Crain’s Chicago Business

Rendering of 676 N. Lasalle designed by Booth Hansen

River North apartment project lands $39 million loan

One of Chicago’s most prolific apartment developers scored a $39 million construction loan for a 149-unit project in River North.
Cedar Street borrowed the money for the $52-million development at 676 N. LaSalle St. from Seattle-based Washington Capital Management, according to Cook County property records. Cedar Street plans to convert an existing six-story office building into apartments and connect it to a new rental building that will go up on a parking lot next door.

Cedar Street is adding to a full pipeline of apartment projects in downtown Chicago, with developers expected to complete about 8,000 units in 2017 and 2018. Cedar Street has joined frenzy, with two other downtown buildings in the works, including one about three blocks from LaSalle Street project.

Developers say it has become harder to secure construction loans for new downtown apartment projects as lenders have grown wary of overbuilding and regulators have increased their scrutiny of banks. Some banks are unwilling to finance a new building because they’ve already hit their maximum loan allocations for downtown Chicago.

Securing a construction loan “was difficult in 2016, and I think it has proven to be as difficult in 2017,” said Will Murphy, managing partner at Chicago-based Cedar Street. “You have to be a very qualified sponsor. We’ve gotten creative about looking outside the traditional local or regional bank (market).”

That approach brought Cedar Street to Washington Capital, a wealth management advisory firm that had little if any construction lending business in Chicago. A Washington Capital executive was not immediately available.

Apartment developers have flourished the past several years as strong demand has driven up occupancies, rents and property values. But supply now is outpacing demand, pushing the occupancy rate for the most expensive downtown buildings to its lowest level since 2009. Still, Murphy doesn’t see trouble ahead.

“The rent growth curve is obviously going to flatten out, but we’re still confident that the product is going to be absorbed,” he said.

That product to be absorbed includes the former Bush Temple of Music, a vintage building at 800 N. Clark St. that Cedar Street has converted into 100 apartments. The property will open in a couple months, Murphy said.

Cedar Street also plans to break ground in the third quarter on a 125-unit apartment tower behind the Bush Temple building. And the Chicago developer is in the final stages of lining up construction financing for a 175-unit redevelopment of a vintage office building at 30 E. Adams St., best known as the home of Miller’s Pub, Murphy said.

“We are on the one-yard line,” he said.

Cedar Street began work on the LaSalle Street project in January and expects to complete construction in late summer of 2018, Murphy said. Like other Cedar Street buildings, the River North development will include small apartments, with an average size of 500 square feet, Murphy said. The smallest units will start at 350 square feet, he said.

Cedar Street is betting that the strategy will differentiate the building in an increasingly crowded market, attracting renters who want to live downtown but are willing to give up space to save money.

“It gives us a pretty distinct advantage,” Murphy said.

Crain’s Chicago Business—Alby Gallun


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