eXp Commercial is one of the fastest-growing national commercial real estate brokerage firms. The Chicago Multifamily Brokerage Division focuses on listing and selling multifamily properties throughout the Chicago Area and Suburbs.
Commercial Real Estate Financing Rates September 6th, 2022
These are the average available rates from eXp Commercial's Capital Markets Partner CommLoan with a database of 640+ commercial lenders.
Provided for comparison purposes only. Actual rates are dependent on property and sponsor.
https://www.creconsult.net/market-trends/guide-to-commercial-multifamily-real-estate-loans/
#CommercialRealEstateFinancing #Multifmaily #
If you don’t like the weather in Chicago, wait a few minutes…it’s likely to change.
Another thing that is seeing a fair amount of change is the overall sentiment for CRE in Chicago. Last year’s DePaul Real Estate Center Mid-Year Report found that 60% of industry participants were generally optimistic about the industry as they looked ahead. But in 2022? The DePaul-ULI Chicago Report found that 65% are trending toward concern when looking at 2H2022.
Headwinds have gained steam locally, nationally, and internationally, as professionals are concerned about construction costs, labor issues, inflation, interest rates, and speculation of a recession. There’s also less confidence that related issues like crime and the effectiveness of the local political system can be resolved quickly or easily. But through it all, one asset class has remained largely untouchable. Industrial.
According to DePaul, Hugh Williams, Principal, MK Asset Brokerage, and Director of Entrepreneurship/Strategic Relationships for Sterling Bay, when asked about the health of the market, pointed to Prologis’ initial offer to acquire Duke Realty. Prologis was offering a premium, plus upside.
“When you see that, and with vacancies in the sub 4% range, it signals strength and optimism,” Williams said. “We are at one of the high water marks. No one knows if we are at the top, but over the recent long-term, the strength of the market has only gone in one direction, and new baselines have been established.”
That’s not to say the market is exempt from concerns, though. Even the strongest markets must remain creative and be willing to approach issues a little differently.
CRG President Shawn Clark noted that, on a recent project in Country Club Hills, the increasing cost of steel prompted CRG to purchase the necessary steel for the 1,033,450-square-foot building before they closed on the 70 acres of land, based on the report. But if the steel had been purchased as typical, the cost would have been more than double.
From the perspective of Molly McShane, CEO of The McShane Companies, “Going from just-in-time to just in case is a real strategy businesses are using, and it is driving demand. As long as that continues, the market is in a good place.”
So while it’s true that there are concerns about the remainder of 2022, 50.9% said they are bullish or optimistic about market conditions in 2023. And despite headwinds, there are investors who continue to believe in the future of Chicago. DePaul said while it may be based, in part, on a “right corner, right project” viewpoint, there remains an appeal about Chicagoland and a belief that all issues will soon be resolved.
BELLINGHAM, Wash. — February 16, 2022 — eXp Commercial, the commercial real estate division of eXp World Holdings (Nasdaq: EXPI), today announced that KC Conway, founder, and president of Red Shoe Economics, will serve as an economic advisor, adding to the company’s research, data and analytics capabilities.
As a recognized expert in commercial and investment real estate, Conway will provide eXp Commercial agents and clients with industry research, data analytics, and economic insight to deepen their knowledge of the complex and evolving commercial market.
Conway brings valuable insights into the shift in capital markets, the new regulatory environment, and the availability of data to reshape today’s commercial real estate transactions. These insights support eXp Commercial’s growth strategy as the company continues to challenge the status quo, offering expertise in traditional brokerage as well as emerging digital and metaverse opportunities that deliver on clients' needs.
“We are pleased to collaborate with KC and his team at Red Shoe Economics,” said James Huang, president of eXp Commercial. “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 is uniquely positioned to lead the industry, particularly with its investment and capabilities in the metaverse, and we are excited to be a part of their success,” said Conway. “No other company has embraced both the physical and virtual commercial market like eXp. Working with eXp agents across the country, we will identify market trends and opportunities to build their businesses and make sound, economic decisions.”
More information about eXp Commercial can be found at expcommercial.com.
About eXp World Holdings, Inc.
eXp World Holdings, Inc. (Nasdaq: EXPI) is the holding company for eXp Realty®, Virbela, and SUCCESS® Enterprises.
eXp Realty is the fastest-growing real estate tech company in the world with more than 75,000 agents in the United States, Canada, the United Kingdom, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, and the Dominican Republic, and continues to scale internationally. As a publicly traded company, eXp World Holdings provides real estate professionals the unique opportunity to earn equity awards for production goals and contributions to overall company growth. eXp World Holdings and its businesses offer a full suite of brokerage and real estate tech solutions, including its innovative residential and commercial brokerage model, professional services, collaborative tools, and personal development. The cloud-based brokerage is powered by Virbela, an immersive 3D platform that is deeply social and collaborative, enabling agents to be more connected and productive. SUCCESS® Enterprises, anchored by SUCCESS® magazine and its related media properties, was established in 1897 and is a leading personal and professional development brand and publication.
