The one bet that lenders seem willing to make right now is on Chicago multifamily.
A string of recent refinancing deals for Chicago area apartment buildings totaling about $250 million in debt show that the market’s strong metrics are making up for the challenges posed by high interest rates and political uncertainty.
“Liquidity is returning to the market. Banks, life [insurance] companies and debt funds are all active, and spreads are compressing,” said Morris Betesh, founder of Arrow Real Estate Advisors.
A lack of new supply entering the market is driving rent growth that is attracting investors who may be spooked by recent oversupply concerns in the Sun Belt.
Still, property tax uncertainty in Cook County and stubborn interest rates are putting a damper on overall deal volume.
A recent survey of real estate professionals from across the U.S. conducted by real estate services firm Agora found that 58 percent of respondents were struggling to raise capital, and 76 percent said their investors are “somewhat or very concerned about market volatility.”
Structured Development’s long game
The team behind a Lincoln Park high-rise apartment scored a $135 million refinancing from Rialto Capital Advisors in June. And shortly after, they landed another $64 million for a second apartment complex within the same development.
A joint venture made up of Cleveland-based PCP Generational Partners, Chicago-based Structured Development and White Oak Realty Partners finished construction on The Foundry, a 327-unit apartment building at 1475 North Kingsbury Street in late 2023. The recent $135 million refinancing of the property worked out to $412,000 per unit.
The same group then secured another refinancing in July with a $64 million loan from Argentic Investment Management. The debt is backed by The Post, which includes 107 co-living spaces and 19 standard apartments. The loan comes out to $598,000 per unit.
Structured Development founder Mike Drew said the apartment buildings have been performing well and boast occupancy rates over 95 percent, however, finding financing was not easy.
“It took us nearly 10 months to find the lender that ultimately closed the loan for us,” Drew said of The Post loan.
The properties are part of a $250 million mixed-use project called Wendelin Park that has been in the works for nearly 10 years.
“On the one hand, you could say we were fortunate to start when we did and that we’re delivering into an underserved market,” Drew said. “On the other hand, it’s been a long, difficult journey.”
Other buildings included in the project, which was previously called The Shops at Big Deahl, are The Seng, a 34-unit affordable condo development and a climbing gym known as Movement Lincoln Park. The properties surround a park that was built by the developers but is open to the public.
CedarSt’s comeback
Chicago-based CedarSt recently refinanced The Sally, a 180-unit building in Uptown that the real estate firm developed and completed last year. CedarSt took out a $27 million construction loan and secured a $31.5 million refinancing with Fannie Mae. The refi comes out to $175,000 per unit.
The deal was the latest in a series of multifamily refinancing deals that CedarSt has scored over the past year and half. Prior to securing the loans, CedarSt had been struggling to cover the costs of floating rate debt taken out on the properties back when interest rates were significantly lower.
In March of last year, CedarSt landed a $44 million refinancing of The Duncan, a 260-unit West Loop complex at 1515 West Monroe Street. Then in November, the firm struck a refinancing deal again and landed a $20 million loan for The Otis, a 92-unit property at 1435 West 15th Street in Pilsen. Since then, both properties have been taken off of lender watchlists reported by CMBS tracking platform MorningStar Credit.
Prior to refinancing, the properties had debt service coverage ratios under 1, meaning costs to make payments toward the debt were exceeding revenue. That was despite the fact that both were performing well and were over 95 percent occupied. Now they have DSCRs over 1.
Noah Properties’ suburban play
In Chicago’s hot suburban multifamily market, Noah Properties landed a $30.3 million refinancing from Walker & Dunlop Investment Partners for an 80-unit apartment complex in Mt. Prospect. Arrow Real Estate Advisors secured the debt, which comes out to about $378,000 per unit, for the Prospect Place Apartments on behalf of Noah Properties.
The property is one of several that Noah has developed in the Chicago suburbs where multifamily properties benefit from Chicago’s steady job market without getting dragged down by the city’s political turmoil.
The firm recently sold the 90-unit Lakeland Lofts in Bloomingdale for $28.3 million, or $315,000 per unit, after spending at least $22 million to develop them.
“Chicago also had a later recovery from Covid. There is a lack of new supply, and because of both of these factors, rent growth in Chicago is one of the strongest in the country,” Betesh said.