The investment strategy of buying properties in bulk and selling them one by one is working out pretty well for Speedwagon Properties.
About two years after paying $135.5 million for a diverse portfolio of 16 properties, the Chicago-based real estate investment firm has been selling them off individually for hefty gains. In its most recent sale, Speedwagon last month sold Brookview Village, a 425-unit apartment complex in Glenview, for $73 million to Atlas Residential, a Chicago-based investment firm, according to Cook County property records.
That’s 52 percent more than the $48.1 million Speedwagon paid for the property as part of the August 2015 portfolio deal. The 2015 acquisition, from Northfield-based Raymond & Associates of Illinois, included shopping centers in Kenosha, Wis., a San Diego office building and apartments in Evanston—and a big opportunity for Speedwagon to break up the portfolio.
“All we did was execute on our business plan,” said Steve Khoshabe, managing director at the firm. “When we bought the portfolio, we bought it because we thought the parts were worth more than the whole.”
That bet is paying off so far. In April, Speedwagon sold a 19-unit apartment building in Northwest Evanston for $3.6 million, more than three times the $1.1 million it paid for the property as part of the 2015 acquisition, according to Real Capital Analytics, a New York-based research firm. In August 2016, the company sold a 37-unit building in Southeast Evanston for $11.0 million, up from the $7.2 million price in the Raymond deal, according to Real Capital.
Investors often boost the value of apartment buildings by renovating them and hiking rents. Speedwagon spent some money fixing up Brookview Village, which was built in 1972. But it didn’t have to do much to justify raising rents because they were well below market rates when the firm took over the property, Khoshabe said. He estimates that Speedwagon has raised rents there by 15 to 20 percent.
“All we did was take (the rents) to market,” he said. “We did not believe the portfolio was managed properly when we bought it.”
Khoshabe said Brookview Village is ripe for a major renovation, an opportunity for Atlas to boost its value further. Atlas financed the acquisition with a $64.9 million mortgage from TPG Real Estate Finance Trust, according to county records. An Atlas executive did not return a call.
Though Speedwagon has been lending money to other investors recently, it isn’t buying as much these days. In June, the firm sold a 45,400-square-foot loft office building in River North for $12.8 million.
Considering how much prices have risen, the margin of error for investors has narrowed, Khoshabe said. And he’s wary of buying in Chicago and Illinois, given the city and state’s fiscal problems.
“We’re a net seller of real estate today,” he said. For deals to work out, “it seems like lot of things have to continue to go right.”