Why Chicago’s Multifamily Market is Showing Promise

Chicago’s multifamily market is faring well a little over halfway into the year, despite challenging conditions.

“Chicago is getting noticed,” CBRE broker John Jaeger said.

As the region continues to lead the country in rent growth, more multifamily investors are eyeing opportunities to buy, and more sellers are testing the market.

“The fundamentals are outstanding for apartments in Chicago,” said Colliers’ Tyler Hague.

The Real Deal analyzed over 50 multifamily sales, listings, refinances and foreclosures recorded so far this year in Chicagoland to get a sense of where the market stands and where it may be headed.

Out of 16 high-profile multifamily sales reported in the region, eight resulted in a gain for the seller, four resulted in a loss, and four had unknown results due to still-unrecorded sale prices or loan information.

“There’s certainly an uptick in new listings, and that is going to be correlated to interest rates declining,” Berkardia’s Pete Evans said. “But it’s rare that I am going to be the one that will be beating the drum to sell quickly.”

Despite the hope for potentially better returns next year and beyond, about 20 largescale listings have hit the market this year. Sometimes these sellers need to access cash, and other times they’re trying to exit an investment prior to a loan maturity date.

While institutional buyers have been hesitant to dive into the market amid high interest rates and ongoing tax reassessments, private investors have started to take action.

“The rolodex has completely changed,” CBRE’s Jaeger said. “We have a lot of first-time buyers, high-net-worth families, high-net-worth individuals, private investment firms, syndicators and out-of-state money coming in.”

Among those buyers are local private investment firm R.I.G, which bought The Willow Crossing apartments in Elk Grove Village for $89 million last month.

Mapbox map created by Adam Farence

Meanwhile, JPMorgan’s investment arm has been offloading apartments in the city, sometimes at tough losses. The firm has sold three complexes so far this year, including 850 North Lake Shore Drive which traded at a significant discount. Miami-based Crescent Heights paid $80 million for the 19-story, 198-unit property with plans to convert it into a for-sale condo building, and JPMorgan last bought it for $140 million in 2016.

Data from this year shows some distress is creeping into the market with at least four foreclosures of multifamily mortgages over $25 million completed so far. But at least twice as many borrowers were able to refinance debt in the same time period.

In some cases, borrowers relied on mezzanine debt, chipped in their cash or brought another investor’s equity into the deal to extend their holding periods for apartment assets. The end result has pointed toward rosier attitudes in the multifamily market than the office sector, where foreclosures have continued at a steady clip and owners have been less resistant to hand back their keys to lenders.

As the second half of the year takes shape, CBRE’s Jason Zyck said he anticipates an uptick in transactions. And those who invest now will benefit for years to come as supply remains limited by high construction costs.

“There is a significant pipeline in the West Loop and Fulton Market,” Zyck said. “Those may get capitalized in the next 12 to 18 months, but it’s going to take a couple years for them to hit the market. We are forecasting minimal deliveries through 2025, and that is going to keep rent growth strong.”