Multifamily Developers Prefer Suburbs Over Chicago City Center

 

Demand is on the rise for homes outside Chicago’s city center.

About 13,600 units were absorbed in 2021, even though just 4,250 rentals were completed, the Chicago Business Journal reported, citing Marcus & Millichap’s latest Chicago Multifamily Market Report.

Schaumburg and Arlington Heights-Palatine were the two best-performing suburbs. Vacancy rates in Schaumburg dropped 550 points from the previous year to 1.9 percent and rents rose 15 percent. In Arlington Heights-Palatine, vacancies rates fell 410 points and rents jumped 17 percent.

The shifts underscore ripple effects from the pandemic, as workers explore remote work models that crimp the need for downtown offices and seek more room in suburban settings.

“Multifamily is doing good and will only do better as the year goes on,” Toney Morton, chief financial officer at Independence, Ohio-based Redwood Living Inc., told the outlet. “Residential living is the alternative to buying a home, and even homeowners, especially seniors, are transitioning more to multifamily complexes as their lifestyles change.”

Morton said Redwood, which owns and develops multifamily properties, tends to prefer suburban areas for new projects as more land is usually available for construction.

“Our focus is suburban areas where there’s enough land for us to build our single-story apartment homes,” he said. “While we are new to the Chicago market, we are underway with new projects in Lockport, Oswego [to the southwest], and Crystal Lake [to the northwest].” Chicago-based Waterton plans to invest up to $150 million in building new multifamily properties across the Chicago area. The firm will focus on affordable, mid-rise developments in suburban neighborhoods. “The suburbs have been attractive in general, and there’s more demand for it now since Covid,”

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Source: Multifamily Developers Prefer Suburbs Over Chicago City Center

https://www.creconsult.net/market-trends/multifamily-developers-prefer-suburbs-over-chicago-city-center/

9 Things to Watch in the Commercial Real Estate Market

 

In eXp Commercial’s Real Estate Symposium held earlier in 2022, respected economist and eXp Commercial advisor KC Conway gave an insightful speech on a slew of conditions that are impacting commercial and industrial real estate today and in the future.

Conway is the CRE Chief Economist for the Certified Commercial Investment Member (CCIM) Institute, which specializes in ports, logistics, industrial real estate, adaptive reuse, and property tax. As the founder of Red Shoe Economics, he’s one of America’s most respected futurists and forecasters.

When eXp Commercial named Conway their economic advisor in February 2022, eXp Commercial and its growing division of brokers and ancillary partners benefited from his insight into trends and ability to connect the dots between the complex dynamics that affect industrial and commercial real estate.

“We are at the forefront of the fast-changing commercial real estate landscape and are committed to providing the best resources and training to our agents so they can deliver strong results to clients.” — eXp Commercial President James Huang

Here are 9 takeaways by Conway that are the key issues facing the commercial and industrial real estate market:

“Forget 8.9 Percent, Real Inflation Is Over 25%”

“The Flexible CPI is not the one that you do when you’re doing Zumba and yoga. This is one produced by the St. Louis Fed that looks at the repricing of those things that are repriced pretty quickly in our daily lives: Gasoline, energy, food, and groceries. What the current Flexible CPI is telling us is that we have already passed the record that was achieved in the 1980s. We’re over 25 percent … and the reason that’s important to look at is then look at what’s happening with interest rates.’’

“The Federal Reserve Doesn’t Understand That This Inflation Is Supply-Side Driven.”

“We’re not building more homes than we did in 2018 and 2019. We’re not consuming more than we did in 2018 and 2019. We’re paying more. And so it’s a supply issue that there’s not enough of it. The same demand means that the prices go up. This is not an excess demand where suddenly we have 3 million homes being built. We’re still in that 1.2, 1.3 million range of homes being built. The tools the Fed is using essentially demand inflation tools, not supply. That’s raising interest rates and cutting out the balance sheet … which affects demand. It doesn’t solve our supply problem. And the supply problems are only going to get worse, especially when you think about China with 45 of its largest cities that do manufacturing completely locked down because of another outbreak of COVID. And they manufacture about half of what we consume.’’

