The deal highlights the strength of the suburban Chicago housing market, which flourished during the COVID-19 pandemic while other real estate sectors struggled. Occupancy, rents, and property values in the suburbs have all increased in recent years, creating a selling opportunity for landlords willing to make some profit. In June, an Ohio investor sold Glenmuir of Naperville for more than $ 103 million, 66 percent more than the $ 61.8 million he paid for the 321-unit property in 2014.
Several other large suburban apartment complexes are in the market, including several in Naperville such as the Iroquois Club with 272 units and the Views of Naperville with 474 units. In Wheaton, the Danada retreat went on sale with 295 units earlier this year. Two properties in Evanston are also for sale: 1717 with 175 units and the 193 unit reservation in Evanston.
Redwood Capital, owned by Dwell in a joint venture with Boston-based State Street Global Advisors, hasn’t lost its appetite for real estate in suburban Chicago and recently acquired Brook Run, a 182-unit complex in Arlington Heights. A Redwood manager made no response and a CBRE manager who brokered the Dwell sale declined to comment.
A domestic representative also declined to comment. A domestic led investor group acquired Dwell through its domestic private capital business. The unit helps investors selling commercial properties defer capital gains tax on the businesses by reinvesting the proceeds of the sale in another property.
Opened in 1997, Dwell is on the north side of Interstate 88 on North Washington Street. According to a CBRE marketing brochure, the property was 96.8 percent occupied when it went up for sale in May.
The previous owners of Redwood and Dwell spent more than $ 5 million on capital improvements on the property, but CBRE has called the complex a so-called value-add investment, an opportunity for an investor to see the property’s income and value through the renovation of its apartments and walks to increase rents.
Including concessions, net rents at Dwell range from $ 1,620 per month for a one-bedroom unit to $ 2,061 for a two-bedroom apartment, according to real estate information provider CoStar Group. Net rent fell to just $ 1.76 per square foot in the third quarter of 2020, but rose 17% to $ 2.06 per square foot in the third quarter of 2020, according to CoStar.
Domestic paid $ 122.5 million, or $ 306,000 per unit, for Dwell, according to DuPage County’s records. According to Real Capital Analytics, a New York-based research firm, this has been the highest-paid for an apartment building in suburban Chicago since October 2018, when Wheaton Center apartments sold for $ 131 million.
Amid a pandemic that has disrupted the commercial real estate market, residential and industrial property have become the preferred property types with investors, said Ron DeVries, senior managing director in the Chicago office of Integra Realty Resources, a consulting and valuation firm.
The suburban housing market offers investors growth, with rents up 7 percent year-over-year at the end of June, he said. Although the downtown housing market has recovered from a rough 2020 – one reason why downtown investment is picking up too – some investors are wary of buying there, given the uncertainty about property taxes. Cook County Assessor Fritz Kaegi increased the city’s business tax bills this year, and many investors are preparing for a big leap in their 2022 tax bills.
In comparison, housing in DuPage County seems like a safer investment right now, although taxes aren’t particularly low there, DeVries said.
“Taxes in DuPage County have risen sharply in the past five years, but at least you know where they are so you can incorporate them into your model,” he said. “They aren’t cheap, but they are a known lot.”