Now that New York-based capital is heading our way, it’s clear Chicago is no longer the second city for multifamily. (Though our hot dog cred could plummet when Hot Doug’s closes.) Castle Lanterra Properties, the latest entrant into our apartment scrum, says value-add opportunities are still rife when it comes to Windy City apartments.
Castle Lanterra Properties just paid $28.5M (9% cap rate) for 425-unit Southgate Apartments in Mount Greenwood, assuming an existing $17M Fannie Mae loan that matures in 2021. (We're also thinking we might reach maturity by then, but it's unlikely.) Head of acquisitions Ben Loney tells us the New York family office (based in Manhattan and Suffern), headed by Elie Rieder, has targeted the Chicago MSA for over a year and a half, and this off-market deal gave it an opportunity to dive in. The urban infill property had an attractive yield, Ben says. Owned by a family for over 25 years and 95% occupied, the property (below) has a lot of low-hanging fruit that Castle Lanterra will target with $2.6M in planned upgrades, he says.
The Chicago area has the uplift the firm is looking for in terms of job growth, demographics, and real estate fundamentals, Ben says. Institutional money has had eyes on Chicago’s 400-unit to 500-unit projects over the past year and development continues to boom downtown, so going forward Castle Lanterra plans to stick to garden-style deals in the ‘burbs (200 units-plus and $25M-plus). The suburbs will be insulated, and steadily improve, if downtown overbuilds in the next few years, Ben tells us, and he’d hope to acquire at least another two or three properties over the next year.
A poker enthusiast who tries to join as many tournaments as time permits, Ben understands the value of knowing the motivations of your fellow players. For Castle Lanterra, which buys value-add, renovates and stabilizes at a higher yield, and holds long-term, this means focusing on the tenant. At Southgate, the stable tenant base of young professionals and families looks for up-to-date units, amenities to enhance the experience, and an easy commute. Studios rent for around $650 to $700/month, while two-bedrooms rent for $1,150/month. Between all of its entities and affiliates, Castle Lanterra has a 5,000-unit-plus portfolio with a strong presence on the East Coast (Northeast, Mid-Atlantic, Florida).
