CRE Midwest

IREJ’s Metro-Chicago Apartment Summit State of the Market Panel Recap

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Justin Ross

If the walls could talk at Germania Place, oh the things they would say! Over 200 people showed up to IREJ’s Apartment Summit Tuesday to hear our expert panelists discuss the latest trends affecting Chicago’s multifamily market. We kicked the summit off with our State of the Market panel, consisting of expert developers and brokers, who had plenty to say about the current dynamics of supply and demand in multifamily.

If the walls could talk at Germania Place, oh the things they would say! Over 200 people showed up to IREJ’s Apartment Summit Tuesday to hear our expert panelists discuss the latest trends affecting Chicago’s multifamily market. We kicked the summit off with our State of the Market panel, consisting of expert developers and brokers, who had plenty to say about the current dynamics of supply and demand in multifamily.

Justin Ross, Managing Partner at Interra Realty, was the fantastic moderator of our panel, and assured us that no matter who you ask the market is good. “If you ask any broker, builder, banker, or anyone else involved in real estate, you’ll find that the market is good,” he said. “What makes the market good? Obviously interest rates are low, rents are high, and the absorption rate is really high.The market is hot.”

What neighborhoods outside of the downtown Class A market are showing the most strength in terms of investment interest and rent growth? Bill Baumann, Senior Managing Director at Kiser Group, shared that there are a few areas where he’s seen really strong growth—the first being the West Loop. “We sold a building on West Loop Road in 2012 for a little over $5 million. It was a new construction bank-owned deal, and less than a year later the owner and I were getting unsolicited offers well over $350 a door. Also, Hyde Park has seen a tremendous amount of revitalization. Harper Court is a $100 million development commissioned by the University of Chicago. Institutional money went into that, that we haven’t seen in Hyde Park, on that type of product for quite a while. Finally, we’re really starting to see Uptown take off. Companies like Cedar are making a strong, committed investment to that market.”

Steven Fifield, Chairman and CEO of Fifield Companies, followed up by stating that it’s all about the income. “We found out that each market is really two markets,” Fifield said. “It’s the college educated paying higher wage markets, which we see driving downtown Chicago. Then it’s the working class, or urban dwellers, that are location sensitive. Rogers Park, Noble Square, and Logan Square offer a variety of well priced apartments. I’ve been in the business long enough to know that we’ve all been talking about how Uptown is coming back for 35 years. We’ve seen improvements, but it does not have a robust income growth, and that’s what drives it all. Follow the income.”

Kyle Stengle, Vice President Investments at Marcus & Millichap, noted that rents across the board, relative to what they were, are pretty good as he’s seen significant growth. “During the downturn I sold buildings that were two bedroom/ two baths, and those rents were $2,000.Today rents are up to $2,700. I think a part of it has to do with flexibility. People want to be able to make lifestyle changes. Public transportation has helped too. We followed the Blue, Brown, and Purple Lines, and saw a lot of growth within a half mile walking from those stops. Once you go over half a mile rent drops down. Where ever there are job drivers helps. Google in the West Loop is the perfect example, as anything within walking distance from there we’ve seen a significant jump in rents. As well as anywhere with land or larger buildings that are developable to be a high end luxury apartment.”

Cap rates have been one of the hottest conversations thus far this year, as they have been at historic lows. Matthew Fiascone, President of The Habitat Company, pointed out that there is a story behind every deal. “What one person’s four cap is, can be a 5 cap to another depending on how they view it. There’s a big disparity between the institutional world that Steve and I are in, and the owner/developer world, where they are self-managing and expense ratios are way lower. That’s a perfect example where I’m going to look at it as a 2 cap, and an owner, or operator, is going to see it as a 5 cap or higher.”