Trio of Big West Loop Multifamily Properties Hit Market Amid 95% Occupancy Rates

Key Takeaway

• LaSalle, PGIM Real Estate, and Origin Investments are selling West Loop properties amid a sluggish high-end multifamily market due to rising interest rates.
• Despite the challenging debt landscape, Chicago's rental market shows resilience with 95% occupancy rates and nation-leading rent growth of 3.6% year-over-year.
• Properties like Origin's 120-unit asset at Monroe and Aberdeen may attract buyers due to strong rental demand and manageable financing needs.

High-End Multifamily Sales Slow in Chicago

Bigtime real estate funds are currently shopping West Loop apartment towers in Chicago, a move that comes at a time when high-end multifamily sales are experiencing a significant slowdown. LaSalle Investment Management, PGIM Real Estate, and Origin Investments are all seeking buyers for their respective properties at 180 North Jefferson, 765 West Adams, and a corner of Monroe and Aberdeen streets. Despite the slowdown, these properties boast high occupancy rates of around 95 percent, reflecting the resilience of Chicago's rental market. However, the listings hit the market amid rising interest rates, which have been a headwind for property values.

The Details of the Listings

The properties in question include LaSalle's 274-unit building at 180 North Jefferson, PGIM's 350-unit high-rise at 765 West Adams, and Origin Investments' 120-unit asset at 1050 West Monroe Street and 33 South Aberdeen Street. LaSalle's property, purchased for $96 million in 2016, is currently debt-free, having paid off a $45 million loan in 2023. PGIM's Arkadia on Adams, which paid off a $108 million loan in 2022, is also being offered without mortgage debt. Origin's property, bought for nearly $66 million in 2020, features a mix of one, two, and three-bedroom apartments, leaving room for rent growth among the larger units.

Chicago's Resilient Rental Market

Chicago's rental market has shown remarkable resilience, leading the nation in rent growth halfway through 2023 with a 3.6 percent year-over-year increase, tripling the national average. This strong rental demand is reflected in the high occupancy rates of the West Loop properties currently on the market. Despite the challenges posed by rising interest rates, the performance of these assets has been a tailwind for Chicago, making it an attractive market for investors. However, the high-end multifamily sales have slowed, with institutional investors historically hesitant to invest in Chicago, a trend exacerbated by the current rate environment.

Broader Implications for the Real Estate Market

The current market dynamics in Chicago's West Loop highlight broader trends in the real estate sector. Rising interest rates have made it challenging for high-end multifamily properties to sell at their previous purchase prices, leading to significant discounts. However, the strong rental demand and high occupancy rates suggest that properties at lower price points may sell more easily, attracting interest from local players. The resilience of Chicago's rental market, coupled with the popularity of the West Loop, indicates a potential for growth and stability in the long term, despite the current headwinds.

My Perspective on the Market

From my viewpoint, the current situation in Chicago's West Loop is a microcosm of the broader real estate market challenges and opportunities. While rising interest rates have undoubtedly created a difficult environment for high-end multifamily sales, the strong rental demand and high occupancy rates offer a silver lining. Investors may need to adjust their expectations and strategies, focusing on properties with strong rental performance and lower price points. The resilience of Chicago's rental market and the popularity of the West Loop suggest that, with the right approach, there are still opportunities for growth and profitability in this market.

Street Views

• Chuck Johanns, Newmark (Cautiously Optimistic on Chicago's multifamily market):

  "There’s no question that higher interest rates are a headwind in terms of value, but what has definitely been a tailwind for Chicago is the performance of these assets."