Chicago-area property sales rising even after record year
After setting a record last year for commercial real estate sales volume, the Chicago area isn’t slowing down in 2016.
Through the first third of this year, area properties had sold for a combined $6.29 billion, a 7 percent increase over the first four months of 2015, according to Real Capital Analytics. The Chicago area set a full-year record for sales volume last year, at $22.64 billion, according to the New York-based research firm.
The increased sales volume is surprising not only because it follows a record year but also because there has been an overall national slowdown in the early going this year. U.S. volume was down 18 percent through April.
“Deal flow can be lumpy sometimes,” said Jim Costello, a senior vice president at Real Capital Analytics. “Some of (the early 2016 results) can be fluky, when you’re talking about a few months.
“But I also think it’s a case of investors being hungry for yield, and when they see pricing in other major markets they become hesitant.”
The six major U.S. markets combined—Chicago, New York, Boston, Washington, D.C., San Francisco and Los Angeles—have a significantly lower first-year rates of return and bigger price increases than the Chicago area’s, Costello said. Cap rates fall as prices rise.
Buyers of Chicago-area retail properties, for example, would expect a 6.4 percent return, compared with 5.7 percent overall in the major markets, Costello said.
The area’s deal volume has varied dramatically by property type.
Following the record $1.3 billion sale of Willis Tower and the $712 million sale of the Aon Center last year, office sales volume is down 22 percent in 2016. Meanwhile, hotel and retail volume is up more than 50 percent.
“Willis Tower is in and of itself a mega-deal” similar in impact to a multibuilding portfolio sale, Costello said. “There’s not too much else that big that could transact.”
Hotel volume is up 57 percent, boosted by the $315 million sale of the recently opened LondonHouse hotel at 360 N. Michigan Ave., which set a Chicago record at $697,000 per room.
Retail sales increased 54 percent in the first four months, with completed deals including the $130 million sale of the Blackhawk on Halsted retail and medical office property in the Clybourn Corridor and a $66 million deal for the Oak Brook Promenade in the western suburbs.
The apartment market is down 2 percent from 2015’s pace but also has seen a record deal in early 2016. The tower at 850 N. Lake Shore Drive sold for $140 million, a Chicago record at $707,000 per unit. Also in Streeterville, the 50-story tower at 340 E. North Water St. sold for $240.3 million.
Warehouse sales were 4 percent ahead of last year’s pace, helped by the $105 million sale of a six-building portfolio in Roselle and Skokie, and a $59.5 million deal for neighboring warehouses in McCook.
Source: Crains Chicago Business Ryan Ori June 13, 2016