We heard CRE appraisals are less fun than watching paint dry, but Integra Realty Resources-Chicago Metro managing director Gary DeClark gave us a sneak peek at IRR's Q1 numbers and we almost fell off the edge of our seat.
Gary plays a killer drum solo (he's in an over-50s band called Logjam) and can value any CRE asset class you throw at him. CBD office has 15.5% vacancy in Q1 compared to a ghastly 25% in the suburbs, proving that migration downtown is in full swing, Gary says. Retail valuations have been plentiful at IRR, thanks to strong market activity and low vacancy (6.25% for regional malls like Woodfield). While many strip centers have been demolished or converted to alternate uses, rumors of the death of malls have been greatly exaggerated, he says.
According to Gary, valuations are "based upon the anticipation of future benefits," and his services in appraisal, adaptive reuse, and expert testimony are retained by anyone from lenders to pension funds to international buyers. On the multifamily front, CBD vacancy came in at 4% with suburbs at 4.5%. This sector continues to be a CRE darling with 75% institutional buyers who are hungry for product, Gary says. He has noticed the micro apartment trend in recent valuation assignments and says it remains to be seen if tiny square footage will gain traction in Chicago. And valuations will be more like economic feasibility studies for now, with no local precedents to hang your hat on, he tells us.
Industrial was Chicago's biggest surprise in Q1 and is the new sector to watch, Gary says. It's true that all roads lead to Chicago, as the city supports intermodal activity (truck and train) on paths to LA, Denver, and Dallas (activity on this north-south lane has seen rapid growth thanks to North Dakota's oil boom). So while congestion on the Kennedy may have you popping aspirin, industrial traffic coupled with 9.5% vacancy in bulk warehouses point to pent-up demand and a development surge, Gary tells us.
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