eXp Commercial | Chicago Multifamily Brokerage

Sunday, July 16, 2023

163 E Lincolnway

Just Listed - 23 Unit Multifamily For Sale
$425,000 | Heavy Value-Add | 20.5% Cap Rate (Proforma)
631 E Lincolnway | Morrison, IL 61270
https://www.creconsult.net/for-sale-heavy-value-add-23-unit-multifamily-property-morrison-il/

Saturday, July 15, 2023

Should I Sell or Should I Hold? When is the best time for asset repositioning?

When it comes to selling their investment properties, clients typically ask me,’ Why should I sell?’ Great question. Why should you sell? The obvious answer is that you purchased the investment property as an investment, and it may not be doing as well as other investment opportunities, and after a while, you don’t realize the appreciation and thus maximization of profit from the property until you sell and acquire another investment property. So the question is really, ‘When should I sell? Clients really lose the perspective of the driving reason why they invested in an investment property in the first place. An investment property is just that; an investment. Treated as such, every investment must have a horizon and an exit strategy. If a property was purchased as an investment, then it makes full sense to profit as much as possible from the investment.

The real estate market, like any other market, will go through peaks and valleys. Trying to predict the exact moment of peak or the exact moment the market reaches the bottom is practically impossible. The real estate cycle has four phases; recovery, expansion, hyper supply, and recession. The complete real estate market cycle seems to have an average duration of about 18 years as there is good historical data to support that. So, where are we in that cycle now? How much more upside will we see before we reach the peak? The question really is, ‘What is your appetite for risk?’

Below is a chart of the real estate cycles dating back from the 1800s. The last real estate market crash started at 2006. We are almost 16 years into that cycle. Interest rates are still at all-time lows. Money is cheap, and the threat of inflation is very high. How long can government print money without paying the price down the road? How much road do we have left?

So when is a good time to exit an investment property? As with everything else, real estate is cyclical. Those of us that have been around for some time have witnessed several cycles in the real estate market. Since it is practically impossible to predict the peak of cycles, what strategy should you then use to maximize your investments? Keeping it simple, when evaluating if you should consider selling an investment property, it doesn’t really matter what the current real estate market is like. If you are looking to replace the investment property with another investment property, the ultimate decision to sell should also be based upon if you can increase your returns with the new replacement property, not what state the current market is in now.

There are a number of factors that can impact real estate prices; availability, investment potential, and interest rates, to name a few. Interest rates impact the price and demand of real estate—lower rates bring in more buyers due to the lower cost of money but also expand the demand for real estate, which can then drive up prices. As interests rate starts to inch up, the cost of money increases, and thus the appetite for real estate investments declines.

However, there are many ways that one can still protect their investments. 1031 Exchanges give investors a vehicle to reposition assets and mitigate risk. There are certain asset classes that inherently hold less risk and still perform as an investment vehicle. The questions really come down to; ‘How long do I hold on during this cycle? Do I have the time horizon to outlast another cycle? Is it time to reposition and take advantage of 1031?

As part of the team for our client’s investments, we specialize in building solutions around our client’s needs. We analyze the requirements, crunch the data, and present assets entirely based on their circumstances and the goals they are trying to achieve with their investment.

Have you thought of selling your property and would like to know what it’s worth? Request a valuation for your property below:

Request Valuation

Source: Should I Sell or Should I Hold? When is the best time for asset repositioning?

https://www.creconsult.net/market-trends/should-i-sell-or-should-i-hold-when-is-the-best-time-for-asset-repositioning/

Commercial Mortgage Rates Update

Today’s commercial mortgage rates

Loan program type

Interest rates

Freddie Mac Optigo

5.59% - 7.06%

Fannie Mae

5.17% - 6.67%

HUD 223(f)

5.35% - 6.25%

CMBS

5.29% - 7.47%

Regional Banks/Credit Unions

5.37% - 10.00%

Life Insurance Companies

4.97% - 6.41%

Debt Funds

8.69% - 14.94%

HUD 221(d)(4)

5.95% - 6.85%

Note: These commercial mortgage rate ranges should be considered "typical", but outliers exist on both the high and low end. These are not guaranteed rates on any particular commercial real estate deal.

