CHICAGO-It’s clear that apartments are the most preferred asset in the Chicago area, with vacancy for the city and suburbs hovering around 6.5%, according to a third quarter Marcus & Millichap market report. However, even low vacancy is having trouble pushing rents off their stable position, new development is non-existent and there’s still not good enough lending for large purchases.
Deals still exist, says Stephen Rachman, a VP of investments for the company. “Multifamily debt has never been more attractive. I would argue we’re in a seller’s market,” he says. “Demand is led by well-located assets, which sets off a bidding frenzy.”
The demand is fueled by the job market, which should see about 40,000 positive new jobs this year, according to the report. This compares to the loss of 234,400 jobs in the Chicago area in 2009. However, the job growth is going slow, with only almost 7,000 new jobs added in the first half.
There are ideas for new development, but not many have broken ground. There are 580 new units under construction in the Loop market, which also has the highest vacancy at almost 12%. Proposed construction in the suburbs totals 5,460 units in 21 projects, but none have broken ground. The second quarter delivery of the 84-unit Commons at Town Center in Vernon Hills will be the only completion this year in the suburbs, according to the Marcus & Millichap report. With little competition, rents will increase slightly by the end of the year.
“It’s nearly impossible to get a construction loan today, there’s just fewer people who can qualify for loans,” Rachman says. “Though it wouldn’t surprise me if we saw a new development in a well-located infill location.”
Multifamily loan originations have increased 37%, but have remained below last year’s levels, according to SVP William Hughes in the report. He said life insurance companies have ramped up lending and CMBS have shown renewed signs of life, but the agencies remained the dominant sources of multifamily lending.
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