A Washington apartment landlord is entering the Chicago market, paying $75 million for a 199-unit high-end tower in the bustling Clybourn Corridor.
A venture of Gelman in late July acquired the Residences at NewCity, a 16-story building at Halsted Street and Clybourn Avenue completed in 2015, according to Cook County property records. Gelman bought the tower, which sits atop the NewCity shopping center, from its developers: Structured Development and Bucksbaum Retail Properties of Chicago and New York-based JPMorgan Asset Management.
Executives at Structured, Bucksbaum and Gelman did not respond to requests for comment.
It’s the first Chicago acquisition for Gelman, which owns apartments mainly in the Washington area. With NewCity, the firm is expanding into a North Side hot spot with the traits that landlords love: workers and wealth. The building is close to a large downtown workforce and to the affluent neighborhoods of Lincoln Park, Old Town and Bucktown.
The Clybourn corridor is best known for its shopping, but it has caught the eye of apartment developers as well. Structured, for instance, plans a 197-unit apartment building on the current site of the Menomonee Club, a block west of New City.
But NewCity could face competition over the next several years as Chicago developer Sterling Bay begins developing Lincoln Yards nearby. The $6 billion megaproject along the North Branch of Chicago River is expected to include as many as 6,000 homes.
The prolonged Chicago apartment boom has been good to apartment developers, who have profited by selling new projects for much more than they cost to build. Yet some investors have become wary of buying in Chicago, worried that rising property taxes will cut into their profits and depress apartment values.
“There are legitimate buyers, but there are not as many of them as there were about a year ago,” Structured founder J. Michael Drew said in January after the NewCity apartments went up for sale.
It’s unclear how or even whether those concerns played into the sale of NewCity, but its $75 million sale price—about $377,000 per unit—is on the low end compared with recent apartment deals in the city. The building at 1457 N. Halsted St. is expected to generate net operating income of $4.1 million this year, according to a marketing document from Eastdil Secured, the brokerage hired to sell the property.
That means NewCity will deliver a first-year yield, or capitalization rate, of 5.4 percent. Capitalization, or “cap,”rates on other recent comparable sales have been below 5 percent, suggesting a low price for NewCity.
Cap rates represent a property’s net operating income divided by its sale price, so a high cap rate implies a low price, and vice versa. Kenect, a 227-unit apartment building in River West that opened in 2016, sold in February at a 4.7 percent cap rate, while Optima Tower, a 325-unit high-rise in Streeterville completed in 2013, sold last year at a 4.5 percent cap rate, according to Real Capital Analytics, a New York-based research firm.
Structure and its partners still own the 400,000-square-foot NewCity shopping center, which includes a Mariano’s grocery store, Dick’s Sporting Goods and ArcLight Cinemas.