The Chicago Tribune reports:
Interest rates are rising fast and that could mean one of Chicago's hottest industries, commercial real estate, is in for an unexpected chill that threatens to drag down property values much like the current malaise in the housing market.
The interest rate hike, fueled by rapidly rising Treasury bond yields that recently hit 5-year highs, may already be changing the game in one of the largest single Chicago-area property sales ever -- Blackstone Group's sell-off of a 22-building portfolio it purchased from Equity Office Properties Trust in February.
Some industry experts are saying that the mix of downtown and suburban office space Blackstone had hoped to sell for close to $3 billion will not draw as many bidders nor reap the price it would have just a few months ago.
"Blackstone will get $200 [million] or $300 million less than they would have two months ago and probably four investors bid on the entire portfolio rather than the 10 or 12," said one bidder, Zaya Younan, Chief Executive of Younan Properties in Woodland Hills, Calif.
To put the recent speculative bubble in perspective:
Average asking rents downtown are about the same as they were seven years ago, $27.80 per square foot a year, but the metropolitan-area vacancy rate at the end of the first quarter was 16 percent, weaker than the 11.8 percent at the end of 2000, according to the Chicago real estate firm Jones Lang LaSalle.
Since Chicago's been losing jobs the last 5 years you have to wonder what's the need for new office space downtown.
