Narrow Asset Class Focus, Smaller Size Reap Giant Rewards For Midsized Brokerages
The bigger brokerages are entering neighborhoods like Logan Square, Rogers Park, Edgewater and Washington Park as larger investors start to dabble in acquisitions there. But the new competition in these markets hasn't fazed the midsized companies that have been feasting like kings there.
Interra Realty managing partner Brad Feldman has made a killing in the outlying neighborhoods for nearly 11 years. He started his real estate career with a four-year stint at Kiser Group, focusing on multifamily and mixed-use in Evanston, Hyde Park, Bronzeville, Washington Park and Kenwood. Feldman said there's a ton of multifamily opportunity in neighborhoods like Rogers Park, Edgewater and Logan Square, where Interra has sold 15 to 20 buildings in the past three years.
Despite the velocity of transactions in these markets, there's little in the way of institutional investment or new construction, and the buildings are owned by individuals or small groups of investors who want to cash out. The returns in these neighborhoods are better than in more mature markets like Lincoln Park and Lakeview, but he said it's unwise for brokers to enter those markets because it's hard for a broker who isn't already established there to find opps, as sellers will stick with brokers they know.
Aside from his database, Feldman told Bisnow that Interra has been dipping its toes into data sets to source some new opportunities. Feldman has used CoStar and Axiometrics, as well as a program called Cartofront that adds information to neighborhood maps like zoning, ZIP codes and addresses of possible opportunities.
But data can only take you so far, which is where cultivating and maintaining relationships with who's active in a market, valuing a building and successfully marketing it to buyers cannot be discounted.
Monarch Realty Partners managing broker Bill Baumann (center, with principals Brian Semel, left, and Michael Anguiano) told Bisnow that his firm's smaller size can actually be an asset in attracting investors who aren't institutionally backed to Chicago's outlying neighborhoods. "We want to gain as much market share as possible," Baumann said, "but we realize that we can't do that with manpower." Baumann believes investors can be frustrated when larger brokerages aren't synchronized in their approaches and have several junior brokers calling the same client.
Baumann investors below the institutional level have different requirements regarding what they can or can't buy. Institutional investors are seeking larger portfolios and longer holds, while smaller investors are seeking smaller opportunities in the outlying neighborhoods and analyzing factors like cap rates, where to buy and the expected return on a building before locking in deals. But it can be tricky, since each neighborhood has its own unique criteria that affects a building's value. Can a building qualify as a TOD? How is a neighborhood's population and economic growth affecting the velocity of activity? Baumann believes in-depth conversations with clients on what their needs are dictates what neighborhoods they do business in.
Another key to Monarch's success is maintaining discipline toward the asset classes it deals with. Baumann, Semel and Anguiano — who all left Kiser Group to form Monarch last September — work almost exclusively in value-add multifamily and mixed-use because that's where their expertise lies. Monarch has nearly $52M in listings, ranging from Rogers Park on the North Side to Washington Park farther south. It's closed on over 300 deals to date, totaling over 900 apartments.