Freddie Mac, and agency lending in general, has been foundational to the success of the multifamily industry in the post-Great Recession era. Prior to our more active role in the financing of rental housing, the market lacked stability and liquidity throughout the cycle. Workforce and Targeted Affordable Housing were particularly deficient and inconsistent sources of debt. Today we lead the industry in this highly affordable space where we lend expertise in addition to capital.
At no time was this truer than in our response to the pandemic housing market. Fulfilling our countercyclical role, we stayed on the field as many capital sources moved to the sidelines. The result was a debt market that continued to perform efficiently. Multifamily transactions never stopped, and borrowers benefited from a historically low-rate environment. Freddie Mac and Fannie Mae also extended unprecedented flexibility to borrowers and essential protections to tenants in a way that no other debt capital sources could.
As the economy recovered from the pandemic, multifamily housing demand accelerated, vacancies cratered, and rents shot up like nothing we have ever seen before. There are a host of reasons why this happened. A long-run housing supply shortage that predates COVID-19 worsened as a result of pandemic-related supply chain issues, labor shortages, and construction delays. A highly competitive single-family market drove more households to become or remain renters. The desire for more personal space caused roommates to seek solo accommodations. Remote work enabled office workers to relocate. Certainly not least, higher salaries and inflation shifted the demand curve.
We saw big changes on the supply side too. Investor interest in multifamily throughout the capital stack jumped markedly. In a world of economic uncertainty, multifamily is a proven, reliable asset class and an inflation hedge to boot. With rising net operating incomes and values, it has been the place to be for many investors. This surge in capital has also driven new construction – an excellent signal that supply has room to grow even if never fast enough.
Today we’re at something of an inflection point. Inflation risk and recession fears have many debt providers tightening or closing up. At the same time, we have a negative leverage issue with note rates catching up to, and in some cases surpassing, cap rates which have been trending down for some time. Fewer deals seem to pencil in as interest rates surpass investment returns. As a result, the market is in a period of transition.
The fundamentals, however, are very strong, and lenders that maintained credit discipline and appropriately distributed risk are well positioned to weather even a serious economic downturn.
Freddie Mac Multifamily counts itself among those market participants and stands ready to continue deploying capital consistently and responsibly. We’ll do this, as always, in a way that is mission-centric. That’s more important than ever, given the essential role we play in helping address the housing affordability crisis.
The current economic moment is accelerating the need for action. Freddie Mac recently fielded a survey that shows 58% of renters have seen their rent increase in the past 12 months. Although salaries are on the rise, a third of renters say their rent increase was greater than any raise they received at work. More concerning is that nearly 20% say that their rent increase makes them extremely likely to miss a rent payment.
To address the affordability crisis, we are driving toward a record year for our Targeted Affordable Housing business, and we’re poised to meet our aggressive affordability goals. This year, at least 50% of our production volume must support units that are affordable to families earning 80% of area median income (AMI) and 25% must support units affordable at 60% AMI. We said at the beginning of the year that this would be a tough challenge, but that we are up for the task. We’ve prioritized our mission-driven business.
Separately, we recently announced a landmark Equitable Housing Finance Plan that proposes several new initiatives aimed at enhancing borrower diversity, advancing tenant interests, and broadly addressing affordability through both preservation of and support for new supply. Building on past efforts, we’ve also expanded our Duty to Serve commitments to address housing needs in underserved markets, including rural communities and manufactured housing communities.
We know there is tremendous work to be done to ensure that more Americans can find safe and affordable rental housing, and as the new head of Freddie Mac Multifamily, it’s my highest priority. As the market dynamic shifts, we will continue to ensure a stable foundation for the multifamily industry while seeking out new innovations that can make homes possible for more of the nation’s 44 million renting households.
The sequence of rate hikes decay housing affordability. In late July, the Federal Reserve again lifted the overnight rate by 75 basis points to a target range of 2.25 to 2.50 percent. This will likely apply additional upward pressure to mortgage rates, with the 30-year fixed rate already climbing more than 200 basis points this year to 5.3 percent at the end of July. Higher borrowing costs amid towering home prices make ownership difficult for a growing share of the population. As of June, the estimated affordability gap, or the difference between a monthly payment on a median-priced home and a rent obligation, in the U.S. surpassed $1,000. That margin was about half as large just 12 months earlier, demonstrating how the relative affordability of apartments is improving, despite robust rent growth. For some markets, however, higher home and rent costs amid inflation is slowing demand.
