The Vanbarton Group sold Streeterville’s historic The Seneca, a 267-unit apartment building at 200 E. Chestnut St., for $55 million, according to Cook County property records.
That’s a big markdown for the New York-based investor, which paid $74.8 million for the 16-story tower in 2014, but taking such hits is not unusual these days. Even though Chicago’s downtown apartment sector is healthy in many ways, with high occupancy, a busy construction schedule and rising rents, higher interest rates have made apartment buyers wary.
“The market’s fundamentals are incredibly strong,” said Ron DeVries, senior managing director of Integra Realty Resources. “We’re seeing occupancy rates that are very high, and absorption of new product is going strong, but people just can’t pay what they paid a few years ago because the cost of debt is so high.”
The Federal Reserve hiked interest rates throughout 2022 and the first few months of this year in a bid to tame inflation, making it more costly to borrow the funds needed to close real estate deals.
Worries about taking on large debts were visible last month when real estate developer Crescent Heights paid $173 million for Streeterville’s North Water Apartments, seven years after Invesco paid $240 million for the 398 units at 340 E. North Water St., property records show.
“I think they’re paying prices that make sense in the current interest rate environment,” DeVries said.
Downtown Chicago’s occupancy rate for Class A apartments was 94.2% in the first quarter of 2023, and 94.9% for Class B buildings such as The Seneca, Integra data show, and DeVries said he expects those percentages to increase in the second quarter.
The Vanbarton Group did not return a call seeking comment.
California-based FPA Multifamily, the Seneca’s new owner, is no stranger to Chicagoland. It owns several apartment complexes here, including Arrive Streeterville at 333 E. Ontario St. and Arrive Glenview at 2550 Waterview Drive in north suburban Northbrook, among others.
The Seneca, a former hotel completed in 1924, should be a moneymaker. It is less than 1% vacant, according to CoStar, with average asking rents ranging from $1,500 per month for a studio, and slightly more than $3,000 for its 15 two-bedroom units.
Investment in downtown’s apartment market came to a near-complete halt early in 2023, totaling just $8 million in the first quarter, CoStar found. But investors quickened their pace in the past few months, spending more than $400 million.
The rest of the year could be slow for new investment, with many potential buyers worried about high crime or possible property tax increases. But with roughly 4,800 units under construction, and renters lining up to sign leases, a CoStar analysis of downtown concludes both the Loop and the Near North Side are likely to remain among the fastest growing areas in the nation.
“Though it may curb investor demand, headlines of crime and high taxes do not seem to curb renters from wanting to live here.”
