Developer that brought Discover to the South Side looks to cash out - Crain's Chicago Business

A rendering of the Discover Customer Care Center in Chatham.

The Chicago developer that turned a shuttered Target in Chicago’s Chatham neighborhood into a call center for Discover Financial Services has put the property up for sale, looking to repeat the payday it hit last year on a similar project in Morgan Park.
DL3 Realty has hired brokerage Jones Lang LaSalle to sell the Discover Customer Care Center property at 8560 S. Cottage Grove Ave., DL3 Managing Partner Leon Walker confirmed. There is no asking price for the 127,169-square-foot building, where Discover signed a 10-year lease last year to open its first new customer care center in two decades. A source familiar with the offering said the property is expected to fetch bids close to $20 million.
That would be in line with a nearly identical deal to one Walker did in Morgan Park, where he bought a shuttered Target and leased it to Blue Cross & Blue Shield of Illinois, which turned it into a community center. DL3 sold that property last year to a venture of Brooklyn, N.Y.-based Beitel Group for more than $20 million.
A similar price in Chatham would add more validation to Walker’s argument that there is money to be made in South Side neighborhoods that developers historically haven’t considered. Communities like Chatham that have suffered from disinvestment and depopulation for decades have a hard time luring real estate investors, making it difficult for projects to come together that can reverse those demographic trends.
But successful sales like the Morgan Park property and the one DL3 is seeking in Chatham “show that there is value in and opportunity for investing in our neighborhoods,” Walker said.
“We’ve got to show there are willing buyers and sellers that are active in the market,” he said. “As the next wave of new Black and Brown developers are entering (the development sector), it’s going to be easier for them to have investors and others willing to take risks with them if those investors can see liquidity in the market.”
DL3 bought the former Chatham Target for $250,000 in 2019, according to Cook County property records, more than a year after Target announced it would close the location. The developer then inked a landmark deal early last year with Riverwoods-based Discover to open a call center in the building, a project slated to bring close to 1,000 new jobs to the neighborhood by 2024—80% of which would be intended to go to people living within a five-mile radius of the building, Discover officials said at the time. Discover cut the ribbon on the new facility last month.
It’s unclear how much DL3 spent on leasing commissions and helping Discover build out its space, and there is no mortgage on the property listed in public records. But the JLL flyer said Discover and DL3 combined to spend more than $25 million on the property, which also includes a 25,000-square-foot “multi-purpose space for community use,” according to JLL.
Walker frames the building as an opportunity for a buyer to capitalize on long-term cash flow income from Discover’s lease, which comes with 3% annual rent escalations and has more than nine years of term remaining.
“We thought it was the right time, given (capitalization) rate and interest rate pressures, for someone who wants to lock in (cash flow) for a longer period of time,” Walker said. He added that he is open to partnering with a buyer and retaining a stake in the property.
DL3 has been one of the most active commercial developers on the South Side for years. The firm developed a Whole Foods-anchored shopping center in Englewood in 2016 and co-developed a Jewel-Osco in Woodlawn, where it is also planning to break ground soon on a new 58-unit affordable housing project.
Walker is also forging ahead with a $33 million mixed-income housing project just steps from the Englewood Square shopping center, where Whole Foods is set to close its store in November. DL3 also was selected by city planning officials to redevelop a handful of sites next to the Cheltenham station on the Metra Electric line in the South Shore neighborhood as part of the city’s Invest South/West initiative. The $47 million project is slated to include 63 residential units.
JLL Senior Managing Director Alex Sharrin is marketing the Discover property for DL3.
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