Demand cools in some pandemic-era darlings. Both the number of homes sold and apartment units absorbed fell in the second quarter, a signal that household formation may be moderating. This contraction occurred during the same three-month span in which more than 1.1 million jobs were added, a process that typically supplies residents with incomes and the stability to form households. More renters are likely opting for roommates or moving back in with family. These trends are most evident in the secondary and tertiary metros in the Sun Belt that led the nation in net absorption during 2021. After such a heated pace, this cooling of demand is giving supply a chance to catch up.
Resident bases are reshuffling. Among the 30 U.S. metros that topped the nation in net apartment absorption during the second quarter, about half had an average effective rent at least 25 percent below the national mean. Places such as Huntsville — situated within 200 miles of Nashville and Atlanta — recorded their highest quarterly absorption on record. Lower-income residents priced out of larger metros in the region, and migrating households seeking less costly living options with proximity to bigger cities may be moving in. Relatively affordable Midwest metros like Madison, Omaha, and Des Moines also had a strong second quarter.
Developing Trends
Household creation may be hindered in the second half. Coming off a record year in 2021 when more than 1.3 million new U.S. households were formed, a near-term slowdown is materializing. Approximately 85,000 fewer households were created during the first half of 2022 compared to the same six months of last year. The housing shortage contributed to this, as a lack of available homes and rentals kept some young adults living at home or in roommate situations. Rental vacancy and single-family home listings remain very low, enforcing a persistent constraint on household formation. In the coming months, economic headwinds and growing affordability challenges could inhibit young adults’ ability to find jobs and willingness to move out on their own.
The streak of monthly home price rises ends. The median sale price of an existing home fell 1 percent month-over-month in June, the first reduction since mid-2020. Sellers are adapting to the new environment, with purchase activity down almost 13 percent year-over-year. Even with the abatement, the median cost held above $400,000 in June, up 39 percent since the onset of the pandemic.
16.9%
38.0%
Year-Over-Year Change in Average Effective Apartment Rent
Year-Over-Year Change in Average Monthly Mortgage Payment
* Through 2Q
Sources: Marcus & Millichap Research Services; Capital Economics; Freddie Mac; Moody’s Analytics;
Mortgage Bankers Association; National Association of Home Builders; National Association of
Realtors; RealPage, Inc.; Redfin; U.S. Bureau of Labor Statistics; U.S. Census Bureau; Wells Fargo
Demand Returns to Central Neighborhoods;
Suburban Apartment Market Maintains Strength
Absorption in urban locales accelerates. Due to space constraints in the urban core, new supply has been and will continue to be limited in the core this year. This has produced historically tight conditions in many central neighborhoods, as construction in the core has been unable to match renter demand. Preliminary data shows a 440-basis-point annual drop in vacancy within Chicago proper at the end of March. Competition for units here is likely to result in sharp rent climbs this year, especially in locales like Lincoln Park, Ukrainian Village, and Andersonville. Also, the return to in-person work downtown supported near nation-leading annual vacancy contraction in The Loop and West Loop areas entering the second quarter. This tightness may spur more development in central locales in future years.
Developers in Chicagoland are responding to continued strong demand for multifamily housing and changing consumer expectations. The pandemic accelerated a trend that was already underway — a shift in consumer priorities from acquiring material things to embracing time, travel, and experiences. Long-term homeowners are taking advantage of a seller’s market for their homes, collecting the proceeds and moving into apartments that require little to no maintenance. Meanwhile, young people who can’t yet afford to purchase a home are renting apartments that provide abundant amenities. These changing dynamics are reflected in recent multifamily sector research.
According to CBRE’s Q1 2022 Apartment Fundamentals report, multifamily occupancy was at about 97% in Chicago. Between Q1 2021 and Q2 2022, vacancies dropped to 3.1% from 6.2%. The report goes further, saying “Total net absorption is forecasted to be a positive 9,027 units, lagging supply during the same period. By year-end 2023, the annualized vacancy rate is expected to be 2.8 percent, while rents are forecasted to grow, reaching $1,989.40 compared to current market rents of $1,760.67.”
For commercial real estate developers and investors, favorable forecasts like these are encouraging. While opportunities are plentiful, developers that understand what is trending from both a development perspective and a design and construction perspective stand to be more successful.
