Streeterville apartment tower on the market
By: Alby Gallun Sept. 15, 2009
(Crain’s) – A 480-unit apartment tower in Streeterville is up for sale, a move that could awaken the downtown multifamily investment market from a two-year slumber.
Northwestern Mutual Life Insurance Co. has hired the Chicago office of Holliday Fenoglio Fowler L.P. to sell Cityfront Place, a 39-story building at 400 N. McClurg Court, according to a marketing brochure obtained by Crain’s.
Given the lack of recent comparable sales, it’s difficult to guess what Cityfront would fetch in a transaction. The last time a big downtown apartment building changed hands was in August 2007, when the Streeter, a 481-unit tower at 345 E. Ohio St., sold for $210 million and One Superior Place, an 809-unit building at 1 Superior St., sold for $217.6 million.
The downtown investment market has been dormant since then, as the financial crisis deepened and lenders retrenched last year. But with signs that the economy and financial markets are stabilizing, Northwestern Mutual is betting that investors will be willing to jump back in the market. An executive for the Milwaukee-based insurer didn’t return phone calls for comment.
The sale will test investors’ appetite for large real estate investments, which has waned since the bust.
“I think you lose buyers when you get over $50 million,” says Mark Stern, senior vice-president of acquisitions at Waterton Associates LLC, a Chicago-based apartment investor. “People are just scared to make big bets.”
The scared don’t include Waterton, which will “definitely make a run at” Cityfront, he says.
It’s clear, however, that Cityfront will sell for less than it would have at the peak of the market in early 2007. Nationally, the average per-unit price for an apartment property has fallen 33% since then, according to Real Capital Analytics Inc., a New York-based research firm. One investor estimated that Cityfront Place would fetch more than $70 million, or about $146,000 a unit.
Northwestern Mutual developed Cityfront Place in 1991. The property is 97.5% occupied, with rents ranging from $1,199 for a studio and $2,250 for a two-bedroom unit, according to a recent report by Appraisal Research Counselors, a Chicago-based consulting firm.
Including concessions, the average effective rent in the building was $1.97 a square foot at the end of the second quarter, vs. $1.85 in the first quarter and $2.16 in the year-earlier period.
The bad job market has hurt demand for apartments generally, though the downtown market has held up relatively well, which could work in Northwestern Mutual’s favor. Rents and occupancies at high-end downtown buildings rose in the second quarter, their second quarterly increase, according to the Appraisal Research report.
Yet some investors may be wary of buying in Chicago amid a building boom that will add 2,716 units to the downtown market between now and 2011, which could drive occupancies and rents down. None of the new buildings are in Streeterville.
Northwestern Mutual has also hired Holliday Fenoglio to sell the Arbors of Brookdale, a 281-unit apartment property it owns in west suburban Naperville. Though slow, the suburban apartment investment market has been more active than the downtown market, with six sales for a total of $143.2 million so far this year, according to Appraisal Research.
