Home News Morguard buys Echelon Chicago apartments in Fulton River District from Crescent Heights

Morguard buys Echelon Chicago apartments in Fulton River District from Crescent Heights

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It’s also one of the few big downtown apartment sales in a year that has been disrupted by rising inflation and interest rates, making it difficult for investors to expand deals. The talk has made some investors more cautious. Uncertainty about Chicago’s property taxes has dampened the enthusiasm of others.

But Chicago has one big goal. That said, downtown rents have recovered since the pandemic began. rise to record levels in the first quarter. Morgard has increased rents on Chicago real estate between 12% and 18% for him, Morgard executive John Tarano told analysts and investors on a recent conference call.

He said Chicago is “definitely coming back strong,” according to the minutes.

Morgard, who now owns four properties downtown, knows Chicago well.Entered the market in 2012 when acquired K Station Alta, 848-unit complex in two buildings next to Echelon.Also owns a Morgard Block 37 marquee, 690-unit skyscrapers in the loop, and coast, A 515-unit building in the Lakeshore East development. The company completed its acquisition of Echelon yesterday.

“We believe in this city. is “considering” an acquisition of

As the owner of Alta, the next block east of K Station, Morguard was a logical purchaser of Echelon and had the opportunity to operate the two facilities together.

“There will be some important operational synergies there,” Talano said.

Built by Chicago developer Steve Fifield, Echelon opened in 2008 on a block south of the Blommer Chocolate Factory.Crescent Heights $104.3 million Monthly rents range from $2,082 for a studio to $3,615 for a two-bedroom unit, according to real estate data provider CoStar Group. Average apartment rents were $3.28 per square foot in the second quarter, up 6.5% from the same period last year. The building had 95.5% occupancy, up from his 94% in Q2 2021.

Crescent Heights executives declined to comment, as did executives at CBRE, which brokered the sale.

Large downtown condominiums were selling at a brisk pace before the COVID-19 pandemic, but the pace of deals has slowed over the past two years. Even the recent recovery in rents hasn’t spurred downtown sales. Except for Echelon, he has two other downtown deals, including pending. $180 million sale South Loop’s Alta Roosevelt has crossed the $100 million threshold so far this year. Some large properties have been on the market for months.

Many in the real estate industry say the prospect of rising property taxes is scaring investors. Cook County Assessor Fritz Kaegi Rating increase As a result, many landlords are preparing for a significant increase in property taxes this year. Some investors are waiting to see how much more taxes will rise before entering the market again.

“I think that was a big factor” in the slowdown, said Ron DeVries, senior managing director of the Chicago office of Integra Realty Resources Inc., a real estate appraisal and consulting firm. “Many of the institutional funds were not considering trading due to the uncertainty.”

Tarano agrees that rising valuations have made the city less attractive to multifamily investors. But he believes the opportunities in Chicago still outweigh the risks.

“I think a lot of people are scared, but the pendulum is swinging too far,” he says.

Property taxes are based on assessed value, so higher assessed values ​​often result in higher taxes. Kaegi’s office valued his Echelon at $93 million. That’s well below the property’s sale price of $133 million, but he’s up 71% from his previous value of $54.5 million.

So even if valuers’ estimates were far below Echelon’s true market value, property taxes could jump this year. Crescent Heights has appealed its valuation to the Cook County Board of Appeals, but the property’s value may still decline.

With so few downtown sales this year, the Echelon deal provides an important data point showing just how much Chicago skyscrapers are worth these days. Equivalent to about $380,000, it’s fairly mid-range.

The asset’s capitalization rate or first year yield, another hot metric, is 4.5%. The cap rate is usually a building’s net operating income divided by its price. The lower the cap rate, the higher the price and vice versa.

According to New York-based research firm Real Capital Analytics, Echelon’s 4.5% cap rate is broadly in line with that of downtown deals over the past few years. Some of the multifamily properties it owns have cap rates of less than 3%, but much higher. Given the large disparity, it makes sense to sell those properties and buy them in Chicago, he said.

“For us, it was an easy decision,” Tarano said.

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