Of its $11-billion portfolio, the REIT has 3,780 units in eight properties in the Chicago market, 1.7% of its total, even though they produce 2% of Equity Residential's net operating income.

However, those Chicago properties saw their net operating income drop by 3.7%, the fourth-worst performance of any of the markets in which the REIT has holdings. Doing worse were the REIT's holdings in San Antonio, TX (-7.4%), Memphis, TN (-5.6%) and Kansas City (-5.0%). Like those in other Northern markets, Chicago has been hampered by higher energy costs and high fuel consumption in a colder than normal winter. Utility costs were up 63.2% in Chicago, says chief operating officer Gerald A. Spector.

Nonetheless, Equity Residential hopes to expand its holdings in a multifamily market that has seen less than spectacular rent increases even though the rental market generally is tight.

"We hope to pick up something in the Chicago market," says president and CEO Douglas Crocker II, lamenting a familiar outcome has been occurring. "We seem to be in second or third place."

Equity Residential owns three properties in Naperville and another in neighboring Lisle in the East-West Corridor. "That happens to be the corridor where they keep building, building, building and building," Crocker says. "You never get on top of it."

Crocker believes the best places to own multifamily product in the market has been Downtown in the Northwest suburbs. However, Equity Residential is taking a pass on Downtown because of anticipated overbuilding.

"They're going to get a ticket that's going to be punched big time in the next year or so," Crocker says, adding about 5,000 apartment and condominium units are projected to come on line in the next year. "There's no way Chicago can absorb 5,000 units. Downtown will get weak."

Also, the REIT has not added to its Northwest suburban holdings beyond Bourbon Square in Palatine because of high prices--cap rates in the "high 6's and low 7's," Crocker says.

Nationwide, Equity Residential sold $106 million in property in the first quarter at an average overall capitalization rate of 9.1%. On the other hand, the REIT had to pay a high price for their $189.2 million in first-quarter acquisitions, as they were at an average cap rate of 8.2%.