Commercial Mortgage Rates

Commercial mortgage rates constantly change, and updating live rates is often tricky. Several factors determine commercial real estate loan rates, but the most important factors are supply and demand. Retail real estate investors are constantly looking for properties that meet their investment criteria, and commercial mortgage lenders want to understand the property's risk/return profile for these property investments before making loans available.

How Frequently Do Commercial Mortgage Rates Change?

Commercial Mortgage Rates change every day because most lenders, particularly banks and credit unions, set their interest rates by "index" rates ultimately governed by national institutions like the United States Federal Reserve and the US Department of Housing and Urban Development ("HUD"). Commercial real estate loans involve more risk than government-backed bonds, so interest rates are usually at a premium or "spread" over the underlying financial indices. Commercial mortgage rates are also usually somewhat higher than residential mortgages, except for lower leveraged loans for the strongest borrowers.

Who sets commercial real estate loan rates?

Some commercial mortgage rates are based on the "prime rate" directly governed by Federal Reserve Board. Other commercial mortgages are pegged to US Treasury Bond Yields. Still, others have variable interest rates tied to indices like LIBOR or SOFR, which mirror the rates that financial institutions' own cost of borrowing funds in the global credit market. Commercial real estate loans are typically pegged to one of these economic indices with some added premium or discount, depending on risk.

How are Commercial Mortgage Rates used?

Commercial banks charge higher commercial mortgage rates and fees than residential properties because there's more inherent risk involved when it comes down to lending out large sums of money for investment purposes. The more incredible loan amount at stake may also require additional security measures from borrowers who need these loans, resulting in a more complex loan structure and potential recourse against the borrower's assets and property.

There are eight major commercial loan programs, each with a different range of rates. Retail real estate investors use current commercial mortgage rates to determine their cost of capital for a particular investment to see if it's worth investing in.

The current market conditions determine commercial loan rates, but there is a lot of back and forth with lenders to negotiate terms.

Commercial mortgages can be hard to obtain, especially for borrowers who don't have perfect credit, a high net worth, or a long track record in real estate investment.

Commercial mortgage rates change all the time because they're affected by several factors, such as:

The current economic outlook affects consumer confidence (how much people plan to spend and invest). This also determines if banks need more liquidity.
Federal interest rate changes often affect commercial mortgage rates closely after rising or falling since commercial loans can impact businesses' ability to participate in the local economy and create jobs at home.
Increases or decreases in inflation since property investments are typically long-term assets.

Multifamily Investment Property Loans

Commercial mortgage rates apply to multifamily investment properties (like apartment buildings and mobile home parks) and commercial properties. Retail real estate investors can take out loans for these significant investments, and they have several options, such as fixed-rate or adjustable rates.

Fixed-rate loans offer a stable payment based on the original loan terms over a fixed period, usually between five years and thirty years. These set payments allow commercial property owners to pay off their debt on a predictable schedule that maximizes their cash flow or equity position.

Freddie Mac Optigo Commercial

One of the primary lenders for multifamily investments is US government agency Freddie Mac with their Optigo multifamily loan program. This loan program provides non-recourse commercial mortgages of $1 Million or greater for apartment buildings with stable occupancy and experienced managers.

Commercial Property Interest Rates

The average interest rate for commercial properties fluctuate based on current economic factors. The rates will also vary between various commercial property types. A few examples of commercial property types include:

Loans for property types with solid economic tailwinds typically command more favorable financing rates and terms. Multifamily and industrial properties are currently in high demand on the capital markets and will see some of the lowest interest rates. Lenders may see hotels, office buildings, and specific retail properties as more risky financial bets, so financing rates and terms may be less favorable.

Office Buildings
Hotels and other hospitality properties (motels, resorts, Airbnb rentals, etc.)
Strip Malls
Medical offices
Grocery-anchored shopping centers
Industrial properties like warehouses or factories
Self-storage facilities
Religious centers
Hospitals

Friday, July 14, 2023

Can I Refinance My 1031 Exchange Property?

Many investors engage in a 1031 exchange to defer the total amount of their capital gains taxes and depreciation recapture. However, to do this, you must follow strict IRS guidelines. While no specific rule prohibits refinancing a property when engaging in a 1031 exchange, doing so could jeopardize your tax deferral.

