Tall & Urban News

Chicago landlord Horizon Realty Group has acquired a Lincoln Park apartment building for US$64 million, a price suggesting that multifamily values might not be falling after all. But it's more complicated than that.  

Horizon acquired the 162 unit building at 2555 N. Clark Street in late June from DWS, a unit of Deutsche Bank, confirmed Horizon Chief Operating Officer Jeff Michael. At US$64 million, or US$395,000 per unit, DWS came out ahead on the sale: It paid US$50.5 million for the property in early 2014, according to Real Capital Analytics, a New York research firm.

Figuring out what big Chicago apartment buildings are worth has become tough amid the coronavirus pandemic and recession. Occupancies and rents have fallen at many properties, but only a small number of large buildings have changed hands over the past six months, making it hard to determine where values have settled. Last month a 150 unit apartment complex in Ravenswood sold for US$46 million, less than the US$48.1 million it fetched in 2016.

Some investors might view the price for 2555 N. Clark as a sign that apartment values are holding up. But the market has weakened since Horizon completed the deal in June. The Lincoln Park building’s occupancy has fallen from about 95 percent then to 92 percent now, Michael said.

Horizon’s $64 million price also may not reflect the true market value of the property at the time of the sale. Horizon paid more than a typical investor would because it acquired the building in part to defer capital-gains taxes on an earlier sale of Elmhurst Terrace, an apartment complex in west suburban Elmhurst, Michael said.

Under federal law, investors that sell properties for a gain can delay taxes on the transaction if they plow the proceeds into another property. The tax benefit often is attractive enough that investors are willing to pay a premium for a new building.

“Your choice is to pay a heavy capital gains tax to the government or be a little more aggressive” on price, Michael said.

It’s hard to make a blanket statement about the state of the Chicago apartment market these days. While occupancies and rents have fallen at downtown buildings, suburban landlords are holding up well. Even within the city, smaller buildings on the North Side are faring better than big high-rises in the Loop or South Loop, Michael said. The pandemic and recent civil unrest have reduced the appeal of high-rise living for many downtown residents.

“People just want to be out of the Loop, out of those larger buildings, and be in the neighborhoods for a while,” Michael said. “We see that in our portfolio.”

Built in 1987, 2555 N. Clark has a location that’s hard to beat. It’s surrounded by restaurants and bars and is just a short walk from Lincoln Park and the lakefront. DWS completed a major renovation of the 19 story building several years ago.

Rents at the property range from US$1,422 to US$3,627 per month, according to Horizon’s website. Given recent market weakness, Horizon, like many landlords, now offers one month of free rent to new tenants, and even two months if they sign a lease within 24 hours of looking at an apartment, Michael said.

“The market is definitely more tepid,” he said. But “once the market does stabilize, an asset like that will be one of the first assets to stabilize.”

For more on this story, go to Crain's Chicago Business.