A Chicago developer is looking to sell two towers with a combined 740 apartments that it developed a block apart in River North about six years ago in deals that could be a good test of the market amid rising interest rates but relatively strong multifamily fundamentals in the city.
Magellan Development Group has hired CBRE brokers to seek buyers for The Gallery on Wells and Exhibit on Superior towers.
The properties are hitting the market at the end of a year in which all types of real estate have been challenging to sell because of rising interest rates and other economic factors. The towers could be a good test to see how well Chicago multifamily owners are able to overcome those hurdles because of rent growth that has outpaced most other areas of the country in recent quarters.
Magellan CEO David Carlins declined to comment on pricing expectations or other aspects of the deals, but he said the firm remains bullish on Chicago.
“When we look around the country, we see the steady growth in Chicago as a positive,” he told CoStar News. “We want to do more in Chicago.”
The Gallery on Wells tower at 637 N. Wells St. has 442 units across 39 stories. It is 90.5% occupied, according to CBRE, at an average rent of $2,710 per unit.
The Exhibit on Superior tower at 165 W. Superior St. has 298 units on 34 floors. It is 94.6% occupied at an average rent of $2,689.
Earlier this year, the Chicago area’s overall apartment rental growth led the nation’s markets for the third consecutive quarter for the first time in more than two decades. Although the growth has been relatively gradual, it has outpaced faster-growing areas of the country where overbuilding has caused slowdowns in demand.
Rents have grown by 2.7% over the past 12 months, trailing only the 3.4% rate in Orange County, California, according to a CoStar report.
Chicago-area apartment building sales have totaled $3.2 billion so far this year, on pace to fall well below totals above $5 billion each of the previous two years.
Large sales in the city this year have included Spanish billionaire Amancio Ortega’s $231.5 million deal for the 44-story, 492-unit tower at 727 W. Madison St. and Miami-based Crescent Heights’ approximately $173 million deal for the residential portion of the 50-story tower at E. North Water St.
Crescent Heights recently put the 76-story, 800-unit NEMA Chicago tower along Grant Park on the market for sale in another test of the market’s strength heading into 2024.
Magellan is a prolific developer in Chicago and throughout the country. Its Chicago projects include the 28-acre Lakeshore East project that includes the city’s third-tallest skyscraper, the 101-story St. Regis Chicago designed by Jeanne Gang.
In one of the few major towers to break ground in the initial months of the pandemic, Magellan teamed up with Sterling Bay to build a 47-story apartment and hotel tower at 300 N. Michigan Ave., later selling the hotel portion to Dutch hotel group citizenM for almost $75 million.
Mac Management invested with Magellan on both of the River North apartment projects that are now for sale.
Other investors on the Gallery project, which replaced a former Gino’s East pizza parlor, are Wanxiang America Real Estate and Strand Advisors.
It was financed with a construction loan of about $100.2 million in 2015 from Union Labor Life Insurance, according to Cook County property records. It was refinanced with $149 million in debt from Square Mile Capital in 2018.
BLG Capital Advisors is another investor in the Exhibit project, which replaced a Howard Johnson Inn.
That project was financed with a $73.7 million construction loan from PNC Bank in 2015, and it was refinanced with a $113.5 million loan from Mack Real Estate Group in 2021.
For the Record
CBRE brokers John Jaeger, Justin Puppi, Jason Zyck and Danny Zeboski are representing Magellan in the sales.