Crain’s chicagobusiness.com - January 16, 2008

Newcastle Buys Portfolio of Chicago Apartment Buildings

CHICAGO - Newcastle Ltd., one of the most active North Side apartment buyers in the past year, is paying $122.5 million for a seven-building, 886-unit portfolio in Lakeview and Lincoln Park.

The purchase from an affiliate of Wexenthaller Realty Management will be the largest apartment acquisition by Newcastle since late 2006, when the Chicago-based firm raised $500 million to buy small- to mid-sized properties primarily in North Side neighborhoods. To this point, Newcastle has been amassing its portfolio mainly by buying one or two properties at a time.
“It was a rare opportunity for us to acquire a substantial portfolio of assets in outstanding locations,” says Newcastle President and CEO Michael Haney.

The centerpiece of the Wexenthaller portfolio is Belmont House, a 13-story building at 3170 N. Sheridan Road that overlooks Lake Michigan. Built as a hotel in 1924, the property has 269 apartments and a 97% occupancy rate.

Newcastle completed its $56-million acquisition of Belmont House on Tuesday and expects to close on the other six properties in the next 30 days.

The six buildings are: a 146-unit property at 425 W. Surf St.; 707 W. Sheridan Road, with 143 units; 510 W. Wellington Ave., 90 units; 532 W. Roscoe St., 75 units; 3610 N. Pine Grove Ave., 48 units, and the Arlington House, a 115-room youth hostel at 616 W. Arlington Place.

Though the condominium market is in a slump, apartment landlords have done well the past couple years as solid job growth has boosted demand for apartments and would-be homebuyers have decided to rent instead. Apartment rents rose more than 9% in Lakeview, Lincoln Park and the Gold Coast last year and could increase as much in 2007, says Lee Kiser, principal of Kiser Group, the Chicago-based apartment broker that represented Newcastle in the transaction.

The Wexenthaller properties were not on the market, but the firm decided to sell because of the attractive price, says Wexenthaller President Bruce Wexler. The Chicago-based company also negotiated a deal to retain management of the properties, which employ about 55 people.

Another plus: Newcastle was willing to assume debt on the properties.

“It was good for us because we didn’t have to deal with any prepayments and it was good for them because the rates (on the existing loans) were low,” Mr. Wexler says.

Newcastle has adopted an unusual strategy: raising money from large institutional investors and spending it on smaller properties in neighborhoods like Uptown and South Shore, markets usually foreign to institutions like Principal Financial, a Newcastle investor.

With the Wexenthaller transaction, Newcastle will have acquired about $200 million in properties of the $500 million it expects to invest, Mr. Haney says.

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