CEDARst Companies, a Chicago based developer, has refinanced the Duncan Apartments, located at 1515 W. Monroe Street, with a $44,000,000 CMBS loan from Citigroup, arranged by Berkadia.
The first mortgage loan for Duncan Apartment is fixed at 6.67% over a five-year term. The Chicago based real estate development firm redeveloped the 260-unit apartment complex in 2020. A $51,500,000 existing first mortgage from New York-based ACRE was fully repaid. Additional equity was secured via a large, midwest based, family office.
“CEDARst is a top tier borrower of ACRE’s who has continued to perform extremely well, despite a very challenging and difficult capital markets environment,” said Daniel Jacobs, Managing Partner at ACRE.
The timing resulted in a protracted lease-up of the property. In reference to the urban exodus that occurred during the pandemic, Will Murphy, CEO of CEDARst Companies commented, “If you delivered urban product in a major metro, north of the Mason-Dixon line, you had a fight on your hands.”
In addition to the challenges resulting from the pandemic, rapidly increasing rates over the last two years have left developers wrangling with costly debt and the inability to refinance.
“In a majority of instances, we were cautious and secured long term, fixed-rate financing, when the market was more favorable. However, floating rate debt is inevitable in our business,” said Murphy. “ACRE has been an incredible partner over a very difficult period.”
“Given current market conditions, we are pleased with the results of this transaction,” Murphy added. “The loss of value due to the rate environment is causing systemic deleveraging across all asset classes, in all markets,” he went on to say.
CEDARst manages a portfolio of nearly 7,500 units, across eight states, throughout the country. They operate over 4,000 units in Chicago alone, with a recent focus on the West Coast and South Florida.
“Chicago has its own set of unique challenges. It has become very difficult to develop real estate, there is no capital flow for new projects,” Murphy said.
The supply of multifamily units is predicted to drastically decline into 2025 and 2026. Both years are expected to fall well below Chicago’s 10-year average. However, the resulting lack of supply, has placed Chicago among the nation’s best multi-family markets. As of Q4 2023, Chicago’s year-over-year rent growth is about four times the national average at 2.5%.
Referring to supply and demand fundamentals in Chicago, Murphy went on to say that the dynamic has resulted in a “once in generation,” investment opportunity. “The smart money, willing to make a contrarian bet is starting to enter the market, they are going to do very well on existing supply,” he offered. As for Chicago’s prospects regarding future development, “Chicago will be back, it is and always will be a world class city. It’s going to take some time,” Murphy concluded.
