CHICAGO—A few years ago, American investors in office properties went on a buying spree in the Chicago metro area. Their interest has cooled somewhat as prices have increased in Chicago and other gateway markets, and many have now decided to focus on quality assets in secondary markets. However, Chicago remains on the radar screens of foreign investors that look to US commercial real estate for investment safety.
According to data from Transwestern, 2017 is on track to have at least 20% of the total volume of investment, (with a net volume of about $308 million as of mid-November), be from foreign buyers. Chicago received a net volume of over $231.3 million in foreign investment in 2016, accounting for 12% of the total investment in Chicago office properties.
To date, investors from China lead the pack – spending $375.5 million to purchase 10 properties in the Chicago area. Canadians invested the second most with $163 million for two properties, followed by Swiss buyers with $27.8 million for one property. German investors bought one property for $9.2 million.
Cap rates in the Chicago region have increased significantly in the past year, Transwestern finds. In 2016, rates had sunk to around 6.6%, or almost as low as the US average. But in 2017, the Chicago-area rates jumped around 100 bps while the national rates only saw a slight increase.
Still, “the Chicago market is stronger than a decade ago, and there are still many opportunities to grow portfolios across multiple asset classes,” Transwestern says. The tech market, for example, remains remarkably strong, and owners of brick-and-timber assets in tech-centric neighborhoods such as River North and River West have seen major returns on investments.
In the third quarter, 116 W. Hubbard St. an eight-story, 33,858-square-foot River North building, sold for $7.5 million to 116 W. Hubbard LLC, Transwestern finds. This building's last sale on record was for $995,000 in 2001. Furthermore, 730 N. Franklin St., the Central Arts Building, a class C, 88,600-square-foot creative office building sold for $23.3 million. The last sale on record was for $814,500 in 1999.
But traditional class A tower assets have also created recent opportunities for investors. The sale of the iconic 150 N. Michigan Ave. property was the largest sale in the third quarter. It sold for $120 million to CBRE Global Investors, according to Cook County records, a relatively healthy boost for John Hancock Real Estate, which paid $102 million for the building in 2012.
But some suburban properties have also attracted interest. Stonemont Financial, the top suburban investor in the third, bought a portfolio from Oak Street RE Capital. Among its acquisitions was the $79.5 million 517,000-square-foot office portion of the Motorola headquarters campus. Also included was 1200 Lakeside Dr. in Bannockburn, IL, which cost $77 million, or about $300 per square foot.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
