Here's What You Missed At Our Multifamily Summit
Multifamily, multifamily, multifamily. It's all nearly everyone in Chicago real estate wants to talk about these days. And for good reason. Multifamily may be the dominant sector in Chicago real estate in the first half of 2016.
Nearly 700 people attended Bisnow's 7th Annual Chicago Multifamily Summit at the JW Marriott this morning to hear a star-studded group of speakers weigh in on the state of the multifamily sector, where it's going and what to be wary of moving forward.
In her opening remarks, Axiometrics VP Stephanie McClesky says the near term is almost like a supernova. Chicago multifamily is enjoying 3% rent growth, but that will dip slightly as the nearly 15,000 units in the pipeline are delivered through Q4 2017. This will result in a brief oversupply, further constricting rent growth until Q3 2018. At that point, Stephanie expects rent growth to return to a healthy 3% spread for the next few years.
The Private Bank president of CRE Karen Case (pictured with Hunt Mortgage Group CEO Greg Cazel) says lenders have been busy in this cycle. The Private Bank is financing Buzz Ruttenberg's Belgravia condo projects in the West Loop, developments in the South Loop and infill projects on the North Side. These smaller condo projects are desirable because they're "bite-sized" and can be built relatively quickly.
But developers seeking funds must be mindful of tightening guidelines on construction and land loans in the immediate future. Karen says regulators are concerned about oversupply and are applying these constrictions across all product types. As regulators are having banks review their lending commitments, expect to see a pullback on lending over the next 12 months. Karen concludes that the question developers should be asking lenders is if there's money for them. If lenders ask for deposits, that puts you on a priority. Karen recently returned from a trip to Cuba and dreams of what could be done with historic tax credits there with buildings that have been untouched for over 60 years.
With 10,000 Baby Boomers turning 65 every day—a trend expected to continue for the next decade—Evergreen Real Estate Group president Stephen Rappin says his firm is making a strategic shift into affordable senior housing. Evergreen is investing in assisted living and memory care facilities, paid for by Medicaid, to accommodate Boomers as they age. Stephen says the average age seniors enter assisted living facilities is 85. As the Boomers enter their golden years, he expects that trend to accelerate over the next 20 years.
Fifield Cos CEO Steve Fifield (snapped with daughter Samantha, who's now interning at the firm) has long been a critic of Chicago's amended Affordable Requirements Ordinance. Steve minced no words during the development panel about what he feels is the short-sightedness of the Emanuel Administration and the lack of pushback from the real estate community on the ARO. Steve and the other development panelists agree that the lack of affordable housing in Chicago is an issue, but the ARO as written won't put a dent in the problem. Instead, Steve says we should look at how cities like New York have tackled the subject. The Big Apple demanded allotments for affordable housing in exchange for exempting developers from property taxes. The plan spurred growth in affordable housing and tax revenues from increased retail activity before Mayor Bill De Blasio ended it. Steve suggests the city have developers put in 10% affordable inclusionary for 20 years for a 50% real estate reduction for the same time frame. The new ARO only gets the city 2.5% inclusionary affordable under the current rules. According to Steve, his suggestion would quadruple the affordable units built on those affected deals.
Ascend Real Estate Group president Walt Rebenson (right, with development panel moderator, Pircher, Nichols & Meeks partner Gene Leone) says the amenities arms race has gotten out of control, driving increases in construction and management costs. Bigger amenity packages are driving chunk prices down, which is why Walt is constantly debating amenity packages for his buildings. He's finding with his 905 N Orleans development that the more money invested in the apartment and the chunk price, the better the value for the tenant. Another thing Walt loves about 905 N Orleans: the diversity of his tenant base. He says it's a wide swath of age groups and demographics.
AMLI Residential CEO and born comedian Greg Mutz says he's had a ton of success with apartments in urban cores, but is being more selective in finding good suburban markets. Gene says AMLI sticks to its essential metrics in determining where to build: density, transportation, TOD and WalkScores. Greg is also aware of the growing number of Baby Boomers entering the rental market as they become empty nesters, citing a study that shows 75% of renters age 55 and up live alone. One of Greg's funniest lines of the morning: on amenities, he draws the line at dog spas.