Sector Defended Against 'Bad-Mouthing'

"I think we're in pretty good shape in the apartment market," says Marcus & Millichap senior vice president Greg A. Moyer, taking issue with "bad-mouthing" of Chicago at the National Multi-Housing convention.

"Chicago took it on the chin," Moyer says. "We're still on everybody's buy list because of our diversified economy."

Moyer concedes that a bubble is bursting Downtown, renters continue to be lost to homeownership, tenants are doubling up, moving home or out of the market. "You're seeing rental signs in neighborhoods that you didn't see two or three years ago," Moyer admits. "But this is a snapshot in time. I think we're in a short-lived cycle."

Vacancy rates will peak at about 6% and rents will remain flat through 2003 except for high-end properties before the cycle is over, Moyer says. Besides the market's diversified economy, Moyer is optimistic long-term because of the large "affordability gap" between renting and owning a comparable multifamily unit.

Other reasons for optimism, says Robert H. Weitzman, co-founder of Group One Investments, include other demographic trends such as the Echo Boomers becoming new renters and their parents, empty-nester Baby Boomers, going back to paying rent. "Those sectors will be big positives in the apartment market in the next five to 10 years," Weitzman says.

Individuals and private syndicates were involved in 58% of multifamily deals nationally in 2001, says CB Richard Ellis senior vice president Malcolm McComb, up from 23% in 2000. But those buyers were warned to exercise caution.

"If you're not professional and not on top of your game, you're buying a red herring," Weitzman says. "We all ought to be doing excessive underwriting as an owner, operator, buyer and seller, because the lenders are doing it."

Lenders are putting out money at rates as low as 6.8%, Moyer notes, which is keeping capitalization rates low. However, McComb predicts interest rates could rise 65 basis points this year.