Crain’s reported that an investment group apparently has paid a record per unit price for the luxury apartment building at 1225 N. Wells in Old Town that was only completed last year.
Heitman LLC, a Chicago-based real estate investment firm, has agreed to pay about $158 million for a 250-unit luxury apartment building, according to people familiar with the transaction. The price equates to $632,000 per unit, a high for Chicago and a sign of soaring investor demand for trophy apartment towers, fueled by ultra-low interest rates.
The previous record was a 2007 sale of the Grand Plaza East Tower at 540 N. State for $545,738 per unit. That was just before the crash.
Few are predicting that the good times will end badly. But the feverish investment activity is eliciting comparisons to 2007, another golden period for real estate investors that ended when global financial markets crashed in 2008.
“Things are getting silly again,” says Dan Fasulo, managing director of Real Capital Analytics, a New York-based research firm.
That’s because the Federal Reserve’s loose monetary policy has pushed interest rates on bonds and other investments to near-historic lows, forcing many big investors to seek higher returns in real estate and other assets, he says.
And nearly 5,000 more apartments are slated to come on the market downtown by the end of 2014.
The Hines-JDL venture completed the 16-story building at 1225 N. Wells St. last year. The project is among the first in a wave of high-end downtown apartment towers launched in recent years by developers aiming to capitalize on high occupancies and soaring rents. Net rents at luxury downtown apartment buildings have risen 33 percent since bottoming out at the end of 2009, according to Appraisal Research.
In the fourth quarter, tenants at 1225 Old Town paid the second-highest net rents in the city: $3.04 a square foot, after Aqua Tower on the New East Side at $3.17, according to Appraisal Research.
Up to this point, demand for high-end apartments has outpaced supply. The question on many minds is whether the building boom will create a glut, forcing landlords to slash rents to attract and retain tenants.
What’s the end game for these landlords?
Just how high can rental prices go?
Is real estate’s ‘silly season’ returning? [Crain’s Chicago Business, Alby Gallun, May 6, 2013]