DMG Capital snags suburban Chicago multifamily in pandemic flip

Market stays strong for newly built apartments in suburbs, though threats loom

DMG's Roger Daniel and 40 & 60 West Main Street (DMG Capital, Google Maps)
DMG's Roger Daniel and 40 & 60 West Main Street (DMG Capital, Google Maps)

An affiliate of Chicago investment firm DMG Capital just snagged a 48-unit property in suburban Lake Zurich for $13 million, the second time the newly built property was sold during the pandemic.

The deal provided an almost 30 percent margin over the last time the property was sold in 2020 for $10.1 million. The seller on the recent deal is a company registered to a residential Libertyville address. Bill Baumann of Chicago’s Monarch Realty Partners brokered the deal and said the seller was a private local investor.

The price per unit of almost $271,000 is “on the higher end for the suburban market,” Bill Baumann of Chicago’s Monarch Realty Partners, who brokered the deal, said. “It wasn’t a planned flip. But given the strength in the rental market and the suburbs, the seller increased net operating income and there was an opportunity to sell.”

Suburban Chicago’s apartment complexes have recently attracted capital from both institutional and private investors, with firms such as Brooklyn’s Beitel Group shelling out $111 million for a large Rolling Meadows complex at an implied value of ​​$167,000 per apartment.

“It was attractive for a few reasons,” said DMG’s Roger Daniel. “It was in mint condition. We found that the in-place rents on a per foot basis were low for the existing market. And there is a dearth of new construction nearby.”

Newly built apartments such as the Lake Zurich property, completed in 2019, have fetched premiums over that price per unit, even at a distance of more than 30 miles from the Loop. DMG bought it at a similar price per unit as the recent buyer of the Winfield Station, a 162-unit complex finished last year that traded for $44 million, or $273,000 per apartment.

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While demand for these properties have made for a healthy multifamily market in the Chicago area as of late, Baumann acknowledged a slowdown is more likely with Wednesday’s move by the Federal Reserve to raise its benchmark interest rate by 75 basis points, the largest increase since 1994.

“From a pure investment perspective if you have a higher cost of capital it hurts your returns,” Baumann said. “We’re hearing and seeing some repricing that is going to happen a little bit, though nothing major.”

With a slowdown in home sales caused by rising mortgage rates on the horizon and a still shaky office market, however, he expects multifamily assets to outperform other real estate.

“Relative to other asset classes, multifamily is going to do well, better than most,” Baumann said.

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UPDATE: 6/17/2022, 11:30am: This story has been updated to include comment from DMG’s Roger Daniel.