One Arlington – Crain’s Chicago

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Crain’s Chicago | Alby Gallun | July 9, 2020

Suburban hotel-turned-apartments for sale

The developer expects to sell One Arlington for about $75 million.

About six years after converting a Sheraton hotel
in Arlington Heights
into apartments, local developer Rick Cavenaugh has put the property up for sale.

Cavenaugh, president of Barrington-based Stoneleigh, has hired the Chicago office of CBRE to sell One Arlington, a 214-unit building at 3400 W. Stonegate Blvd., just down the street from the Arlington International Racecourse. He expects the property to fetch about $75 million, or about $350,000 per unit.

The once-strong local apartment investment market stalled out several months ago, after the
coronavirus spread to Chicago. Wary of making
a major acquisition during a time of extreme
uncertainty—not to mention traveling to and touring properties during a
pandemic—many investors put big deals on hold.

Cavenaugh had decided
to put One Arlington on the market
in early March,
but that plan “came to a screeching halt” because
of the pandemic, he said.

Four months later, big institutional investors are scouting for deals again,
and they don’t have many options, Cavenaugh said. So CBRE recommended that he put One Arlington
up for sale now. A recent
$54 million sale of a new multifamily complex in Lake Forest and another
property in Highland Park suggest
improved investor demand
for apartments, he said.

Brokers
at CBRE “were very encouraged by the activity on those,” he said.

Yet One Arlington has lost tenants because of the pandemic. The building is about 93 percent leased today, down from 97 percent in early March, as some tenants lost jobs and others moved away, Cavenaugh said. Traffic at the building’s leasing office is about one-third of normal levels for this time of year.

But rents are still about 8 to 10 percent higher than they were a year ago, he said. The average apartment in the building rents for $1,992, or $2.17 per square foot, according to a CBRE brochure. A higher proportion of tenants also are renewing their leases. “Renewals are off the charts,” Cavenaugh said.

The Sheraton fell victim to the last recession,
closing for good at the end of 2009. Cavenaugh
converted the hotel
into apartments in 2014, part of a larger redevelopment of the property expected to include a 102-room hotel,
rock-climbing gym and 263-unit apartment building developed by Chicago-based CA Ventures, the CBRE brochure says.

The pandemic and recession hasn’t stopped Cavenaugh, who has one multifamily development underway in St. Paul, Minn., and expects to break ground soon on another in Cleveland. He also plans a project in Glenwood Springs, Colo., near Aspen.