spectator sports in general is waning. Prices go up, attendance goes down. Why do we want Olympics again???
    Oh, ya.......Da Mare's legacy................

  12. "Terms were not disclosed"

    the CBS report was filed in the lag between the closing and the appearance of the docs on the recorder's site

    now we see that

    Target Wilson Yard QALICB LLC purchased the store from Holsten for $6,675,000 (almost entirely subsidized by federal tax credits)

    Target Wilson Yard QALICB LLC leased the store to Target Corp for 10 years for $1 (one dollar)

  13. Well, given the deeds now linked and the current economy, I'll guess the latter.

  14. " ... the rules of the TIF require the developer to develop the land, then sell or lease it the interested parties."

    what rule is that?

  15. Well, if Target has the land tied up that's a good thing (I guess). Because I was talking with someone about the redevelopment of the Childrens Hospital at Lincoln and Fullerton and thinking to myself that Target would probably like that site a lot better. Just a thought.

  16. LP would never let Target go where the Children's Hospital is.

  17. " ... Target has the land tied up ... "

    "tied up" is a tad strong, the ties are weak, nothing happened here that can't be backed out of right quick; Target's skin in the game is federal tax credits, not cash, and breaking the lease means giving up all hope of realizing 10c/yr in lease revenue over the next decade

  18. Hugh (or anyone), do you know if Holsten is getting LITC for this development? And, if so, doesn't that mean that he can take this property market rate after 15 or so years? Or, just sell it outright? I don't hear anyone talking about this scenario.

  19. Not sure on how the laws are set up around the TIF and investment/loss, but does Target seperating out the ownership and lease allow them to write off the full investmest less the $1/yr lease as operating loss and offset their profits from other locations? Nicely played move if so.

  20. Sassy - yes, Holsten is getting low-income tax credits:

    Selling would mean losing a cash cow.

  21. " ... Holsten ... can take this property market rate after 15 or so years?"

    yes, typically the LIHTC agreement for new construction require the operation of the bldg as low income housing for some number of years, after which the bldg could be sold and/or re-purposed, unless the deal is renewed

    I think dambrose or someone else may have read the agreements and can tell us the period for WY

  22. Thanks, miss kitty. Selling would certainly mean losing a cash cow. On the other hand, presumably the value of the property will increase (at least up to what it should have cost to really buy!) while the physical plant will depreciate. Selling the whole kit and caboodle to another developer who doesn't have to keep it exclusively for low-income housing would net a lot of moolah in 15-20 years.

    It is shocking to me how much potential upside there is for the developer in this plan and how little relative risk. And I think this is the model that other developers have followed in Chicago in order to become bigtime, no? Milk taxpayer funded projects until you've got enough capital of your own to play with the big kids... ???

  23. " ... does Target seperating out the ownership and lease allow them to write off the full investmest less the $1/yr lease as operating loss and offset their profits from other locations?"

    yes, Target has separated the ownership from the corporation proper via the limited liability company Target Wilson Yard QALICB LLC, which is technically the landlord, for now

    the tax implications are above my pay grade

    not sure if the store at WY is much of a write-off for Target considering there are so very few actually Target dollars involved (at most 6 figures from what I can tell)

    my 1st impression is that Target formed Target Wilson Yard QALICB LLC primarily to qualify for federal tax credits as a "low income community business," in other words Target anticipated that a company with $45B in assets, $1.5B cash, $5.4B in gross profit and $645M in net income showing up at the US Dept. of the Treasury looking for a hand-out to build a new store might have been laughed outta the office

    more notes here:

    Land Records... Hmmm....

  24. "Selling would certainly mean losing a cash cow."

    selling would be a massive (one-time) windfall

    Target paid Holsten $6.7M, but remember that was almost completely covered by federal tax credits for building the store

    anything Target gets over & above the few hundred thou of their own money they have in the game so far would be wavy gravy, baby

  25. if I were a Target stockholder and I knew there was a Super Target less than 2 miles north, I would be demanding Target sell this asset

  26. For those of you who don’t want to spend the time reading the agreement between Target QALICB (the not for profit who owns the land bought with tax credits), Target Corporation and Holsten here’s a summary.
    From the lease:
    “Use: Tenant may use the property for any lawful purpose”

    From the Operation Agreement between Target QALICB, Target and Holsten.
    Page 22 states "This OEA (operating and easement agreement) is not intended to, and does not create or impose any obligation on a party to operate, or continuously operate, a business or any particular business at the Project or on any Unit."

    As you can see there is absolutely no commitment from Target to open a Target store at Wilson Yard.

  27. And until they open their doors for business I will not believe they will. I am convinced there will be NO TARGET on this property.

    Now, anyone who knows me will tell you how often I'm wrong and I hope this is one of those times.

  28. Lets keep out a successfull business from Uptown because they dont have a union. Have you ever been into a Wal-Mart, the people that work there dont even justify min. wage. Lets have them unionize and make $18 hr for pushing a broom. God forbid a Target should open up and provide an opportunity for the local downtrodden to get a job and work, oh I forgot work is a 4 letter word, it's an obscenity to the Shiller crowd.