At Chicago’s McClurg Court, the tax man is at odds with market pricing

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For a window into Downtown Chicago’s multifamily market, look no further than the 45-story McClurg Court towers, where operating income slid to a three-year low in May even as the assessed value is set to increase by a third, Cook County records show.

Apartment vacancy rates remain higher than before the pandemic in downtown’s Gold Coast submarket, where rents fell 6.4 percent between 2019 and 2020, although rental prices have risen citywide by 4.4 percent from a year ago.

At McClurg, one-bedrooms rent for $1,984, two bedrooms go for $2,720 and three-bedrooms ask $4,359. One 520 square-foot studio rents for $1,684.

Meantime, assessments are spiking in Downtown Chicago despite a year of rent concessions that have hit the bottom line.

While higher assessments values don’t always translate into higher property taxes, and thus higher rents, aging buildings such as McClurg Court, built in 1971, will require substantial capital investments to compete with younger upstarts in Gold Coast, near Northwestern University.

San Francisco-based FPA Multifamily recently bought the 1,061-unit building for $175 million and has pledged to invest $24.3 million over 10 years – about the difference between what FPA paid and the $200 million asking price. Mortgage loan proceeds of $100.3 million and FPA’s investment of $74.7 million financed the acquisition, according to credit ratings agency Morningstar DBRS.

McClurg Court, which includes 43,000 square feet of retail, has received $35 million in capital investment since 2015. Commercial tenants include grocery chain Bockwinkel’s, Wintrust Bank and a 7-Eleven. About 93 percent of commercial space was occupied through April 2021.

The leasehold interest purchased by FPA will partly secure the sale of a $1.2 billion CMBS loan package. Documents associated with the securitization provide an inside look at the properties’ finances.

As Chicago rents recover, at least one other investor wants to make a deal. Waterton has agreed to buy two residential towers with 1,100 total units at 360 and 400 E. South Water Street.