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It's Going To Be A Good Summer For Downtown Multifamily Landlords As A Full Recovery Comes Into View

The downtown apartment market came roaring back this spring, and the rush of new renters to developer Michael Moceri’s downtown apartment building put his firm in an unexpected position. Instead of spending this year scrambling to stabilize its new Parkline Chicago tower, the building at 60 East Randolph St. in the Loop began filling up so fast that Moceri + Roszak sought to slow down the pace of new leases. 

“Something happened, the switch was turned on, and everything went crazy,” he said. “We had no idea we would be leasing as well as we have, but the market is crushing it.”

Parkline Chicago

Moceri + Roszak started offering the Parkline’s 190 apartments earlier this year, and as anticipated, the first couple of months were slow. But a springtime flood of renters came through the doors, and instead of worrying about how it will fill the building, the company now wants to avoid having too many leases expire at the same time next year.  

“We don’t want 30 leases a week,” Moceri said. “That’s not healthy for a building of this size.”

It’s a nice problem to have, he added. Moceri + Roszak slowed leasing activity by raising rental rates and cutting down concessions. Other downtown apartment developers did so as well, and Moceri said rental rates and concessions are nearly back to pre-pandemic levels, something he would have found unimaginable just a few months ago. With downtown restaurants, bars, parks and stores attracting bigger crowds, the picture grows brighter each week, and a complete recovery is now in sight.

“Last year we had an exodus from the CBD because there was nothing to do,” Lendlease Executive General Manager Ted Weldon said.

When the coronavirus pandemic hit, Lendlease was in the middle of leasing up The Cooper, a 29-story tower at its Southbank development in the South Loop along the Chicago River. It had hit about 80% occupancy, and company officials expected it to reach full occupancy by June 2020. Instead, they watched occupancy fall to 69% as residents moved out, including young people who returned to their parents’ homes to wait out the crisis.

But as the weather got warmer, vaccinations spread and public health restrictions loosened, the exodus reversed. Lendlease began signing 30 to 40 leases each month at the 452-unit building, which is now about 95% leased.

“We are fully stabilized at that building, and it happened in just three months,” Weldon said.  

The downtown market had already recorded a strong Q1 this year. Tenants leased 2,667 apartments, the most ever for a single quarter, according to a report in Crain’s Chicago Business, citing data from consulting firm Integra Realty Resources. That pushed occupancy up from 86% in Q3 2020 to more than 91% in Q1.  

Downtown Apartment Co., a rental agency that works with more than 200 buildings, saw its move-ins spike in Q1, with an 85% increase in March and a 50% increase overall, according to Managing Broker Ben Creamer. Move-ins were 77% higher in Q1 2021 than in the same period in 2019.

State Street

But the winter was tough for the owners of properties just opening their doors, according to Moceri. His firm’s property managers track the competition closely, and in January they noticed that established downtown luxury apartment buildings were getting aggressive on rental rates and concessions, and had a lot of success, with some signing dozens of leases per month.

That left almost nothing for buildings such as Parkline, he added. Moceri + Roszak decided to keep units more affordable at the start of the year, and in February succeeded in signing a few leases with rates about 12% lower than originally budgeted. But the spring turnaround meant the company could slowly ease up on those cuts, and leases signed now are only 2% to 3% lower than budgeted.

“Our original goal for this year was just to fill the building, but then we realized we had the opportunity to both fill it and push rents,” Moceri said.

The first move-ins at Parkline occurred in March, and as of this week, 148 leases were signed, or nearly 78% of the apartments. Moceri now expects to stabilize the building by July and to position it so most leases expire between April and September of 2022.

“If we can have our leases expire in that time frame, we’ll be in a good spot,” he said.

The quick spread of vaccinations had a tremendous impact, Moceri added. The largely closed and dark Loop was unattractive to many prospective renters throughout the winter. But with the city set to fully reopen June 11, amenities such as Millennium Park and the Riverwalk are again crowded, students are looking forward to starting classes at the many downtown colleges, and many new renters at Parkline told Moceri + Roszak that their downtown offices will soon reopen.

“We were surprised by the way the market switched on, but they’re being told, ‘Hey, you will be expected back in the office this year,’ and with the streets getting busy again, they also want to be downtown for a normal summer,” Moceri said.

“People are looking for a change of scenery as we come out of the pandemic,” Weldon said.

Creamer’s company also saw activity accelerate. In April, it saw a 147% increase in move-ins compared to April 2019.

“We started in 2009, and we’ve never seen increases like that,” he said.

Lendlease's Cascade under construction earlier this year

And the demand is coming from a wide range of renters, Director of Leasing Ericka Rios added. That includes people relocating from other cities for work, students moving back downtown in preparation for the fall, office workers who want to stay at home but prefer a larger space and a lot of traffic from medical professionals that work in hospitals in or near downtown.

Lendlease recently topped off Cascade, a 37-story, 503-unit rental tower at 455 East Waterside Drive in its Lakeshore East neighborhood. It was 13% pre-leased, Weldon said, and Lendlease also saw a spring rush for the building, signing about 70 leases in six weeks. And Lendlease had about 80 applicants in May for Porte, a two-tower, mixed-use development at 855 West Madison St. in Chicago’s West Loop, developed with partners The John Buck Co. and Intercontinental Real Estate Corp. and opened during the pandemic. It’s now about 70% leased.

Lendlease had been offering up to three months of free rent earlier this year to some prospects, Weldon added, but with demand intensifying, the company is scoring leases with only one or two free months. It’s also pushing up rents, but that doesn’t mean the market has reached normalcy.

“Knock on wood, as long as the [coronavirus] numbers continue to go down, and we can get past this, by next spring or summer things will have returned to normal,” Weldon said.

When including concessions, rents in Class-A downtown buildings rose from $2.53 per SF in Q3 2020 to $2.98 per SF in Q1 2021, according to Integra Realty Resources. That’s below the record of $3.31 per SF set in Q2 2019.

But apartment landlords got more good news this week on the strengthening recovery. According to a new study by Chicago Loop Alliance, an association of downtown businesses, pedestrian activity in the Loop continued the gradual climb that started in the spring, and in May was at 45% of the pre-pandemic level. In addition, human occupancy of offices exceeded 20% of the normal rate for the first time since March 2020. That's a boost from April 2021, when human occupancy was at 16%.

Larger gains are expected this summer, Chicago Loop Alliance CEO Michael Edwards said, as BMO Harris, JPMorgan Chase and Citadel announced that they’ll bring a total of 10,000 workers back downtown by the end of July.

Edwards praised Mayor Lori Lightfoot’s administration for reopening downtown landmarks such as Buckingham Fountain, which sent the message that downtown was safe again. The administration is also helping the alliance put on a weekly summer street fair, which will close State Street to cars on Sundays starting July 11, and host concerts, theatrical performances, food vendors and other events.

“It’s our way of drawing people back to the Loop, and hopefully, one of the results will be more downtown apartment leases getting signed,” Edwards said. “Things are definitely improving. We’re seeing it on the streets.”