Multifamily Midwest

The sky is not the limit for multifamily—It’s higher

Sue Blumberg

2014 proved that the sky is not the limit for the multifamily market—it’s even higher, according to Sue Blumberg, senior vice president | managing director at Northmarq Capital.

2014 proved that the sky is not the limit for the multifamily market—it’s even higher, according to Sue Blumberg, senior vice president | managing director at Northmarq Capital.

“Rates are low, occupancy is stabilized, the economy is stabilizing, and it’s a very optimistic outlook,” Blumberg said. “There’s no question that the opportunities are endless for multifamily in 2015. I think that people are being smart, and there is still a shortage of product which will make it highly competitive.”

Blumberg noted that if you are the borrower and a developer, things are looking as good they have ever looked.

“I think it’s the underlying economic reasons for real estate being so good,” she said. “We’re coming out of a horrible time and there is a recovery in progress. People think it’s robust already, some people think we have a ways to go. The world is what is keeping things in check. Otherwise I think the United States, and our economy, would be acting a little bit differently.”

“So there is a good check and balance going on,” Blumberg added. “Also the treasuries—which is what we live and breathe—are at historic lows right now. Today, we are below two, and no one ever thought we would be below that.”

Blumberg also noted that if you are a lender, there is an abundance of capital available. “It’s very competitive, but everybody has got a strong appetite, and I would say much better choices in 2014—and moving forward in 2015—as far as assets to invest in. Then for me as a mortgage banker, the intermediary, it’s balancing those two.”

So what are the reasons for the continued interest among developers and investors in multifamily? Blumberg said it is one thing: Demographics.

“It’s the demographic of people that are not going to buy houses for whatever reason,” she said. “I’m talking about young people, middle-aged people, and old people. It has never been such a desirable place to live with choices—whether you’re an empty nester, moving up, or moving down. It is an ease of living, and what they are building, or repurposing, is just spectacular.”

Blumberg noted the new projects are expensive, but they have every single amenity you could ever want. “The old ones are affordable—that doesn’t mean subsidized—and everybody is re-doing their club houses or properties. They are enhancing what they already have.”

“Really there is no middle getting squeezed,” Blumberg said. “There are so many studies saying that we have a huge shortage of rental housing. If we get any kind of small blip, or downturn, it is going to strengthen multifamily even more. So right now they want to strengthen housing, and are wondering where all of the home buyers are, and why they are not moving. Well, the ratio of home ownership is almost ideal, as that number is at 62 or 63 percent. We’re right there, so ideally we are good.”

As far as interesting multifamily projects happening right now in Chicago, Blumberg said there are a few to keep your eye on.

“One is Millennium Park and the Jeanne Gang’s new project,” Blumberg noted. “Also look out for Wolf Point, which is next to the Merchandise Mart. River North and the West Loop continue to have growth, those are the fun areas and are getting better. The supply just seems to be in River North and River West.”

“The Randolph Street corridor is now growing, and I won’t be surprised if more apartments go up there. K2 just sold for a huge amount of money. These prices are quite amazing, and it’s also fun to watch the international money equity flow into Chicago finally.”

According to Blumberg, Chicago really has limits on how much rent growth there will be at one time, as the city is not like the East or West coasts.

“We are not going to see huge spikes,” she said. “What we see are positive ripples. So we don’t see rent growth at 10 percent, we see rent growth from anywhere between three to five percent. When it gets to 7 percent in Chicago, that is robust. But we don’t spike or plummet. Some people think it’s boring. I think it’s really good, steady, and less risky.”

With so many young people choosing to rent instead of buying homes, there has been much speculation as to what that means for the future of the multifamily market.

“Not buying homes allows the millennials to have less responsibility, live the urban lifestyle, and have mobility,” Blumberg said. “They want to be able to move if they get a transfer from their job, and go to a different area. They want to stay mobile without being attached. So what does that mean for the future of multifamily? It means it’s really good because when people want to settle down and have families, that is when they will buy houses.”