"Buyers will pay 100 to 150 basis points lower because they know they can raise their rents" shortly after the transaction closes, Greg A. Moyer, senior vice president, Marcus & Millichap, Chicago, tells GlobeSt.com's Midwest Bureau Chief Mark Ruda. "If you have a building with a cap of 8%, you would have 10 offers on it."

The hottest multifamily submarket in Chicago is the North Side where supply isn't keeping up with demand, Moyer says. Job growth has outstripped rental housing production for a decade. "We're still adding jobs," the broker tells Ruda, but "we have not kept up with new construction."

In the Sun Belt, rents are rising and occupancies are high at most apartment communities, reports GlobeSt.com's Southwest Bureau Chief Connie Gore.

"Multifamily investments have done so well over the last 10 years, it's hard for me to say anything but that they are the best thing going," Sam Lewis, vice president, Grubb & Ellis Co., Dallas, tells Gore.

"Multifamily has been historically viewed as less volatile in terms of income stream than other real estate investments," Lewis says. "The income is more consistent, which in turn, makes it a safer investment overall."

Cap rates are generally 8% to 8.5% but Barry Brown, senior director, Holiday Fenoglio Fowler, Dallas, pegs cap rates up to 8.75%. Brown tells Gore the Texas multifamily market appeals to institutional investors "looking for a hedge against a downside in the market" and to private syndicated buyers backed by Freddie Mac and Fannie Mae.

"Lenders are very receptive to the multifamily product," Brown says. "Both the equity side and the debt side have a very strong appetite."

In the Northwest, Portland, OR and Vancouver, WA are gearing up for a banner couple of rental and sales years with 10,914 new units expected to surface between now and 2002, GlobeSt.com's West Coast Bureau Chief Brian Miller reports. About 3,940 units are rented annually.

Vacancies of 7.1% are projected to drop to 5.5%. Rents are expected to increase 3.1% this year and another 3.5% in 2002. Average monthly rents are $685.

Sales prices, which dropped by 8.57% in 2002 to an average $54,247 per unit from $59,988 per unit in 1999, are expected to rise 3.5% in 2001.

Larger and newer apartment complexes are seeing cap rates of 8.25% to 8.5%, broker Gregory Frick of Portland-based Hagerman Frick O'Brien tells Miller.

"Apartments are historically less risky than office because there not one tenant occupying 30% of the property," Frick says. "Terms of leases are shorter so it can be easier to push rents in an up market and easier to recover in a down one."

Multifamily investment won the attention of a 10-member panel recently at the Transwestern/Real Estate Forum's annual institutional investor symposium held at the Michigan Avenue Westin Hotel, Chicago.

Steven E. Pumper, president, owner advisory services, Transwestern Commercial Services, Chicago and Michael G. Desiato, editor-in-chief, Real Estate Forum, New York, moderated the event.

"I view housing as a necessity item, more than some of the property categories," Eugene R. Skaggs, managing director, Northwestern Investment Management Co., Milwaukee, told the panel. "I also have a long-held belief that the best thing to do (in investments) is to avoid investing in wasting assets."

He says, "In a soft market, you may have to give a month's free rent, but you'll be able to reprice apartments with great frequency."

But "when you have an empty office building that you have to fill, you end up with a huge investment in a wasting asset," Skaggs says. "You pay commissions on it and you lock yourself into a long-term lease that you can't get out of."

Like Grubb & Ellis Co.'s Sam Lewis in Dallas, Marcus & Millichap's Greg Moyer in Chicago and Gregory Frick of Hagerman Frick O'Brien in Portland, OR, Skaggs agrees apartments "inherently have a much lower risk associated with them."

The Milwaukee executive told the Transwestern/Real Estate Forum panel multifamily product isn't "as management-intensive as shopping centers, for instance, and there's liquidity associated with them." Skaggs adds, "They can (also) be readily financed on attractive terms."

Not only that, but the rent structure can be played with more readily than with retail, office or industrial, suggests Walter M. Korinke, vice president, Delaware Investments, Ft. Wayne, IN.

"In multifamily, when it's time to adjust rents, you can adjust quicker," Korinke says. "When people are prepared to pay more, you can adjust rents immediately--you don't have to wait years to do it."

Another element that makes multifamily an attractive investment today is the ever-changing product itself, suggests panel member, Steven P. Wallace, managing director, Cornerstone Real Estate Advisors, Chicago.

"If you look at the last major supply increase in multifamily decades ago versus what's being built now, it's a completely different product, one that's appealing more to young professionals and empty nesters," Wallace says. "They're bigger units," for example.

He says, "the new product has been very readily absorbed, even in markets with occupancy numbers not where you would like them to be." Wallace adds: "If you are the first in with this kind of product, you win--even in Dallas.

Instant Insights /

BIG PICTURE: Multifamily Is Everybody's Favorite Investment, Experts Tell GlobeSt.com

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