6th Annual Chicago Multifamily Summit
Bisnow hosted its 6th Annual Chicago Multifamily Summit at the JW Marriott on April 2, 2015, which focused on topics ranging from financing and acquisitions and the future of design, to an extremely in-depth panel on current and future development in Chicago. The panelists comprised of some very influential players in the real estate market, including Gregory Mutz, CEO of AMLI Residential, Jeff Elowe, CEO of Laramar Group and Nick Ryan, CEO Marquette Companies, to name a few.
The developments in downtown Chicago have been on a major upswing for several years, but the question was asked if there was a ceiling and, more specifically, if rent growth will continue at the rapid pace we’ve experienced over the last 2 to 3 years. For Chicago, job growth has been the key to keeping such high occupancy rates, as there is so much demand for high-end housing coupled with the low-inventory of high-end condos. Gregory Mutz elaborated, “The income growth nationally is not very good, but the highly educated group of kids we are renting to today, the income growth is very strong.” David Schwartz, CEO of Waterton Associates agreed, stating, “I think Chicago is similar to a lot of the major markets in the country. The new inventory is super luxury, and you need to make over $100,000 annually to live there.” It’s evident that as long as high-paying jobs are generated in the city, the demand will be there.
As far as a ceiling, the panel did all agree that we are already seeing a slow-down in overall rent growth. Mutz seemed to feel this was a good thing for the city, stating, “I’m actually glad to see them come back down a little bit. It’s going to reduce the supply—it’s just better to be more sustainable.”
Chicago development in its current state was examined quite a bit, but the future of development was a major topic as well. If rent-growth slows down, or even falls, where are the new opportunities for growth? David Schwartz feels there is more opportunity in the Class B buildings. “There is a pent-up demand for high-quality affordable housing,” Schwatz noted. “If you can renovate to a level that are almost consistent with the new product, if you can create unit finishes that are almost consistent to the new product, there is a lot of demand for it. And you’re still in a very significant spread to the new product.” This means renters can get nearly everything on their wishlist, but they don’t have to enter the realms of $3.30/sq. ft., which are prevalent downtown.
Transit-oriented developments, smaller neighborhood projects and mixed-use developments were models the panelists are also exploring for future growth. Pam Boneham, Portfolio Manager for Cornerstone Real Estate Advisors, stated, “We think it’s all about sub-markets, and given the strong demographics that we see in downtown Chicago and in the right sub-markets… if you are tweaking your product and being competitive, we think the next five years look good.”
Gregory Mutz feels the market will continue on a strong trajectory nationally. “We are going bigger with bigger dollars. The last three deals we’ve approved have all been over $200 million,” he pointed out. “We think the major urban cities like Seattle, LA, Chicago, Miami, Atlanta, Dallas, Houston, these are going to be special places. We’re seeing unusual growth and demand for housing downtown. We are going urban and we are doing big projects.”
For 2015 and beyond, the future of development here in Chicago still looks very bright. According to this esteemed panel, it won’t be a blueprint of the last five years, but with some strategic adjustments on scale, concept and location, it will thrive for many years to come.
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