Housing Bulletin-How One Developer Outsmarted the Condo Market
Six years ago, when Golub & Co., the Chicago-based real-estate development company, announced plans to build a high-rise rental-apartment building at 345 East Ohio Street, it seemed like a distinctly contrarian choice. At the time, virtually everyone with a piece of land downtown was building condo towers.
Look at how things have changed: Completed a year ago and dubbed the Streeter, the 481-unit building, now almost fully rented out, was sold last week to the State Teachers Retirement System of Ohio, reportedly for about $210 million. The sale comes at a time when the backlog of unsold condos is huge and developers are burdened with ongoing carrying costs.
Golub and its partners in the joint venture-New York's BlackRock and Boston's AEW Capital Management-had not planned to sell the Streeter this soon after finishing it. But Michael Newman, Golub's CEO, says he kept getting unsolicited offers to buy the 50-story green glass building. "We said, ‘No, we're not ready,' but it kept going," Newman says. "We got more offers, so we decided to look at selling sooner than we would have."
One thing that made the project appealing to buyers is that apartment rentals were running three to six months ahead of schedule, meaning the landlords' income stream is pumping. Contrast that with downtown condos that are selling very slowly. "I always believed there was a whole market out there of people who want to rent and aren't going to buy, regardless of the market," says Newman, while acknowledging that he and his partners did consider condos for the East Ohio site.
Newman notes that Streeterville's housing has historically been largely rental. "But that was all being pushed out by condos," he says. "You could count on one hand the good rental buildings that were left in the neighborhood." Newman says his company's next step is to start work on Streeter Place, next door to the Streeter. That building, too, will house apartments and should be finished in early 2009. "I sure hope [the rental market] is similar to how it is now," Newman says.