After completing its $180 million acquisition of Prairie Shores—the biggest Chicago apartment property to change hands since 2007—Golub and its partners could face a difficult balancing act.
Changes are coming to one of the biggest housing developments in Chicago, but what they’ll look like is up in the air.
The new owners of Prairie Shores, a 1,675-unit apartment complex south of McCormick Place, plan to spend the next few months putting together a plan for the five-tower property, said Michael Newman, president and CEO of Chicago-based Golub, one of the investors. On Nov. 1, Golub and its partners, Chicago-based Farpoint Development and New York-based Goldman Sachs, completed their acquisition of Prairie Shores, the first time the 20-acre complex has changed hands since it was completed in 1961.
“Our plan is to take the next few months to get a real understanding of what goes on at the property, what goes on in the neighborhood,” Newman said. “We’re going to do outreach to the residents to find out what people would like to see . . . We don’t really have a specific plan.”
Prairie Shores is the largest Chicago multifamily property to trade since the 2007 sale of Presidential Towers, a 2,346-unit project in the West Loop. Newman declined to disclose a price, but real estate data provider Real Capital Analytics pegged it at $180 million, or $107,000 per unit.
The Golub joint venture acquired the property from Draper & Kramer, the Chicago-based firm that developed it. The project dates back to the urban renewal era, a controversial period when cities razed entire neighborhoods of deteriorating low-rise rental buildings, displacing their mostly African-American tenants, and built modern residential high-rises and public housing projects in their place.
The neighborhood offers the kind of emerging market dynamics that many investors seek out. To the north, in the neighborhood around McCormick Place, the city is trying to encourage the development of a entertainment district, anchored by the Wintrust Arena and new hotels. To the east sits the site of the former Michael Reese Hospital, where a Farpoint joint venture plans a massive mixed-use complex comprising as much as 12 million square feet, “Whatever is done there is going to continue to enhance the neighborhood,” Newman said.
Prairie Shores, which went up for sale in February, sits within an opportunity zone, part of a federal program to attract investment to poorer neighborhoods. Investors can reduce capital-gains taxes if they own or develop property in opportunity zones.
But Golub and its partners are not financing their Prairie Shores investment with opportunity zone funds, Newman said. Goldman Sachs Urban Investment Group, which invests in underserved communities, is the largest equity partner in the Prairie Shores ownership venture.
The new owners could face a difficult balancing act. They want to increase the property’s value, but could face blowback if they hike rents too much. Apartments there are relatively affordable, with the average unit renting for $1,158 per month, or $1.91 per square foot, according to a brochure from HFF, now part of Jones Lang LaSalle, the broker that arranged the sale. The property is 94 percent occupied.
Apartment investors will often boost the value of properties they acquire by fixing up their apartments and adding new amenities and then raising rents. That would be an option at Prairie Shores: Draper & Kramer has already refurbished 54 apartments there; renovated units now rent for $260 more per month on average than unrenovated ones, the HFF brochure says.
With the brewing debate over gentrification and affordable housing in Chicago, Golub and its partners will need to be careful if they decide to go that route, doing it in a way that doesn’t raise the ire of housing activists and politicians. Their go-slow approach shows an awareness of the potential sensitivities.
“We’re not going in with too many pre-conceived ideas,” Newman said. “We want to get the feedback.”