New Evanston Apartment Building Sells for $70 Million

Author: Alby Gallun, Crain's Chicago

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The developers of a brand-new 175-unit apartment building in Evanston sold the project for a hefty gain even before leasing up the project, a sign of the strong investor demand for multifamily properties in the Chicago suburbs.

Atlanta-based pension fund adviser Invesco Ltd. paid about $70 million for the eight-story building at 1717 Ridge Ave., according to people familiar with the transaction. At $400,000 a unit, it is likely the highest per-unit price ever paid for a suburban Chicago apartment property.

Invesco acquired 1717 Ridge from a joint venture of Northfield-based Focus Development Inc., Atlanta-based Atlantic Realty Partners and Carlyle Group of Washington.

The venture didn't waste any time selling the building, which opened in April and is about 75 percent leased. It was in a hurry because it wanted to find a buyer before interest rates jumped, said Atlantic Realty President Richard Aaronson. The group also wanted sell the building before the fall selling season, when apartment investors often have a lot more properties from which to choose.
“We were trying to get out ahead of that,” he said.

The group broke ground on the project in May 2012, after landing a $12 million equity investment from Carlyle and a $31.4 million construction loan from RBS Citizens N.A. That implies a total cost in the $43 million range, but Mr. Aaronson said the development cost more because of changes to the building and a back-end fee the venture had to pay the previous owner of the development site.

'GOOD OUTCOME'

He declined to disclose the cost or identify the buyer but said the sale was “a good outcome.”

Invesco acquired 1717 Ridge on behalf an institutional client, said T. Gregory Kraus, managing director of acquisitions for the firm. He declined to disclose the client or price.

Invesco liked the building because of its location in north suburban Evanston, home of Northwestern University.

“It’s got a combination of schools, something of an urban core, while not urban Chicago, and provides a nice live-work environment for our residents and great proximity to transit,” Mr. Kraus said.

Invesco knows Evanston well. It owned the Reserve at Evanston, a 193-unit apartment complex just a few blocks from its new building, in a joint venture with Atlantic Realty, selling it in August 2011 for $55.6 million.

“We had a very good experience with that asset,” Mr. Kraus said.

The building, just northwest of downtown Evanston, is one of three new apartment developments in the north suburb. Apartment construction has picked up in the suburbs, especially in Evanston. A venture including Chicago-based developer Fifield Cos. plans a fourth project with 368 units just a few blocks from 1717 Ridge.

With the additional supply, “our sense is there will be a little bit of choppiness in the market,” Mr. Kraus said. “We’d be naïve to assume there will not be an effect.”

Yet he’s not concerned, saying the Evanston apartment market will remain strong over the long term. He expects rents at 1717 Ridge to rise in the low single-digit percentage range annually.

The construction pipeline has started to fill up again amid high occupancies and record rents in the suburbs, the same reason investors have been bidding up prices of suburban apartment buildings.

Yet rents only rose 3.7 percent in the two years through the end of June on the North Shore, a submarket that includes Evanston, according to Appraisal Research Counselors, a Chicago-based consulting firm. Suburban rents overall rose 6.3 percent over the same period.

MARKET UNTO ITSELF

But Evanston is a market unto itself, with Northwestern and its proximity to Chicago boosting demand for apartments there. Mr. Aaronson estimated that a little less than 25 percent of 1717 Ridge's leased units have been rented to Northwestern students, faculty and staff. Some empty-nesters from the North Shore also have leased units in the building, he said.

Mr. Aaronson said net rents at the property exceed $2.50 a square foot, which would make it one of the most expensive apartment buildings in the suburbs, if not the most expensive. Rents for one-bedroom units range from $1,513 to $2,085 a month, according to Appraisal Research.

“It's been a very robust leasing process, robust enough that the buyer felt comfortable completing the transaction on the assumption that the leasing process would be complete within a reasonable time frame,” Mr. Aaronson said.

Peter Evans, partner at Moran & Co., the Chicago-based brokerage that sold the property, declined to discuss the transaction.

On the south side of Evanston, Amli Residential is leasing up a new 214-unit apartment development at 737 Chicago Ave. The building is 41 percent leased and 23 percent occupied, said Greg Mutz, CEO of the Chicago-based apartment landlord.

“Things are going pretty well,” he said.

Mr. Mutz isn't worried about competition from new developments in Evanston, saying demand is strong enough to absorb the additional apartments.

“I'd rather have no new supply,” he said. But “I think we're OK.”

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