Chicago, which was the top market for office building investment in the country last year, is beginning to get heightened attention in apartment building investment as well.
The unlikely spearhead for the assault is an Arlington, Va., real estate investment trust that until last year tended to its longtime business of owning and operating upscale apartment properties in and around the nation’s capital.
But last year the REIT, Charles E. Smith Residential Realty Inc., acquired the 306-unit One East Delaware building and announced it is developing an 809-unit apartment high-rise at Superior and Dearborn streets.
And last week it closed a $70 million deal for one of the central area’s most desirable apartment properties, McClurg Court Center, with its 1,000-plus units in two towers, its cinema and its health and tennis club.
Thus, in less than a year, a quiet D.C.-area company has become a major force in high-end rentals in downtown Chicago. What gives?
“There’s a tremendous resurgence of urbanization of the country, especially in Chicago, and a declining inventory of rental stock,” said John Guinee, chief investment officer and head of acquisitions for the REIT. “We just said this deal’s going to work.”
Guinee got plenty of chances to look the city over in his last post, as head of national acquisitions for Chicago’s LaSalle Advisors Capital Management Inc., though he wasn’t based here.
He said he left LaSalle about a year ago because so much of the investment action has shifted from the private investment advisory business to REITs, which can attract capital through Wall Street.
And part of the reason the Smith REIT decided to burst its local boundaries and expand to Chicago (and Boston) last year was an infusion of $310 million in new equity capital.
But another reason was that it wanted a niche to distinguish it from other apartment REITs, Guinee said. Most of them have garden-style apartments in the suburbs, often in the South or Southwest.
While Smith had its share of suburban apartments around D.C., it also had a portfolio of upscale buildings in Washington itself, which gave it a base for a different kind of operation, Guinee said.
“Our analysts said this is a great niche. We would be in a unique position in the REIT world by expanding into 24-hour cities and strong urban concentrations.
“There are desirable places for people to live in downtowns, more in the European style, like Chicago, Boston, New York, Toronto and some secondary cities. So we systematically went out and explored those markets.”
He added that the company’s experience in Washington gives it a competitive advantage in downtown high-rises. “They’re more complicated to operate, evaluate and underwrite” than suburban garden-style apartments, he said.
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In Chicago, company researchers found about 60,000 housing units in the area from downtown north to Lincoln Park.
Some 20,000 of those were rentals, and the number was shrinking because of condominium conversion, Guinee noted.
Lack of new construction, low vacancies, a consistent rent growth of about 6 percent and a high rate of job creation predicted for well into the next decade all make Chicago look like a great bet, he said.
Guinee added that the company hopes to close on another 1,800 apartment units in Chicago within a year. “We really like it a lot,” he said.
Through the roof: Odds are high that building owners of all kinds are going to start raising the roof–the rents on the roof, that is.
Rooftop space is becoming more and more valuable as the needs of telecommunications companies increase. And the demand is creating a growing business in identifying and managing such sites.
Motorola this week announced a deal with Chicago’s Barry Realty Inc. to manage antenna installations for Barry’s portfolio, which includes more than 120 buildings in the area.
Motorola is promoting its antenna facilities management expertise as a way to “help property owners maximize their potential revenue from a rooftop communications facility,” said Joni Glockner, director of operations for Motorola’s Antenna Site Division.
And Dallas-based Transwestern Property Co., which has an office in Chicago, has begun analyzing the communications potential for every property in its management portfolio.
The surge in demand is due to expanding cellular, paging and personal communications services, according to William Lawrence, vice president of U.S. RealTel, a Chicago firm that represents landlords in dealing with communications companies.
“There have been antennas on roofs for years and years, but not nearly the magnitude of the past year to eighteen months,” he said.