A Chicago real estate firm has paid $66 million for a 198-unit apartment tower in the West Loop, upping its bet on continued rent growth amid a slowdown in development.
Cedar Street bought the Avra West Loop tower at 1125 W. Van Buren St. on Wednesday, CEO Will Murphy told CoStar News.
With the latest deal, Cedar Street has invested more than $222 million since July on a combined 619 units in three recently constructed buildings in the city.
Those deals have come as Chicago rents have outpaced most of the country’s major markets.
Rising rents were created by a historically small pipeline of new projects in the city in recent years because of factors such as higher borrowing and construction costs and worries about Cook County property taxes.
Many recent sales have been for less than it would cost to build the towers today, leaving investors such as Cedar Street to seek acquisitions at what they view as long-term bargains rather than focusing on new construction in the city.
“We love the city of Chicago, and we plan to continue developing here, but it’s very hard right now,” Murphy said. “We see an opportunity to buy quality properties at historically low pricing.
“Now only are we buying them below today’s replacement costs, we’re buying them below what it cost the developer to build three, four or five years ago.”
Cedar Street bought Avra West Loop from local developer Tandem, which put the tower on the market for sale in June.
The purchase was backed by a $49.5 million loan from Nuveen Real Estate, according to Cedar Street.
Tandem took out a $42 million construction loan in 2020, according to Cook County property records. After completing the 20-story building in 2021, Tandem took out $55 million in permanent financing in 2022.
It’s unclear how much the project cost, and Tandem did not immediately respond to a request for comment from CoStar News.
Last July, Cedar Street partnered with Kayne Anderson Real Estate to buy the 289-unit Millie on Michigan. They paid $122 million for the multifamily and retail portions of the 47-story tower at 300 N. Michigan Ave., which includes a separately owned hotel.
In December, Cedar Street paid $34.6 million for a 132-unit building at 1980 N. Milwaukee Ave. in Bucktown on the city’s North Side.
Avra West Loop benefits from proximity to high-demand Fulton Market, the University of Illinois at Chicago and the Illinois Medical District, Murphy said.
The building is just 1% vacant, according to CoStar data, with asking rents of $2,478 per unit and $4.09 per square foot.
Chicago-area multifamily sales totaled $5.3 billion last year, up from $4 billion each of the previous two years.
Cedar Street said it believes depressed pricing is creating buying opportunities for longer-term investors.
“Taxes are mitigated by buying at the right basis and the revenue growth that’s going to occur because of the lack of supply,” Murphy said. “All three of [the recent acquisitions] were very well-built, newer vintage, purchased at an attractive basis in a city that is lacking supply.”
For the record
The seller was represented by CBRE brokers John Jaeger, Justin Puppi and Jason Zyck. The debt was arranged by Michael Slovitt and Grant Bailey of Berkadia.