Accelerating the Supply Chain Is How to Correct This Economy

“The tools that the Fed is using are the wrong tools. Raising rates and pulling back on the balance sheet are inflationary. They are not deflationary. So what’s going to be deflationary is really addressing the supply chain. If we move quickly with Congress and leaders to accelerate that movement of our supply chain, getting more north/south (routes) and using more efficient rail and all that kind of stuff, we could pull ourselves out of this thing much quicker.‘’

Even With Volatility, There’s Plenty of Capital Coming to the U.S. CRE Market  

“I think this (inflation/recession) is probably a 2-year event, not a 4-to-6 year event. But it’s going to be a lot more volatile, so that’s why I say you don’t want to get scared. You want to get prepared. You want your clients to understand there’s a ton of capital out there. In fact, more than half the mortgages out there today are not done by the traditional mortgage platforms, they’re done by non-FDIC insured or Fed-regulated entities. “In commercial real estate, we have even more capital. We have international capital coming here. The whole Russia/Ukraine thing is accelerating foreign capital from places like Vietnam and South Korea coming here. So we have a lot of equity capital that can come into our deals. We have a lot of institutional capital that needs a return and think about why commercial real estate is an inflation hedge.”

Focus on Population Growth Centers & Commercial Activity

• Look at I-95 from North Carolina to Florida: “The most amount of commercial real estate activity, warehouse logistics, relocation, site selection is along the I-95 corridor from basically just North Carolina, Florida.”

• Look at I-85 from North Carolina to Alabama: “We’ve had announcements from Vietnamese automobile manufacturers, Toyota, Hyundai, Remington Firearms. It’s incredible what’s happening along the I-85 corridor from Greensboro, North Carolina, all the way down to Montgomery, Alabama.”

• Look at the I-10 and I-20 corridors between Arizona and Texas: “These big active interstate corridors are where we’re seeing population, workforce, and commercial real estate activity go. If you’re along those, great. If you’re not, work with your clients to help maybe focus them (because) that’s where the buying or investment opportunity may be.”

Electric Vehicle Charging Stations Bring Value to Your Commercial Real Estate 

“We have about 150,000 charging outlets, but we have 275 million cars. And next year we’ll be producing over two million EV cars. Where are they all going to recharge? I go through the Atlanta airport every week. There are about 50,000 parked cars at the airport on any day and all the parking lots and decks. There are only 100 EV Recharging Stations. We have a tremendous mismatch. So when you’re looking at your office buildings and your retail and all those things, look at how you bring in EV Charging, because if we don’t do it, it could be a detriment to your value and your asset.“

High Cost of Materials Will Determine Your Client’s Ability to Move or Build New

“A year ago, we saw construction materials moving up just below 4% year over year. And labor is up 6%. Well, look what happened last fall when we went to 8 to 14%, and now we’re over 16%. Atlanta (25%) and Dallas (22%) have the two highest year-over-year construction cost numbers. So forget San Francisco and New York as the expensive places to build. It’s places like Dallas and Atlanta where Amazon has bought up all the structural steel in America, so nobody else can build anything.’’

Be Prepared to Advise Your Clients on Cost Benefits of Lease vs. New Build 

“You’re going to see a need for a lot of advisory work between you and your broker as more tenants ask: ‘I want to move into a new space or should I stay put and absorb a bit of a rent increase and just stay put?’ With the cost of moving and rebuilding new space, you might find you (have to tell clients) they can’t even get it done in the timeframe that you have to leave your existing building, and you might find that the costs are greater than a 10 or 20% increase in your rent. So doing that cost benefit analysis for those of you that do property management, leasing is going to be just as important as new construction.

eXp Is In a Position of Growth Despite Inflation 

“So when consumer confidence goes, when energy costs are up 50% when everything in Flexible CPI is up, these are the warning signs, these are the bellwethers before the Fed moves and before all this other stuff happens that really tell us, we’ve got to get ready, do things like eXp has done. (eXp) is debt-free and is in a position for survivability, a position for growth, and in a position to execute where eXp can outrun inflation.”

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Source: 9 Things to Watch in the Commercial Real Estate Market

https://www.creconsult.net/market-trends/9-things-to-watch-in-the-commercial-real-estate-market/

New Listing! Fully Occupied 23-Unit Multifamily Portfolio Kankakee IL

Listing Broker: Randolph Taylor
630.474.6441 | rtaylor@creconsult.net
Price: $995,000
Cap Rate: 7.35%

How the Current Real Estate Market is Affecting 1031

JTC Americas’ Justin Amos explains how investors are responding to market realities in order to successfully complete tax-deferred exchanges in 2022

It’s been impossible to ignore news reports that home prices have surged in the US as we emerge from the COVID-19 pandemic. With fewer homes on the market, rising interest rates, and supply chain issues slowing construction, demand is exceeding supply, and many are not anticipating a significant drop in prices soon.

