Chicagoland Apartment Association Preview Breakfast—Optimism Abounds in the Luxury Apartment Market

October 17, 2011 | By Aaron Galvin
Reading Time: 3 Minutes

There are few real estate headlines these days with the word “optimism,” but bring together some of the biggest names in the downtown Chicago luxury apartment business and it’s all smiles.  With rents at historic highs and demand increasing daily, developers who struck it rich with their last offerings are breaking ground again.  More than six thousand new units are set to deliver in downtown Chicago in the next three years, all in prime downtown locations.

The Chicagoland Apartment Association preview breakfast was a showcase for those developers, who are very positive about the downtown Chicago apartment market.  Here is what the panel of developers and industry experts had to say…

Curt Bailey, President Related Midwest 

Proposed Projects:

Property                         # of Units                    Status
500 N Lake Shore        500                               Ready to break ground
111 W Waker                450                               Ready to continue building

His thoughts on the market:

  • We did “years of research and due diligence” to make sure these locations are going to be successful.
  • We are building as 100% rental buildings with floor plans that work for renters (read: lots of studios, convertibles and one bedrooms).
  • Chicago used to be rent until you were ready to buy. Now it’s rent and continue renting for awhile.
  • These properties will be some of the nicest in Chicago.

Greg Mutz, Chairman and CEO AMLI Residential

Proposed Projects:

Property                         # of Units                    Status
AMLI River North          427                             Just broke ground

His thoughts on the market:

  • AMLI has over one billion dollars in the pipeline nationwide.
  • Apartments are selling for much more per square foot in downtown Chicago than condos.
  • Cost to building downtown is not much more than suburbs; a large reason for continued building.
  • Chicago is a relatively easy market to find subcontractors and labor compared to Texas or any southern states.
  • When reselling apartment buildings now, you only need to show single digit rate of return (6-7%) versus the 12%+ before the recession.

Steven Fifield, President and CEO , FRC Realty Inc.

Proposed Projects:

Property                         # of Units                    Status
365 N Halsted               500                              Ready to break ground

His thoughts on the market:

  • Lending has become much tougher in this environment.
  • The major reason luxury apartment buildings are selling is because of the internal rate of return (IRR).  Because these buildings are all 95% or more leased, there is a high IRR.  It is one of the safest investments large institutions can make right now.
  • None of the new developments are using land that requires affordable housing.
  • Prices to build properties right now are the lowest in thirty years.  It’s a great time to build if you can get the financing.

Nick Ryan, Managing Director Marquette Companies

His thoughts on the market:

  • Acquiring lots of properties all over the country; Class A, B and C buildings.
  • Had tremendous success with Trio in the West Loop.
  • Also recognized apartment buildings as one of the safest investments available to large institutions.
  • Construction quality is better than ever because architects and contractors have time to do it right.
  • On retention, 60% of people used to jump buildings each year and now 60% of people are staying.

Mark Stern, Senior Vice President Acquisitions Waterton Residential

His thoughts on the market:

  • Having great success with Mondial in River West.
  • People are getting rent increases, looking around and realizing they should stay.  There are no bargains to be had right now.
  • Cautiously optimistic about the market; there may be too much coming on at the same time.

Stay tuned.  As these buildings continue to break ground, we’ll be following them every step of the way and posting an in-depth analysis of the progress and plans for each property.

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