Tuesday, April 4, 2023
Monday, April 3, 2023
Residents Continue To Flock To Suburban Townhomes Including Recent DMG Acquisition Alice Mae Court in Orland Park
December 22, 2022, Chicago, IL – Today, DMG Capital, the multifamily investment affiliate of Chicago-based Daniel Management Group (DMG), completed the acquisition of Alice Mae Court, a multifamily townhome portfolio in Orland Park, Illinois, for $5.36 million. Alice Mae Court will be marketed by DMG affiliate DMG Leasing and professionally managed by DMG.
“This acquisition allows us to strategically add rental townhomes to DMG Capital’s multifamily portfolio while at the same time maintaining our disciplined investment focus of pursuing properties that are well-located with strong revenue growth potential,” said Roger Daniel, President and Co-Founder of DMG Capital. “Alice Mae Court is an optimal opportunity as it is new, high-end construction well-located in highly desirable Orland Park directly across from Centennial Park and just steps from the 153rd Street Metra Station.”
Alice Mae Court comprises 16 townhomes with a mix of large three- and four-bedroom units that include high-end finishes, in-unit laundry, private balconies, and attached two-car heated garage parking spaces.
The Alice Mae Court townhomes directly address the post-COVID demand for flexible living spaces that allow residents to live and work at home and have greater access to the outdoors. It also exemplifies the increased focus from investors on suburban properties that meet resident needs in sought-after locations.
Source: DMG Capital Expands with Acquisition of Orland Park Townhomes — Daniel Management Group, Inc.
https://www.creconsult.net/market-trends/residents-continue-to-flock-to-suburban-townhomes-including-recent-dmg-acquisition-alice-mae-court-in-orland-park/Sunday, April 2, 2023
A macro perspective of CRE finance
Finance is a hot topic industry-wide, and while much of the concern concerns volatile economic factors, it’s more so the lack of clarity surrounding them. Everyone has different opinions regarding what might or might not happen, but it’s essential to look at the macro picture to find a solution.
Illinois Real Estate Journal recently spoke with Patrick Tuohy, Senior Vice President at Marquette Bank, to discuss the past, present, and future related to multifamily finance.
Past
Before joining Marquette Bank 40 years ago, Tuohy managed interest rate and equity risk for Merrill Lynch, after which he decided to hone in on the middle-class business. Why? Tuohy said that these markets are poised to weather economic downturns, and they’ve done so since 1982.
To save money during an economic downturn, Class A renters tend to move to Class B, Class B renters move to Class C, and so on. The opposite happens when it turns back around: Class D moves to Class C, Class C moves to Class B, and Class B moves to Class A, exemplifying an unwavering demand for middle-market buildings.
Yet COVID-19 affected all sectors, not just multifamily, and hotels, restaurants, and entertainment venues were most directly impacted. To assist the owner/operator during this period, Marquette Bank gave the option of interest-only loans, which turned out to be very successful, meaning no defaults, and businesses could get back on their feet as the world transformed into our new normal. At the same time, $4 trillion was printed and spread around the U.S. to keep the economy from crashing.
But the future effects were misread, and inflation isn’t transitory as predicted. Inflation skyrocketed in 2022 as the pandemic moved toward an end, resulting in multiple 75-point basis point jumps. Rates in the last 60 days have jumped to 5.5–6% after hovering between 3.5–4% for the previous decade, Tuohy said, and a significant consequence, as it relates to the multifamily market, is a disconnect between the bid, the ask, the offer, and the sale.
Present
Sellers still want the inflated value for their building, based on a rate of 3.5–4%. A buyer, at this rate, could put 25% equity down and have the adequate cash flow to operate the building plus a decent return—but this is not possible at the adjusted rate of 5.5–6%, and today’s buyers must put down 30–40%, resulting in a disconnect between the buyer and seller. Because of this, the multifamily volume in Chicago and across the U.S. has decreased considerably for potential sellers. However, Tuohy said there is still a large buyer pool because the money is there, and buyers are willing to shell out additional equity for a suitable building in the correct location.
Tuohy said the same is happening within the single-tenant, triple-net market.
Future
No one is certain how or when this stalemate will go back to normal, but Tuohy said it’s only a matter of time. Sellers will have to sell at some point—for some reason—and as the economy slows and we enter a recession, rates will again reach a low- to mid-4%.
The is-it-isn’t-it recession is a topic of conversation itself, but for clarity, one must look at the fundamentals.