The Potential Problem with Cash-Out Refinancing

Under IRS guidelines, to receive a full tax deferral through a 1031 exchange, investors must reinvest the total sale price from the relinquished property – reduced by allowable exchange expenses - into a replacement property of equal or more excellent value. The investor also must not have any “net debt relief,” meaning that the debt on the replacement property must be equal to or greater than the amount paid off when the relinquished property was sold. However, debt on the abandoned property can be replaced with cash on the replacement property.

If you take out cash at closing, these funds are considered “boot.” Similarly, the IRS has determined that refinancing in anticipation of a sale is similar to pulling money out at a close. As such, cash received at close or as part of refinancing before the conclusion may be subject to capital gains tax, depreciation recapture, state income taxes, and net investment income tax.

Refinancing a Relinquished Property Before Closing

If you plan to relinquish a property with a high amount of equity and low or no debt, the 1031 exchange rules would require you to reinvest all the proceeds and match the debt.

Refinancing the property before selling it would allow you to pull out cash and pay off the current mortgage loan, replacing it with a new, larger mortgage. This also means that going into closing, you would have more debt and lower cash proceeds. When you purchase your replacement property, you will have a lower required investment amount, extra cash in your pocket, and total tax deferral.

While this may sound like a win, unfortunately, the IRS looks unfavorably upon it. Doing a cash-out refinance before selling a relinquished property is considered a step transaction, which is prohibited. Essentially, this means that if you can’t do something directly, such as taking cash out at closing, you cannot do it by taking additional steps to circumvent the rules. However, this doesn’t always mean that the transaction would be taxable.

You may get a full 1031 exchange if you can show that the refinance was not done in anticipation of engaging in a 1031 exchange. In this case, the more time between the refinance and the property sale, the stronger your claim may be. Typically, you’ll want to wait at least a few months.

You may also be able to show that you had “independent business reasons” for the refinance. For example, this may apply if the property needed structural repairs or your business had cash flow problems.

Refinancing a Replacement Property After Closing

If you follow all the rules for a full 1031 exchange and later decide to complete a cash-out refinance on the replacement property, this should not impact your tax deferral. In this case, you’re taking out cash but still must repay the debt, so the transaction does not result in a net increase in wealth. For this reason, the IRS does not typically disallow post-exchange cash-out refinances.

While there is no required waiting period before you can do a cash-out refinance on a replacement property, it’s still a good idea to make sure it’s not done concurrently with the purchase or to prearrange the refinance before the purchase. Otherwise, the IRS may question your intent.

Some Final Thoughts

Refinancing a property before or after a 1031 exchange can create potential tax issues. Every situation is different, so it’s essential to consult with your tax, financial, and legal advisors before executing a cash-out refinance about a 1031 exchange.

Source: Can I Refinance My 1031 Exchange Property?

https://www.creconsult.net/market-trends/can-i-refinance-my-1031-exchange-property/

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

Thursday, July 13, 2023

Renters dig deeper…into their pockets: Chicago experiences fifth-highest monthly rent growth among largest cities in U.S.

One thing that Chicagoans know all too well is that renting in the city comes at a price, and in recent months, rent prices have continued to increase. Apartment List’s May 2023 Rent Report breaks it down:

Chicago Rents Up 1.7% Month-Over-Month; 5.2% Year-Over-Year
The median rent in Chicago increased by 1.7% in April. This represents a total increase of 5.2% year over year, similar to the state average of 5.9%, but far outpaces the rest of the country by a considerable margin, with a national average increase of just 1.7%.

But it’s worth noting that the market had remained relatively stable, despite the ongoing effects of the pandemic, as the metro’s current growth rate of 4.2% is similar to that experienced at this point last year when rents had increased by 4.3% from January to April 2022.

Chicago is the 52nd Most Expensive Large City in the U.S.
The current median rent stands at $1,333 for a one-bedroom apartment, $1,446 for a two-bedroom apartment, and $1,434 across all bedroom sizes (i.e., the entire rental market), ranking 52 among the nation’s 100 largest cities, based on the report. By comparison, the median rent across the country is $1,162 for a one-bedroom, $1,332 for a two-bedroom, and $1,355 overall.

The median rent in Chicago is 5.9% higher than the national average.

Across broader Chicagoland, the median rent is $1,413, meaning that the median price in the city is 1.5% greater than the price across the metro. But this trend is not unique to Chicago. Rent prices are increasing throughout the region—including in the suburbs.

