By: Alby Gallun
March 13, 2014
A New York investor acquired a 236-unit apartment portfolio on Chicago's North Side, where landlords still have the upper hand over their tenants.
Pioneer Acquisitions LLC paid $28.9 million for eight apartment buildings in Irving Park, Ravenswood, Lincoln Square and West Rogers Park, according to Kiser Group, a Chicago-based brokerage that sold the properties. Pioneer bought the portfolio from affiliates of the Schirm Firm-1st Chicago Apartment Rentals, a longtime North Side landlord, Cook County records show.
Founded by former executives at New York-based Thor Equities LLC — the owner of the Palmer House Hilton — Pioneer has been building a presence in Chicago and owns a dozen or so properties here, including a 33-unit apartment building in Rogers Park, said Kiser Principal Lee Kiser. Pioneer and Schirm executives did not return messages.
Sales and prices of apartment buildings in North Side neighborhoods have jumped the past few years amid low interest rates, high occupancies and rising rents. Interest from out-of-towners, and even investors from countries such as Canada and Israel, has picked up, because investment yields are still attractive even though prices have risen, Mr. Kiser said.
Though downtown rents are starting to slip because of a construction wave, that's not the case on the North Side, where existing landlords face less competition from new developments.
“I don't see any ease-up in occupancy or rent increases in the foreseeable future in Chicago's neighborhoods,” Mr. Kiser said. He predicted that rents at Pioneer's new buildings could rise more than 10 percent this year.
The portfolio ranges from a 12-unit building at the corner of Artesian and Fargo avenues in West Rogers Park to a 56-unit property at Kedzie and Belle Plaine avenues in Irving Park. Four of the buildings are in Ravenswood, including a 46-unit property at Ainslie Street and Hoyne Avenue.
BIGGER INVESTORS MOVING IN
Though owning neighborhood apartments has long been the domain of local mom-and-pop investors, investors with bigger pocketbooks have been moving in lately, attracted by the higher returns smaller properties can often generate. Chicago-based Laramar Group LLC, which has historically focused on big multifamily properties that appeal to institutional investors, has been pursuing smaller neighborhood buildings in Chicago and other markets lately. It recently raised a $58 million fund to buy neighborhood properties and currently owns about 17 buildings and 350 units through its small building investment program, said President Jeff Elowe.
Laramar looked briefly at the Schirm Firm portfolio but took a pass because it doesn't buy properties north of Irving Park Road, he said. Landlords have more pricing power south of Irving Park, in part because the gap between what it costs to own vs. rent is much higher there, making it harder for tenants to move out, he said. And while returns, or capitalization rates, on far North Side properties aren't much higher than they are south of Irving Park, the investment risk is greater, he said.
Still, neighborhood investing generally is less risky than it is downtown because of all the development under way in the central business district, Mr. Elowe said. While the market will feel the impact of some projects—including Halsted Flats, a 269-unit development in Wrigleyville—the activity is “generally a little more dispersed,” he said.
It's a different story downtown, where rising competition for tenants will force landlords to offer deals on rent, he said.
“There's just going to have to be concessions,” he said.