Given the ever-changing world around us – politics, world issues, global markets, interest rates, and more – we know that uncertainty will be a consistent theme. As a Chicago multifamily broker for 17+ years, we’ve seen so many ups and downs. I’m sharing observations and tidbits I keep in mind, that give me a positive lens on the opportunities that abound in this market.

• Multifamily continues to be the safest perceived real estate sector. Retail, office, and hotels have all had their own challenges between Covid, people’s desire to work remotely, along with general changing habits of workers.
• Chicago always has an unmatched level of optimism. Despite frequent headlines related to real estate taxes, crime, and anything in between, Chicago continues to be far from a bust to boom city with cap rates almost always higher than the coasts (6%+), and other markets where valuations were overpriced. Chicago balances a sweet spot in being steady and consistent by offering a strong job market across of a variety of industries that attracts a strong and consistent renter population.
• Investors will continue to watch interest rates. Many are holding on until they see a relief in interest rates or more stabilization. Conversely, Sellers may become more motivated as they see opportunities to free up capital and potentially put to better use. Deals have to make sense to both buyers and lenders more than ever.
• New construction buildings are more desirable than ever. Given high construction costs (although it seems that these costs may be subsiding), this is an avenue more people are pursuing. Everyone likes a discount and when there are deals trading below replacement costs that becomes a desirable aspect, plus the lack of near-term CapEx compared to a similar vintage building.
• There are seemingly more buyers in the market than sellers. But not all their pricing ends up working for a seller. It’s always important to tour properties, provide feedback, and be patient.  There is extensive price discovery going on today and as things thaw out, more deals will get to the finish line. Sellers continue to hold on to pricing and would generally rather hold than sell at a discount where buyers are underwriting the deal with higher debt costs. Interra saw an increase in sales velocity exceeding 118% from 2023 to 2024 signaling a substantial narrowing of the bid ask misalignment that occurred in 2023. We expect this trend to continue in 2025 as people have settled into the new reality of the rate environment.
• Buildings with value-add upside continue to be in demand. Location and vintage are always critical, but many investors want to put their own “thumbprint” on bringing the deal “up to snuff” and inherently believe they can do the project more efficiently and effectively.
• Banks remain an integral part of the equation.  Almost all deals need to hit a 1.2-1.25 DSCR or present a clear path to being able to obtain these metrics.  In the past, loans were getting done at 75%-80% LTV while it’s not uncommon to see current deals that need to see 60%-70% LTV.  Construction loan terms are starting to soften as banks want to lend money and are becoming more creative in their approach.

Brad Feldman is a Senior Managing Partner at Interra Realty with over 19 years of experience in real estate. Brad graduated from the University of Wisconsin-Madison and is a licensed real estate broker in the State of Illinois.