By: Alby Gallun December 29, 2010
(Crain’s) — J. P. Morgan Asset Management has agreed to invest about $182 million in the apartments in the 82-story Aqua tower, the biggest local multifamily deal in more than three years.
Magellan Development Group LLC, the developer and owner of the prominent high-rise near Millennium Park, has agreed to sell to the New York investment firm an unspecified majority stake in the building’s 474 apartments, parking and commercial space, according to people familiar with the transaction.
Chicago-based Magellan hooked up with J. P. Morgan after Dallas-based Behringer Harvard Multifamily REIT I Inc. in September backed out of a $189-million deal to buy a 75% stake in the skyscraper at 225 N. Columbus Drive.
Though big apartment investors went into hiding during the financial crisis, they have returned with enthusiasm this year, emboldened by an improved lending climate and occupancies and rents that have risen faster than many expected.
The Aqua sale “demonstrates that there is significant demand by institutional investors to buy multifamily assets in core locations,” says Ron DeVries, vice-president at Appraisal Research Counselors, a Chicago-based consulting firm.
A Magellan executive declines to confirm the sale to J. P. Morgan Asset Management, a unit of J. P. Morgan Chase & Co. Representatives of J. P. Morgan did not respond to requests for comment.
The transaction ranks among the top 10 apartment sales in the country this year, according to New York-based Real Capital Analytics. And it’s the biggest in the Chicago-area since August 2007, when a New York investor paid $218 million for One Superior Place, an 809-unit building in River North, according to Appraisal Research.
The sale would allow Magellan to pay off the $175-million balance on the construction loan that financed Aqua, an internationally acclaimed tower with distinctive wavy balconies that was completed last year.
Magellan had sold 206, or 79%, of the building’s 262 condominiums by the end of the third quarter, according to an Appraisal Research report. In November, the developer formed a joint venture with Carlson Hotels Worldwide to build a 334-room Radisson Blu hotel in the tower.
Aqua’s apartments are among the most expensive in the city, with one-bedroom units ranging from $1,508 to $2,445 a month and two-bedrooms renting for $2,792 to $3,241, according to Appraisal Research.
The building’s average net effective rent, which includes concessions, was $2.83 a square foot in the third quarter, the second-highest among downtown buildings tracked by Appraisal Research. Aqua’s apartments were 97% occupied.
Demand for apartments has been strong this year as many would-be condo buyers rent instead, and a lack of new development should allow landlords to keep hiking rents in 2011.
Strong investor demand, meanwhile, is pushing up prices of apartment buildings in big cities across the country, but few downtown landlords here so far have opted to sell. Just one big downtown apartment tower, the 298-unit Burnham Pointe in the South Loop, has sold this year.
“If you’re looking at a window to sell your property, now is the time to do it,” Mr. DeVries says.
Still, with interest rates climbing again, that window could start to close.
“For buyers that are using leverage,” he says, “it’s going to be a lot more difficult to pay these prices.”