The U.S. is 70% consumer-driven, and when consumer sentiment, which is still reasonably strong, starts to decline rapidly, the average consumer starts to cut back on nonessential items like electronics. When this happens, manufacturers stop buying chips, and Tuohy said it’s because the chip industry is usually the first to feel the burn in times of financial uncertainty. When credit card rates exceed 20% in a credit-driven economy, consumers will think twice about putting debt on their balance sheet.
But consumer behavior is less predictable following COVID-19. People have not lessened their spending on luxuries like dining out and traveling, affecting other markets like single-family and homes have dropped 70–80%. Like multifamily, Tuohy said with a mortgage of 3.5–4% or lower, homeowners have no incentive to sell to buy a new home at a rate of 6%, ultimately leading to a mortgage industry layoff.
It’s a domino effect, starting with the housing industry as the backbone of our economy. When people are hit pause on homebuying, they’re also slower to buy furniture, appliances, etc.—all affected by increasing rates.
“It’s a prolonged process, and we’re still waiting to see,” Tuohy said. “Interest rate hikes set in motion a domino effect, but we’re only in the first stage.”
And then there’s inflation, which is affecting replacement costs for multifamily. Marquette Bank saw the cost of construction increase 20–30% for new projects, impacting the underlying value of apartment stock.
The average cost to replace a single unit in Chicago is $400,000, and in Chicagoland, $250,000.
“If existing apartment stock is half of that cost,” Tuohy said, “it makes for an attractive long-term investment. Buying an apartment unit for $250,000 or $300,000 in Chicago is significantly less than replacing that building when you factor in the cost of materials and labor.”
The same goes for single-family homes: Marquette Bank has 18 three-bedroom, two-bathroom townhomes under construction, for which prices recently jumped 25% on construction costs, turning $290,000 into $370,000. Marquette had to raise the price to around $490,000, yet they still sold.
That is to say; everything is interconnected. Across the U.S., replacement costs of single-family have a direct effect on the rental market, and the cost of replacing or building a home affects whether people can afford to buy—and the difficulty of this transition has only solidified the multifamily market, as the vacancy rate is less than 5% in Chicago.
And while it’s true that rental rates are increasing due to renters being priced out of the housing market, Tuohy said there’s another side to the equation. Insurance costs are up 7%, utility costs are up, and taxes have increased, as multifamily is considered a go-to sector to raise taxes because of the perception that more profit is being made.
“We have buildings that doubled in taxes this year from $40,000 to $80,000,” Tuohy said. “Because of these things, the margins have shrunk, and the owner/operators have to pass a portion of that cost onto the tenant. It’s no longer a matter of whether or not landlords want to raise rents—they have to break even.”
Tuohy said that Multifamily is not a “get rich” business but a long and challenging ride, now more so than ever. “It works well for people long term,” he said, “but it’s not for those seeking a short-term return.”
Source: A macro perspective of CRE finance with Marquette Bank – REJournals
https://www.creconsult.net/market-trends/a-macro-perspective-of-cre-finance/Multifamily sellers: How to qualify a buyer before going under contract
Multifamily sellers: How to qualify a buyer before going under contract
Multifamily sellers: How to qualify a buyer before going under contract
Don’t waste time and opportunities: learn how to select the right buyer every time
As the seller of a multifamily asset, it’s crucial that the buyer you select is the best possible prospect for your property. Don’t waste time, money, and opportunities: you must ensure they’re qualified and can close and execute the contract as signed.
Keep reading to learn why it’s essential to qualify a buyer before going under contract on your multifamily property and how to do it.
Why do I need to qualify a buyer?
It’s important to close with the first buyer you select. If you don’t, each buyer after that will ask themselves, “What did that other buyer discover about this property that I am missing?”.
When you enter into a contract with a refundable deposit, you’re basically giving your chosen buyer a free option on your property for a period of time, typically 30–60 days. Before you proceed, you must be confident that they can close and execute the contract as signed.
What’s more, your tenants and staff will be disturbed throughout the contract process. To minimize the period of disruption, you should do all you can to ensure the transaction will close successfully at the end of the contract process.
As a seller, you’re required to provide due diligence information to the prospective buyer. When you qualify your buyer, you’ll greatly reduce the risk of wasting a lot of time and doing a lot of work only to not close on the property.
How do I qualify a buyer?