These issues affect anyone buying or selling a home, but add further complications for those looking to execute a Section 1031-like-kind exchange, where property owners must sell a relinquished property and purchase replacement property in the same 180-day period in order to qualify for tax deferral. How should those hope to execute an exchange alter their strategies based on the current market?

We asked Justin Amos, National Sales Manager & Account Executive and 1031 Specialist at JTC Americas, about how investors are adjusting to this unique time in the real estate market, how successful exchanges are being completed in today’s climate, and what those hoping to perform a like-kind exchange should know in order to be prepared.

Have 1031 exchanges been taking longer because of the difficulty in securing a replacement property?

Amos: Just the opposite, actually. Exchangers are more prepared going into the transaction. Knowing that inventory is scarce, they are negotiating on the replacement properties prior to closing on the relinquished. We have seen most exchanges complete within 30-45 days.

Are seasoned investors identifying more replacement properties because of the likelihood that one or more will fall through?

Amos: We are always recommending and coaching clients to use all the given slots allowed for identification. That way the exchanger has the best opportunity for success in completing the transaction. As highlighted in the previous answer, most exchangers are coming in more prepared, so we haven’t seen them identify more properties. Instead, with the properties they do identify, they feel confident they could close on one or multiple of them to meet their exchange requirements.

Do reverse exchanges become more attractive in a competitive real estate market?

Amos: They definitely do. We have seen more and more exchangers ask about the reverse exchange option due to the competitive and low-inventory real estate market we are in. Exchangers feel more confident in the ability to sell a property than they do in finding one that meets their investment criteria within the 45-day identification period. With a reverse exchange, the replacement property is purchased first. So you’re taking care of the difficult part at the outset with the confidence that once you do, it will be easier to sell the relinquished property due to the high demand right now.

This is why a reverse exchange becomes intriguing, but that doesn’t mean it’s right for everyone. Often, exchangers are planning to use the funds from the sale to make the replacement purchase, which means they don’t have the excess capital up front to make the acquisition prior to selling. With interest rates trending upwards, this could make securing lending a lot more challenging for your average investor, especially if they have debt on the relinquished property that needs to be paid off.

How might a reverse exchange help an investor avoid the crunch of finding a replacement property within the time frame?

Amos: It helps an investor by securing the property they would like to purchase first. The exchange timeline remains the same, at 180 days, but now it’s 180 days to sell the relinquished property. In a seller’s market, this could be considered a smoother process.

However, there are some factors to consider before deciding to go down that path: there are more complexities involved with a reverse exchange. For instance, it requires the creation of an entity (SMLLC) to hold title throughout the exchange until the relinquished property is sold. In addition, it is far more expensive to the exchanger to facilitate. Always consult with your tax counsel to understand your specific tax liabilities before deciding to perform a 1031 exchange.

Select the best QI for your exchange

With more than 30 years of experience as a Qualified Intermediary and tens of thousands of successful transactions, JTC Americas is the nation’s most trusted 1031 exchange accommodator. Our team has expertise in all manner of exchange scenarios, including both forward and reverse exchanges. If you’re considering a 1031 exchange, talk to a JTC Americas representative today.

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Source: How the Current Real Estate Market is Affecting 1031

https://www.creconsult.net/market-trends/how-the-current-real-estate-market-is-affecting-1031/

From desperate times come desperate renters Especially in Suburban Chicago

 

Newcomers seeking warm weather, topped off by a sea of remote workers, have made Florida the most sought-after region by renters this year. But developers are struggling to keep up with the new wave, putting apartment seekers in a tight spot.

Of course, Florida renters aren’t the only ones to experience this. It’s happening across the U.S — and Suburban Chicago shares the list with Florida as one of the most competitive markets at No. 15, based on a new report by RentCafe.

This isn’t surprising. Competition among home-hungry renters has been especially fierce due mostly to high occupancy, low supply, and record-high lease renewal rates.

To break it down, Suburban Chicago reached a record-high occupancy rate of nearly 96%.

One-third of renters decided to move into a new apartment during the year, while 68% of people renting in Suburban Chicago chose to stay put and renew their leases, further contributing to the limited housing options for prospective tenants.

And for the lucky ones who did find an available unit in the area? There were, on average, 18 apartment seekers applying for it.

Unfortunately, this news is only followed by more not-so-great news…for renters.

RentCafe said Suburban Chicago is far from meeting demand, as it increased its apartment stock by only 0.3% in the first half of the year. Things in Urban Chicago, by comparison, are hardly better. Occupancy rates reached nearly 94%, the average number of prospective renters applying for one available unit being 12. Moreover, 56.5% of renters renewed their leases in the first part of the year, and the share of new apartments increased by 0.95%.