The annual rent growth for the whole metro is 5.6%, slightly above the rent growth rate within just the city. Apartment List revealed that Elmhurst is currently the most expensive city, with a median rent of $1,904, while Waukegan is the most affordable, with a median rent of $1,275. The fastest annual rent growth is occurring in Mount Prospect, with a growth rate of 13.9%, while the slowest is in Naperville, with a growth rate of 3.1%.

Source: Renters dig deeper…into their pockets: Chicago experiences fifth-highest monthly rent growth among largest cities in U.S.

https://www.creconsult.net/market-trends/renters-dig-deeperinto-their-pockets-chicago-experiences-fifth-highest-monthly-rent-growth-among-largest-cities-in-u-s/

Wednesday, July 12, 2023

What Multifamily Real Estate Brokers Want You To Know

If you’re new to the multifamily real estate sector of the commercial market, you may find that it is vastly different from other real estate niches you have previously invested in. While sometimes trying new things can appear daunting, in this case, there are lots of great reasons to pursue the opportunity to expand your portfolio to include multifamily property. There is, however, a lot of valuable information to be aware of before you decide whether or not to move forward. We’ve put together a list of tips multifamily real estate brokers think you should know!

First and foremost, prior to diving headfirst into a multifamily real estate investment opportunity, you should have a very clear picture of what multifamily is. Multifamily property refers to any building or cluster of buildings within a particular complex that are intended for the use and inhabitation of more than one family. This might be pertaining to an apartment community, duplexes, quadruplexes, or even townhomes. Each different sub-genre will come with its own set of requirements and expectations from you, the property owner, so do your homework before commencing a search to determine what type of property makes the most sense for your particular situation.

Know What Makes a Good Market

It’s important, also, to acknowledge that different sectors of commercial real estate will flourish under different circumstances. The ability for a multifamily real estate market to thrive will be dependent on a few factors. You will want to pay attention to the employment rate in a given area, as well as the average rental rates, the current vacancy rates, and the level of construction and growth happening within it to determine whether or not it is a good place to invest. Up-and-coming markets (where employment rates are rising and vacancy rates are declining) are prime spots to begin your search, since both of these factors indicate a growing population and, thus, a growing need for quality, affordable housing.

Crunch the Numbers

In order to determine whether or not a particular multifamily property is a good investment or not, there are a few particular pieces of information you will need. For one thing, you’ll need to determine your Net Operating Income (NOI). This is done by looking at prior years to determine the expected income (from rents, storage and parking fees) as well as the expected average expenses (repairs, maintenance, insurance, etc.) associated with the property. The difference between your income and expenses is your NOI. Next, you’ll need to figure out how much cash flow you stand to gain from the property using your NOI and subtracting from it the cost of your monthly mortgage. The last critical piece of financial information you’ll need is your capitalization rate (or cap rate). This number will give you an idea of how long it will take to get a return on your initial investment. To obtain this, take your monthly NOI and multiply it by 12 (number of months in the year) and divide your answer by the total mortgage amount. A cap rate somewhere between 5-10% is usually indicative of a sound investment, while going too high beyond that typically denotes a higher risk.

Know Your Risk Factor

The multifamily real estate market also offers a level of stability that’s not necessarily consistent with other real estate sectors. With more units paying rents on a regular basis, you are covered should any of those units become vacant for an extended period of time. This ensures that your cash flow is only minutely affected in such a case.

Understand the Effects on Your Portfolio

Investing in multifamily real estate is also a great way to diversify and grow your portfolio simply and in a relatively quick amount of time. In the single-family market, it would take a lot of time, money, and energy to acquire and maintain a multitude of, let’s say 30 properties, but in the multifamily sector, one good acquisition (let’s say a single building with 30 individual units) can have the same effect on your portfolio without the headache of purchasing, inspecting, and securing funding for 30 separate spaces.

Know What Makes a Good Multifamily Real Estate Broker

Not every multifamily real estate broker is created equally! Finding the one who will work best for you comes down to understanding what sets a quality broker apart. A top broker has experience, not only in the commercial field, but with expertise in this particular niche. They will understand the fluctuations of the local market and, therefore, be able to more effectively help you to find the investment opportunity that is best for you.

Source: What Multifamily Real Estate Brokers Want You To Know

https://www.creconsult.net/market-trends/what-multifamily-real-estate-brokers-want-you-to-know/