But closing deals in the Chicago area has lagged behind the nation as a whole – where sales were up 59% year-over-year through August and are well ahead of 2019 numbers – illustrating the longer recovery of commercial real estate in major cities as well as the impact of real estate fiscal uncertainty, fiscal instability and high levels of crime that continue to plague Chicago.
Local selling activity this year has shown how much buyers have an appetite for certain types of properties and how opposed they are to others. Even with significant capital to deploy and relatively inexpensive debt, few investors seem ready to bet on buildings whose future remains uncertain 19 months after a historic public health crisis.
“The investment world is currently divided into two categories. The markets have decided what is a safe return and what is not,” said Andy Farbman, whose real estate investment firm Farbman Group, Detroit-based paid $ 16.4 million last month for the 25-story office building at 100 N. LaSalle Street. know what it will be worth on the other side. “
Real Capital numbers for the Chicago area show the disparity between what buyers want and what they don’t want.
The industrial sector is leading by far in sales this year, a type of property that was already on fire before the pandemic as online shopping grew and demand for places to store and distribute goods purchased on the internet grew. soared. COVID has reinforced this trend and investors have flocked to warehouse stability, with $ 3 billion in industrial properties sold locally through August, up 20% from the same period in 2019.
Among the big deals: Industrial giant Prologis paid nearly $ 100 million in March for the fully leased 339,000 square foot warehouse at 930 W. Evergreen Ave. in Goose Island, and Miami-based Scout Capital Partners purchased a large storage facility in July at 4220 S. Kildare Ave. on the southwest side of town for nearly $ 95 million, about double what sellers had invested in the building, including the purchase price, since 2006.
The apartment sector also turned strong in 2021 as renters rushed this summer, pushing downtown rents to record highs after falling in 2020. Investors bought $ 2.1 billion worth of property. apartments in the Chicago area. until August, exceeding the local sales volume of the year 2020.
Much of the recent increase has come from apartment transactions in the suburbs rather than downtown, where Cook County appraiser Fritz Kaegi is making his first attempt this year to reassess property values. These are expected to increase the tax burden on commercial properties based on Kaegi’s revaluations over the past two years, which likely frightens some buyers, said Ron DeVries, senior managing director of the consulting firm’s Chicago office and Integra Realty Resources assessment.
“When you get an appraisal coming in, and it’s double or triple (the previous appraisal), the buyer basically says, ‘How do we plan that? “DeVries said.” Suburban apartment transactions are done because there is good clarity. “
Strong apartment demand is usually a signal that office demand will follow, but few large downtown multi-tenant office buildings have changed hands. With vacancy hitting an all-time high and demand still questionable as businesses rethink their workspace needs, office sales in the first eight months of the year totaled just $ 1.1 billion. dollars, 22% less than the same period in 2020.
The owners are still trying to cash in: the properties at 311 S. Wacker Drive, 550 W. Adams St. and 200 W. Jackson Blvd. which collectively could bring in over $ 700 million are among those in the market. And some investors, including Farbman, have made calculated bets on a significant rebound in the sector over the next few years.
But there’s still a big gap between what most buyers are willing to pay for office space, given the uncertain future of the industry, and what homeowners will settle for, said Jim Costello, senior vice president of Real. Capital.
“If I am going to buy, I will only pay one price assuming everything changes in the future (in the office business),” he said. Landlords say, ‘My loan is fine and the tenants are paying rent, so why should I have a loss? I’ll sit on it and see where it goes. “”
Sales were also sluggish as expected in the retail sector, where the pre-pandemic turmoil of the e-commerce boom was only exacerbated by the crisis. This year, investors bought $ 1.1 billion worth of commercial properties locally through August, up 2% from the same period in 2020, but 25% below 2019 levels.
Hotels in the Chicago area, which have been similarly affected by the crisis and offer little detail on when or if business travel will return as strong sales figures, surprisingly matched from 2019, with $ 475 million in transactions. That number was bolstered by Chicago-based Oxford Capital Group’s $ 72 million purchase of the Thompson Chicago Hotel on the Gold Coast in August, one of Chicago’s biggest hotel sales since start of the pandemic.