Other Midwest cities to make RentCafe’s list include Grand Rapids, MI, Milwaukee, WI, and Omaha, NE.

U.S. wide, RentCafe found that, in June, on average:

• 14 renters competed for a vacant apartment;
• 35 was the number of days rentals were vacant;
• 0.7% of the available apartments were built in the first part of the year;
• 61.7% of renters renewed their leases in the first part of the year;
• 95.5% of apartments were occupied at the start of the rental season.

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Source: From desperate times come desperate renters Especially in Suburban Chicago

https://www.creconsult.net/market-trends/from-desperate-times-come-desperate-renters-especially-in-suburban-chicago/

Home price appreciation will normalize

In 2021, home prices skyrocketed by nearly 19%, according to the S&P CoreLogic Case-Shiller home price index. And pros say we’re in for another year of price growth — but as for how much, pros diverge.

Some predict double-digit growth. Indeed, a report in January from Zillow noted that home values were expected to grow 16.4% between December 2021 and December 2022; Goldman Sachs, in October, forecast that home prices would rise 16% through 2022. Fannie Mae says home prices will climb 11.2% throughout this year, followed by a more modest increase in 2023. Others have more modest predictions: The National Association of Realtors, which surveyed more than 20 top economic and housing experts, predicts housing prices are expected to climb 5.7%  through the end of 2022, and Realtor.com predicts a 2.9% increase in 2022. “I believe home price appreciation will normalize in 2022 and home price growth will begin to more closely track inflation,” says Bill Dallas, president of Finance of America Mortgage. As of February 2022, Redfin predicted home-price growth to slow at an annual rate of 7% by the end of 2022. There is one thing that a few pros we spoke to said: In the next couple of months or so, as spring buying season picks up and supply remains low (it was at a record low as of January, according to the National Association of Realtors), you may see a price uptick. “Combine those two data points and it’s hard to see home prices going anywhere but up this month,” says Jeff Ostrowski, an analyst at Bankrate.  And for her part, Zillow economist Nicole Bachaud says: “The market thawed early this year as home value appreciation began to accelerate in December, well before it usually does in the spring and we expect that acceleration to continue into March and April.” One of the reasons home prices will continue to push upward in the short-term is because mortgage rates are falling temporarily (see the lowest mortgage rates you might qualify for here) [they fell in late February], which leads to a surge in offers for homes, says Holden Lewis, home and mortgage expert at NerdWallet. “This is happening during the opening weeks of what traditionally is the home-buying season. House prices have been rising steeply and they’ll keep doing that in March,” says Lewis. Dallas echoes the importance of mortgage rates in-home price estimates:  “It’s possible that demand and bidding wars will pick up in the short term as prospective buyers try to secure a house ahead of expected rate increases this year.”  Indeed, with a Fed meeting set for mid-March, Ostrowski says all eyes are on the Federal Reserve. “The Fed doesn’t directly control mortgage rates but it does set the overall tone for interest rates and they’re widely expected to raise rates this month,” says Ostrowski. And Realtor.com senior economist George Ratiu also says that buyers are trying to get ahead of potentially surging mortgage rates by snapping up homes as soon as they hit the market. (See the lowest mortgage rates you might qualify for here.) “With inventory continuing to shrink and the pace of transactions quickening, the median listing price reached $392,000 in February of this year, a new record high, signaling a competitive start to the spring season,” says Ratiu. The bottom line is that the economy does impact the value of real estate and home shoppers hoping for a surge of new inventory and relief from the heightened competition have so far been left disappointed. “It remains to be seen how long buyers can weather this storm, especially in the face of rising mortgage rates, and how long homeowners will watch values rise before deciding to list. Neither has blinked yet,” says Bachaud.

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Source: Home price appreciation will normalize https://www.creconsult.net/market-trends/home-price-appreciation-will-normalize/

Mortgage applications falling creating more demand for rental properties

With rates lately rising, the real estate market is slowing, most notably for residential properties. As expected, growth is slowing as loans get more expensive, but the housing market remains robust. This shift leaves many people renting and has the potential to create more demand for rental properties.

Real estate investors who are looking for a place to park their money may want to consider commercial real estate. The market for commercial real estate is not as directly impacted by higher interest rates as the single-family market and, as a result, may provide a more stable investment. Of course, this all depends on the specific property and location, so it’s important to do your research before making any decisions.

https://www.creconsult.net/market-trends/mortgage-applications-falling-creating-more-demand-for-rental-properties/