Newcastle Ltd. more than tripled the debt on two North Side apartment buildings, to nearly $27 million, betting that rents will continue to surge along the city’s fashionable lakefront.
The new loans on 707 W. Sheridan Road in Lakeview and 532 W. Roscoe St. in Lincoln Park replace loans with a combined balance due of about $7.9 million. The two properties total 221 units.
The refinancing allows the Chicago-based real estate firm to recoup money spent on a substantial upgrade of the two properties while at the same time put some cash in its pockets.
Since acquiring the properties in 2008 as part of a portfolio deal, Newcastle has spent $6.5 million on renovations and improvements, including redecorating lobbies and hallways, adding fitness centers, replacing appliances and installing new boilers in the structures, according to Kent Swanson, chief financial officer and senior vice president at Newcastle.
“With rates being where they’re at, and with us creating a tremendous amount of value, we were able to add significantly to the loan,” he said.
Newcastle refinanced the buildings to raise money for new acquisitions and developments, he added.
The loans, totaling $26.9 million, were issued by a unit of New York-based JPMorgan Chase & Co. and replace separate commercial mortgage backed securities (CMBS) loans Newcastle assumed when it bought the properties five years ago, he said.
The 30-year loans have an interest rate of 4.27 percent, Mr. Swanson said.
The dramatic jump in borrowing power reflects both the added value of the improvements and the continued escalation of rents in some of the city’s most desirable areas.
“That’s a giant increase in leverage,” said Ben Kadish, president of Maverick Commercial Mortgage Inc. in Chicago, who wasn’t involved in the deal.
The properties have performed well in recent years, according to reports on the CMBS loans, which Newcastle agreed to “defease,” or structure a fund to pay those down.
At 707 W. Sheridan, with 151 units, net cash flow hit $1.4 million last year, a 35 percent increase vs. 2008, according a Bloomberg L.P. report on the CMBS loan on that building.
At 532 W. Roscoe, with 70 units, net cash flow was $642,168 in 2012, up more than 36 percent over 2008, according to a Bloomberg report about the loan on that building.
Mr. Swanson declined to discuss rent increases at the properties in recent years but said rates were among the highest in the market.
A one-bedroom at 707 W. Sheridan, for example, now costs between $1,390 and $1,420 a month, according to data the firm provided.
(Source: Crain’s Chicago Business)