Chicagoland Apartment Rental Market has Bounced Back from Pandemic Dip

Jon Morgan

CHICAGO, IL – Interra Realty’s Co-Founder and Managing Principal, Jon Morgan Discusses Chicago’s City & Suburb Continued Strength in the Multifamily Market.

Another key aspect of the rental recovery has been the strong demand and sales for multifamily assets, particularly recently remodeled or new construction product. Recent sale prices on properties throughout popular lakefront communities from Rogers Park to South Shore continue to hedge higher and higher, while trades on assets in high-demand areas like Lakeview and Wicker Park push into new per-unit sales record territory.

But there was definitely a period of uncertainty during the first couple of months of the stay-at-home order, and some investors paused deals to see what would eventually happen. But once leasing and rent rolls continued to prove strong and government assistance was announced to help struggling renters cover rent payments, buyers and sellers went almost immediately back to the table, says Jon Morgan, co-founder and Managing Principal of Interra Realty.

“We had a pipeline going into March right at the start of the pandemic that was around $80 million dollars in under-contract stuff and most of it was paused or temporarily canceled,” Morgan says of the early weeks of the pandemic. “But all of it returned shortly thereafter and we wound up getting it all closed.”

Some buyers who put deals on hold at the start of the pandemic ended up paying more in the end on a property after returning to the table, Morgan says. While those weeks seemed uncertain and putting down millions on rentals was a huge risk, many who went through with deals instead of stepping away ultimately ended up playing their cards right while others were starting over during an extremely hot and competitive market.

And as of late, there’s also been a big push out in the suburbs as the rental market continues to grow outside of the city. “In previous years, the suburbs may have represented 10% to 20% of our total sales velocity,” Morgan says of Interra’s brokerage activity. “But for this year, it’s probably going to represent closer to 20% of our total sales velocity.”

Low-interest rates and access to capital have been key drivers of the current residential real estate boom, but the desire to buy and hold hard assets is another important component in the multi-family market, Morgan suggests. The pandemic showcased the volatility in the stock market and more abstract assets such as cryptocurrencies, but a fully-leased multi-unit apartment building offers a greater sense of security for many investors.

“I think as long as interest rates stay at all-time lows, investor activity and appetite is going to remain here for a while until you start seeing rates get back up into the fives plus,” Morgan says. “And that could be some time when you look at economic indicators.”

But how would the market fare if another big wave of COVID panic and mandates hit Chicago? And how are investors weighing other issues such as property tax concerns and the omnipresent pension crisis in their calculations on multi-unit properties? And with prices reaching new heights, how much more room for growth is there in the short term?

“What we’re finding is that the more sophisticated investor is getting opinions and they’re basing their offers off of real estate tax counsel opinions,” Morgan explains. “And I think investors kind of move past [the pension issue] typically because they look at the economic growth, the fact that new companies are still coming here, and they look at the economy as a whole.”

Read the full RE Journals article here.