Technology is Evolving
The vast majority of renters want top-quality amenities, simplicity, and convenience. In addition to clubrooms, pools, fitness centers, and outdoor lounges, a growing number of renters expect “smart apartment” technology. Integrating advanced technology into multifamily projects has become a competitive advantage for developers.
Smart apartment systems offer residents fully-connected smart-home experiences controlled by an app on their smartphones. The first systems were introduced in the student housing sector, as college-age students are adept at using apps to control devices and their environment. Now the amenity is gaining traction with residents of market-rate apartments as well.
With smart apartment-managed Wi-Fi systems, residents download an app when they move in, receive a password, and within 10 minutes they can control locking and unlocking doors, the temperature of their apartment, appliances, outlets, and more – from anywhere inside or outside the building. So, instead of each apartment unit having its own network, there is one network throughout the entire building.
There’s also a security component that benefits both residents and property managers. For accessing the building and unlocking certain doors, residents swipe their phones to gain access. Property managers can credential residents’ smartphones to access only certain areas of the building. For example, residents must be credentialed to access floors other than where their unit is located. This provides peace of mind to residents and reduces the risk for property managers. Residents can also authorize people outside the building to enter at certain times. For instance, the dog walker who comes every day between 10 a.m. and 11 a.m. can be credentialed to access the resident’s unit only during that timeframe. Everything is tracked, providing visibility to both the resident and the property manager.
These systems bring a whole new level of convenience and security but getting them set up can be a challenge for developers. Smart apartment platform providers or “integrators” that create the apps face a challenge coordinating the myriad of Wi-Fi programs and technologies used by manufacturers of appliances, outlets, and the like. Very few systems talk to each other, so integrators basically ride over the top of them and create one app to control everything.
At Opus, we are working with an integrator to create a smart apartment system for our Dash Downers Grove project, a seven-story, 167-unit multifamily building under construction in the Village of Downers Grove. These systems and capabilities are evolving very quickly, so integrators must be nimble.
As an industry, we are on the front end of this trend. For projects like Dash Downers Grove, the conveniences of smart-home systems for both residents and property managers will differentiate the property.
Certain Design Amenities are Gaining Traction
The pandemic didn’t start the work-from-home trend, but it clearly accelerated it. Because a significant number of renters now work from home, multifamily designs are evolving. Many unit floorplans now have dedicated, semi-private spaces for desks and office equipment. In common areas, work-from-home suites are gaining popularity, providing residents with private space for conducting business. Also popular with residents is flexible seating space within common areas for bringing their laptops and working.
Also likely influenced by the pandemic, resident preference surveys are showing increased demand for private outdoor spaces within each unit, like balconies and terraces. Entertainment amenities like rooftop decks, clubrooms, and outdoor kitchens also remain popular, as well as recreational amenities like fitness centers, pools, and space for bike storage and repair.
ESG Requirements are Accelerating
Another trend affecting multifamily developers is increasing ESG (environmental, social, and governance) requirements by capital partners. With regard to environmental concerns, it’s becoming more common that they want to see third-party certification of buildings. Investors, especially European investors, are increasingly focused on what capital partners are doing with regard to ESG. And it’s not green-washing – they want to see real results.
Chicago is an environmentally-forward community. The city has required sustainable features for many years, like a green roof if zoning as PUD (planned unit development). But stricter regulatory requirements in Europe will likely make their way to the U.S. The Task Force on Climate-related Financial Disclosures (TFCD) in the U.K., which is a new international standard for reporting on climate risks, will be mandatory for all fund managers in 2025. Three additional governments are considering adopting the policy: the European Union, New Zealand, and Canada.
The Opus Dash Downers Grove project will seek both Fitwel certification and National Green Building Standard (NGBS) certification. Fitwel focuses on quality of life and location – for example, does the project reuse an existing site, does it optimize health within the building and community, and is it close to transit, parking, fresh air, and parks. NGBS is more technical and focused on the building, for example, does it exceed building code, and how efficient is the HVAC system, insulation, windows, and blinds? The increased cost for a building to achieve these certifications can vary, depending on design and construction. At Opus, we already consider environmental impacts as part of our design and construction process, and we are increasingly integrating these standards in our multifamily projects.
Trends like smart apartment technology, design amenities, and ESG will continue to evolve. Resident awareness of smart apartments is increasing at a rapid rate, as consumers expect to manage their life via their smartphones. And while the financial sector is currently a driving force with ESG requirements, resident awareness will likely increase with time and become a differentiator for apartment properties.
