Bayshore Properties paid $50 million for its fifth suburban Chicago apartment complex, a 344-unit property in Mount Prospect, underlining strong demand for the asset class as single-family home sales slow.
The multi-building campus, Mount Prospect Greens, last sold for $33 million in 2014 to an affiliate of Ohio-based Pepper Pike Capital Partners, public records show. Under Pepper Pike’s ownership, the 49-year-old property had 156 apartments renovated with granite or quartz countertops along with new cabinets and stainless steel appliances. Colliers, which represented Pepper Pike, said renovating the rest of the units could provide a fast path to accelerating appreciation. The price of the renovations wasn’t disclosed, making it unclear how much of a profit Pepper Pike scored.
The deal is the latest big suburban Chicago multifamily complex sold this year as competition heats up for rentals as rising borrowing costs and plummeting mortgage demand hamper the single-family home market.
“The combination of asset quality, location and the capacity to quickly push top-line rent growth make Mount Prospect Greens the perfect value-add opportunity,” said Colliers’ Tyler Hague, who brokered the deal along with Lauren Stoliar.
Mount Prospect Greens is priced at the lower end of the market in terms of unit costs and price per square foot, the brokerage said.
While surging interest rates are starting to put downward pressure on multifamily prices as well, brokers expect the asset class to outperform others as the economy teeters on a recession and the Federal Reserve raises the cost of capital to battle inflation.
Both new rental buildings and older properties touted as opportunities to add value through upgrades have proven attractive in Chicago and across the nation, keeping momentum from a record $290 billion in transactions in 2021 and forcing buyers to compress their cap rates, which are measures of rental income after expenses divided by a property’s purchase price, according to a spring Walker & Dunlop report.
“Apartment rents are above pre-pandemic levels in many places and vacancy rates stand at record lows,” the report said.
While Chicago apartment building performances have been strong, they’re not getting as much attention as Sunbelt markets.
“Investment activity was most robust in Atlanta, Houston, Dallas-Fort Worth, and Phoenix in Q1, with interest firmly having shifted away from coastal markets in favor of the Sunbelt region,” the report said. “Cap rates for the sector are at record lows, and per unit pricing has risen 11 percent over the past four quarters to $239,000.”
In Chicago specifically, rents in Class B buildings increased 43 percent between 2015 and 2020, Colliers said.