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Value-Add Acquisitions, Up-And-Coming Neighborhoods The Focus Of Chicago's Real Estate Investment Experts

Investment is changing in Chicago. We asked the panelists of Bisnow's Eighth Annual State of the Chicago Market event, Oct. 18 at NewCity, how they're updating their strategies in response.

Student Housing: Looking For Transitioning Schools

The Scion Group president Robert Bronstein

The Scion Group president and aspiring Formula One driver Robert Bronstein says while Scion’s advisory group is involved in several large local projects, including working with the University of Chicago on a new development in Hyde Park, Scion isn’t active in the Chicago market as an investor these days.

Scion’s student housing investment strategy is centered on large public universities that represent a state’s flagship school, or a tier below, with a focus on STEM and tremendous value for the tuition. Scion is one of the most active and aggressive acquirers in the country, with over $2B in completed acquisitions in the past few years. Robert says, with the exception of the University of Illinois at Chicago, Chicago-area schools are traditionally private, commuter schools. Here, student housing demand is not as countercyclical to the economy as it is in more traditional college towns. What student housing investors in Chicago are looking for: assets where students are making the transition from commuter to resident, plus a bit more yield on the returns relative to multifamily.

Buying Distressed In Up-And-Coming Submarkets

Craig Huffman, Principal, Ascendance Partners; Alderman Toni Foulkes; Al Klairmont, President, Imperial Realty Company; Aarti Kotak; Sheila Eisenberg; Peter Eisenberg

Ascendance Partners principal Craig Huffman (left, with Alderman Toni Foulkes; Imperial Realty president Al Klairmont; Aarti Kotak; Sheila Eisenberg; Peter Eisenberg) says for midsized players, it’s important to find attractively priced assets in its target submarkets that will move in a positive direction over time. For Ascendance, that means targeting distressed retail, office and multifamily assets that require some level of capital, management or construction value-add in neighborhoods with upside potential, as the asset's value will grow in tandem with the neighborhood's fortunes.

Ascendance raises smaller investment funds and focuses on hands-on management of the assets it acquires. Craig says self-managing is key in submarkets because it protects the value of assets and because it is hard to find high-quality management companies in the neighborhoods his firm generally targets.

Ascendance’s newest challenge: the firm was selected as the developer of Phase 2 of the Whole Foods, Starbucks and Chipotle-anchored development in Englewood. Craig says Ascendance is in talks with several retailers and restaurant operators that have expressed interest because of the opening of Whole Foods and Starbucks last month.

Acquisition Instead Of Development...And Different Investors

KIG managing partner Todd Stofflet

KIG managing partner Todd Stofflet says investor interest in multifamily remains strong—both in the city and the suburbs. Todd says there’s a profusion of real estate on the market, which includes new construction and value-add properties. However, as large institutional groups tweak their investment parameters to decrease risk in core markets, private investors are emerging to gain acquisitions in more competitive, secondary markets. Todd says 85% of KIG's investor pool is still seeking value-add opportunities, a trend he expects will continue well into 2017.

In this vein, KIG’s clients are starting to focus more on acquisition than development and as the cycle matures and construction financing has tightened, expect to see fewer development deal approvals. That, coupled with the changes to the city’s ARO, will render new, large construction deals more difficult to execute, which makes smaller, as-of-right development opportunities more attractive.

To learn more from our expert panelists, attend Bisnow's Eighth Annual State of the Chicago Market event, 7am Tuesday, Oct. 18, at NewCity. Register here.