With city center rents near record highs, it should be a good time to sell an apartment building. But it is not so easy these days amid rising interest rates, which have put downward pressure on property values. And some real estate investors have developed an aversion to Chicago over concerns about rising property taxes, crime and the general business climate.
The downtown apartment investment market has been particularly sluggish of late, with a wide spread between what buyers are asking and what sellers are willing to pay. Just five downtown buildings have sold for more than $75 million in the past 12 months, according to MSCI Real Assets, a research and consulting firm.
But Eleven Thirty comes with one thing investors will like: a deemed loan. Instead of having to take out a new mortgage at today’s interest rates, a buyer can keep the building’s existing loan in place, saving a bundle in interest payments, according to a Berkadia marketing brochure. While it is unclear what Eleven Thirty would gain from a sale, the assumed loan could insulate the property from the impact of rising prices and increase its value.
With a balance of $89.3 million, the building’s current loan has a fixed interest rate of 3.8% and does not mature until 2047, the brochure said. A new loan on the property today could have an interest rate between 5.5% and 6.25%, according to a person familiar with the building.
Designed by Chicago architecture firm Loewenberg & Loewenberg, the 500,000-square-foot high-rise near the southwest corner of Grant Park has three wings extending from a core. The building is 95% occupied, with an average apartment renting for $2,315 per month, or $3.04 per square foot, according to real estate data provider CoStar Group.
D&K “has put a lot of money into the physical facility,” Berkadia senior managing director Pete Evans wrote in a text. “They’ve always run it as a legacy.”
D&K is “evaluating the possible sale” of Eleven Thirty and “also exploring the sale” of Aspire, Blas Puzon, D&K’s chief investment officer, said in a statement. The firm declined to say how much it expects the two buildings to fetch in a sale.
“While we typically invest in properties for the long term, as was the case with Eleven Thirty and other assets, we will always consider transaction opportunities that are in the best interests of our investors and given current market conditions,” Puzon said.
D&K has hired CBRE to sell Aspire. D&K financed the building with a $69 million construction loan. Aspire is 94.9% occupied, with the average apartment renting for $2,707 per month, or $2.93 per square foot, according to CoStar.