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Inland unit buys Dwell at Naperville apartments from Redwood Capital – Crain’s Chicago Business

A Chicago apartment investor has cashed out of a Naperville complex for nearly $123 million, the most paid for a multifamily property in the Chicago suburbs in three years.

Redwood Capital Group sold Dwell at Naperville, a 400-unit property in the western suburb, in September to a unit of Oak Brook-based Inland Group, according to DuPage County property records. The sale generated a hefty gain for Redwood, which bought the property for $84 million in February 2017, county records show.

The deal highlights the strength of the suburban Chicago apartment market, which has flourished through the COVID-19 pandemic as other property sectors have struggled. Suburban occupancies, rents and property values have risen over the past couple years, creating a selling opportunity for landlords ready to harvest some profits. In June, an Ohio investor sold Glenmuir of Naperville for more than $103 million, 66 percent more than the $61.8 million it paid for the 321-unit property in 2014.

Multiple other big suburban apartment complexes are on the market, including several in Naperville, like the Iroquois Club, with 272 units, and the 474-unit Views of Naperville. In Wheaton, the Retreat at Danada, with 295 units, went on the block earlier this year. Two properties in Evanston are also for sale: 1717, with 175 units, and the 193-unit Reserve at Evanston.

Redwood Capital, which owned Dwell in a venture with Boston-based State Street Global Advisors, hasn’t lost its appetite for properties in suburban Chicago, recently acquiring Brook Run, an 182-unit complex in Arlington Heights. A Redwood executive did not return a call, and an executive at CBRE, which brokered the Dwell sale, declined to comment.

An Inland representative also declined to comment. An investor group led by Inland acquired Dwell through its Inland Private Capital business. The unit helps investors who sell commercial real estate defer capital gains taxes on the deals by plowing the sale proceeds back into another property.

Dwell, which opened in 1997, is on the north side of Interstate 88 at North Washington Street. The property was 96.8 percent occupied when it went up for sale in May, according to a CBRE marketing brochure.

Redwood and Dwell’s previous owner spent more than $5 million on capital improvements at the property, but CBRE pitched the complex as a so-called value-add investment, a chance for an investor to boost the property’s income and value by renovating its apartments and hiking rents.

 

Including concessions, net rents at Dwell range from $1,620 per month for a one-bedroom unit to $2,061 for a two-bedroom, according to real estate information provider CoStar Group. Its net rent dipped as low as $1.76 per square foot in third-quarter 2020 but jumped 17% to $2.06 per square foot in third-quarter 2020, according to CoStar.

Inland paid $122.5 million, or $306,000 per unit, for Dwell, DuPage County records show. That’s the most paid for a suburban Chicago multifamily property since October 2018, when Wheaton Center Apartments sold for $131 million, according to Real Capital Analytics, a New York-based research firm.

Amid a pandemic that has disrupted the commercial real estate market, apartments and industrial have become a favored property types among investors, said Ron DeVries, senior managing director in the Chicago office of Integra Realty Resources, a consulting and appraisal firm.

The suburban apartment market offers investors growth, with rents up 7 percent at the end of June from a year earlier, he said. Though the downtown apartment market has bounced back from a rough 2020—one reason downtown investment activity is picking up, too—some investors are wary of buying there amid uncertainty over property taxes. Cook County Assessor Fritz Kaegi has hiked commercial property tax assessments in the city this year, and many investors are bracing for a big jump in their 2022 tax bills.

By comparison, apartments in DuPage County look like a safer investment right now, even though taxes there aren’t especially low, DeVries said.

“Taxes in DuPage County have gone up a lot in the last five years, but at least you know where they are so you can work them into your model,” he said. “They’re not cheap, but they are a known quantity.”

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