Upstart Bets $18 Million on Suburban Apartments

Posted on July, 8 2013 by Abraham Tekippe.


A relative newcomer to the Chicago apartment market paid $18.1 million for 251 units in a Mt. Prospect housing complex, part of a plan acquire the entire community and cash in on a strong demand for rental units.
Windy City RE LLC bought the apartments in 10 of the 14 buildings that make up Colonial Greens, 1958 W. Algonquin Road, said Milan Rubenstein, principal in the Chicago-based firm.

The deal marks the largest local acquisition for Windy City, which was started in 2010 and specializes in distressed assets that it buys and flips, though the 251 Mt. Prospect units were not distressed.

The firm owns about 480 units in the Chicago area, the majority of which are in smaller, city buildings, he said. Windy City also owns about 700 units in the Los Angeles area, where a predecessor venture was based.
Its timing has been good.

Demand for apartments has remained strong both downtown and in the suburbs as many people continue to favor renting over owning. The suburban occupancy rate rose to 95.1 percent in the first quarter, up from 94.7 percent a year earlier, according to Appraisal Research Counselors, a Chicago-based consulting firm.

“At over 95 percent, the suburban market overall is considered 'full,' indicating pricing will continue to escalate in spite of the modest amount of new supply being added,” the report said. “We expect occupancy overall to slightly increase in the near term with owners continuing to push rents.”

Windy City bought the Colonial Gardens units from an affiliate of Oak Park-based Shaker & Associates Inc.
Anthony Shaker, head of the real estate investment firm, said he bought three of the buildings in 1980 and seven others in 2001. He declined to disclose how much he paid.

“We thought we had pretty much maxed out our value and we wanted to sell if we had the right offer,” he said.

The price was about $72,000 per unit. The development is almost 100 percent leased, with rents in Windy City’s units ranging from $850 for one-bedroom units to $1,300 for three-bedroom units, Mr. Rubenstein said.
Windy City financed the acquisition with a five-year, $14.5-million loan from Hinsdale Bank & Trust Co., he said.
The transaction is a step toward returning the complex to a single owner, a key to Windy City's plan to increase the value of the development, which was constructed in the 1960s and sold off in chunks.

Windy City already owns 58 units in the complex. The firm acquired a 39-unit building in January 2010, paying about $2.2 million, and last November followed that deal with a $1.2 million purchase of a 19-unit structure. The combined price for the two transactions comes out to about $58,000 per unit.

Using its in-house construction crew, Windy City has already spent $750,000 upgrading fixtures and finishes in those buildings. The firm expects to spend an additional $3.5 million updating the newly acquired units, Mr. Rubenstein said.
The company is also under contract to acquire the remaining two buildings in the community — a total of 35 units — from separate owners, Mr. Rubenstein added. He declined to discuss the terms of those deals but said he expects the sales to close Aug. 1.

“Then it becomes an institutional-quality investment that you can sell to any REIT or any big buyer out there,” he said.
The firm hopes to sell the 344-unit property in about two years, he added.

Read more:
Stay up-to-date on Chicago real estate with our free, daily e-newsletter