Before you sign the contract, make sure that your prospective buyer can provide certain items. Always ask them for the following:
– Proof of funds
– Lender pre-qualification
– A list of the other properties they own
– A list of the sellers and agents that they have worked with
For added reassurance, it’s recommended that you call the buyer’s lender to confirm their pre-qualified status. You can also call the agents, sellers, and buyers they’ve closed with in the past to enquire about how the transactions went.
Has the buyer toured the property in person before making an offer? Have they reviewed the due diligence information beforehand? If they have, this is a great sign. It’s proof that they have seen and have taken into account any issues with your property, and this greatly reduces the chances that they may later want to back out of the sale, saying they were unaware of the building’s condition. Be very wary of a buyer who doesn’t tour your property in person.
A prospective buyer who shows they’re motivated and wants to move quickly is also a great sign for a successful closing. The shorter the due diligence period, the better, and the larger the deposit, the better.
When you spend the time making sure your prospective buyer fulfills these criteria, you’ll put yourself in a great position to close successfully and ensure a quick and smooth transaction.
If you need help selling your multifamily property, eXp Commercial is here. Our objective as your multifamily advisor is to help you achieve your investment goals: from determining the listing price to selecting the best buyer and handling the sale process through to the closing, we’ll facilitate a smooth transaction for you.
Source: Multifamily sellers: How to qualify a buyer before going under contract
https://www.creconsult.net/market-trends/multifamily-sellers-how-to-qualify-a-buyer-before-going-under-contract/Saturday, April 1, 2023
Renovation nation: Why multifamily rehabs can resist economic turmoil
Though demand among apartment renters remains steady, economic headwinds and weakening multifamily fundamentals are having an effect. Given this situation, the stage is set for more apartment owners to undertake renovations to stand out. However, this strategy is not without its challenges.
According to a Q4 2022 Growth Report compiled by Apartments.com, multifamily fundamentals weakened at the end of last year with supply-demand imbalance, higher vacancy rates, and marginal absorption. The report showed that the vacancy rate rose from 5.7% in the third quarter to 6.2% in the fourth quarter, due in part to 96,000 new rental units coming online. As a result, national asking rents fell to 3.7%, a 740-basis-point decline from one year prior.
However, the quarterly snapshot of these figures doesn’t align with a long-term trend. A recent U.S. multifamily capital markets report by Newmark found that new housing completions – which include single-family and multifamily properties – have not kept up with household formation since 2018, resulting in a 400,000-unit shortfall in 2021. Meanwhile, mortgage applications fell by more than 65% in third-quarter 2022 compared to one year prior. This was due in no small part to an astonishing 122.6% year-over-year increase in the average 30-year fixed rate.
A Dodge Data & Analytics report showed that year-over-year multifamily construction starts grew by only 1% in November. While this is far better than the 9% decrease in single-family construction in that period, it shows that, in the coming years, supply will not keep pace with demand.
This is a sentiment shared by builders. In a recent outlook survey by The Associated General Contractors of America, contractors provided their expectations for project value growth across multiple sectors in 2023 compared to last year. The share of respondents who anticipate expanding the multifamily industry edged out those who foresee contraction by only 1%. This is a steep 31 percentage-point drop from the 2022 survey.
The Apartment.com report forecasts 2023 will see the highest new supply totals since the 1980s as underway projects catch up to market conditions. However, the majority of these will be luxury units. This fact, combined with higher interest rates pricing, would-be buyers out of homeownership, and an eventual tapering off of new construction starts, means that demand for many renters is not going away.
Many commercial property owners are seizing the opportunity to renovate their buildings and tap into this demand, updating units and common areas to enhance marketability and profitability. However, one issue is that materials remain more expensive and more complicated to obtain due to ongoing supply chain issues. While this has created challenges for apartment owners looking to modernize their buildings, intelligent procurement decisions can keep a project on target without significant cost overruns.
Knowledgeable contractors collaborating closely with ownership can find the right balance between scope and budget. This includes advising on what alternative materials can be substituted without compromising quality and which projects should be prioritized to maximize ROI.
My firm, Motus Construction, recently completed renovation work on a six-unit apartment building in Forest Park, Ill. The building needed extensive repairs to the existing hot water boiler, plumbing, and electric system. While these capital expenditures came at a considerable cost, we identified ways to make the client’s desired aesthetic changes to all units while staying under budget.
For example, we selected high-quality vinyl plank flooring for the project, which comes at about half the cost of newly installed hardwood. Not only is it cheaper, but vinyl flooring now comes in a broader range of finish options, has better durability, and is often more accessible to the source.
