But dealmaking in the Chicago area has lagged the nation overall—where sales rose by 59% year over year through August and is trending well ahead of 2019 figures—illustrating the longer recovery for commercial real estate in big cities as well as the impact of property tax uncertainty, fiscal instability and high levels of crime that continue to plague Chicago.
Local sales activity this year has shown how big an appetite buyers have for some types of properties and how averse they are to others. Even with ample capital waiting to be deployed and debt relatively inexpensive, few investors appear ready to gamble on buildings whose future remains uncertain 19 months into a historic public health crisis.
“The investment world right now is split into two categories. The markets have decided what is a safe yield, and what’s not a safe yield,” said Andy Farbman, whose Detroit-based real estate investment firm Farbman Group paid $16.4 million last month for the 25-story office building at 100 N. LaSalle St. “There’s a run toward safety . . . and then there’s this other world where people don’t know what to pay for something, and part of that is because they don’t know what it’s going to be worth on the other side.”
Real Capital’s Chicago-area figures showcase the disparity between what buyers want and what they don’t.
Leading the way by far in sales this year is the industrial sector, a property type that was already on fire before the pandemic as online shopping grew, and demand soared for places to store and distribute goods purchased on the internet. COVID supercharged that trend, and investors have flocked to the stability of warehouses, with $3 billion worth of industrial properties sold locally through August—20% more than the same period in 2019.
Among the big deals: Industrial giant Prologis paid nearly $100 million in March for the fully leased, 339,000-square-foot warehouse at 930 W. Evergreen Ave. on Goose Island, and Miami-based Scout Capital Partners in July bought a big, cold storage facility at 4220 S. Kildare Ave. on the city’s Southwest Side for almost $95 million—roughly double what the sellers had invested in the building, including the purchase price, since 2006.
The apartment sector has also come on strong in 2021 as tenants came rushing back this summer, driving up downtown rents to all-time highs after they plunged in 2020. Investors purchased $2.1 billion worth of apartments in the Chicago area through August, surpassing the full-year 2020 local sales volume.
Much of the recent surge has come from suburban apartment deals rather than downtown, where Cook County Assessor Fritz Kaegi is taking his first crack this year at reassessing property values. Those are expected to drive up the tax burden for commercial properties based on Kaegi’s reassessments over the past two years, which is likely scaring off some buyers, said Ron DeVries, senior managing director in the Chicago office of consulting and appraisal firm Integra Realty Resources.
“When you get an assessment …….