Another strategy we employed at the Forest Park project was painting the impression of a black wainscotting on the white walls in all common areas. This required no additional materials; with a simple paint selection and application, we could give the entry and laundry spaces an elevated, contemporary feel that appears to be more expensive than it is.
The best way to save on material costs is to use what’s already in place. For example, if existing cabinetry or doors are outdated but otherwise in good shape, paint or refinishing can give them a new life, especially combined with updated hardware. Similarly, leaving exterior brickwork or ceiling spaces exposed can provide a room with a modern, industrial aesthetic without needing to buy drywall and framing. However, this only works on specific projects, so it’s best to assess on a case-by-case basis.
Even in the face of higher construction costs, longer lead times, rising interest rates, and tightening lending standards, apartment owners can still maximize the value of their properties through thoughtful renovations. Those who rely on the expertise of skilled contractors are best positioned to maximize their return on such investments at a time when every dollar counts.
Source: Renovation nation: Why multifamily rehabs can resist economic turmoil – REJournals
https://www.creconsult.net/market-trends/renovation-nation-why-multifamily-rehabs-can-resist-economic-turmoil/Friday, March 31, 2023
Multifamily Rent Growth Ends 5-Month Streak Of Declines
Multifamily Rent Growth Ends 5-Month Streak Of Declines
A new report says that rent growth continues steady in Orlando even as it drops in other Sun Belt cities.
Nationwide multifamily rents in January rose from the prior month for the first time since August 2022, growing by 0.4% nationally, new data shows.
The jump comes after rents decreased during Q4 across all 40 of the top markets tracked by Apartments.com, a CoStar-owned company. That drop was a reversal from the trend seen throughout the pandemic, and executives say it remains to be seen whether growth continues this year.
“While snapping the five-month negative rent growth streak is a positive start to the new year, it remains to be seen whether or not demand has truly accelerated,” CoStar Group National Director of Multifamily Analytics Jay Lybik said in a statement. “Year over year rent data continues to decline, highlighting the market’s weakening position.”
Monthly rents rose by $7 nationally, Apartments.com found. But national year-over-year rent growth is different from monthly rent growth, falling from 3.6% in January 2022 to 3.2% last month. Rent growth was far timider than previously, sticking between 10 and 30 basis points and resulting in a hesitant reversal of the weak rent growth seen toward the end of last year, according to the release.
Midwestern markets led the nation in the percentage of rent growth, with Indianapolis, Cincinnati, I, and Columbus among the top five, including Miami and Orlando. Fort Lauderdale and Orlando had the highest rent increases on an absolute basis, rising by $21 — 1.2% and 1%, respectively — in both cities.
Sun Belt cities fared the worst overall, continuing a trend that began in Q3 2022. Rent growth slowed dramatically in Las Vegas and Phoenix, with year-over-year asking rents plummeting from the low 20% range in the final quarter of 2021 to minus-1% in January this year.
Atlanta and Austin may follow similar trajectories, with absolute rents dropping by double digits so far in 2023, Apartments.com said. Month-over-month rents in Austin dropped by 0.1%, and yearly rent growth fell 170 basis points to 1.7%.
“If the positive rent growth trend persists, year-over-year data may finally change its course, signaling supply and demand are closer to regaining equilibrium,” Lybik said.
However, the release said a record number of apartment units are due to come online in 2023 across 13 markets, potentially increasing competition and bringing rents down.
Source: Multifamily Rent Growth Ends 5-Month Streak Of Declines
https://www.creconsult.net/market-trends/multifamily-rent-growth-ends-5-month-streak-of-declines/1120 E Ogden
Retail / Office Space For Lease | 3,674 SF | $20/SF NNN
1120 E Ogden Ave, Suite 101 | Naperville, IL 60563
Broker: Randolph Taylor rtaylor@creconsult.net | 630.474.6441
https://www.creconsult.net/retail-office-for-lease-1120-e-ogden-ave-suite-101-naperville-il-60563/?wpo_all_pages_cache_purged=1
1120 E Ogden Ave, Suite 101 | Naperville, IL 60563
Broker: Randolph Taylor rtaylor@creconsult.net | 630.474.6441
https://www.creconsult.net/retail-office-for-lease-1120-e-ogden-ave-suite-101-naperville-il-60563/?wpo_all_pages_cache_purged=1
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