Chicago Market Conditions: Is a Downtown Apartment Crash Coming?
Here on Crib Chatter, we’ve been debating what’s going to happen to Chicago’s real estate market this year.
What will happen to all the luxury apartment rentals that have been going up downtown for the last decade?
The above picture is of One Bennett Park at 451 E. Grand in Streeterville which has an apartment tower on the lower levels and luxury condos on the upper part of the building.
The rental building is currently offering 2 months free rent as an incentive.
Will COVID-19, and the economic recession, crash Chicago’s apartment boom?
Crain’s has the story.
“It kind of looked like the car was headed off to the ditch,” said DeVries, senior managing director at Integra Realty Resources, a Chicago-based appraisal and consulting firm. “We hit the brakes, and it looks like we’re not going to get into a big wreck.”
First, the bad news: The downtown apartment boom is over. The average net rent at top-tier, or Class A, downtown apartment buildings fell to $3.01 per square foot by mid-May, down 7.7 percent from first-quarter 2019, according to Integra. That was the biggest quarterly drop since at least 2001, even bigger than the declines during the last recession. Integra’s 2020 data runs through mid-May because the firm was unable to collect data after the end of the first quarter because of the coronavirus.
Absorption, which is the number of apartments rented in the quarter, was just 325 apartments over a 4 month period. That’s the lowest since 2012.
What about current tenants not paying rent?
Another positive: Though the number of tenants not paying their rent has risen over the past three months, rent delinquencies downtown generally are not high enough to be a major concern. Downtown high-rise apartment dwellers tend to be employed higher-income white-collar workers who are not struggling to pay their bills.
Crain’s checked in with Wolf Point East, the new luxury tower on Wolf Point with 698 apartments.
It started leasing just as the pandemic hit.
Surprisingly, leasing volume is on pace with the developers’ forecast, and rents are actually a little higher than projected, Galvin said. He expects to have half the units leased in “the near term,” he said, declining to be more specific. Average asking rents for an apartment at Wolf Point East range from $2,207 per month for a studio to $9,250 for a three-bedroom unit.
One statistic to keep an eye on is how many people are moving to Chicago from out of town. At Luxury Living, which is leasing Wolf Point East and several other buildings, renters moving to Chicago from other cities fell 22%.
Occupancy fell to 91.8% in the quarter, which was just a 3 year low and wasn’t as low as the financial crisis level.
Has Chicago avoided a downtown apartment crash? Or is one still to come?
Some landlords remain nervous.
Tony Rossi Sr. isn’t so sure. Rossi, who leads companies that develop, own and manage apartments, is “reasonably nervous” about the future, citing uncertainty over the direction of the job market and the country’s ability to contain the coronavirus.
He worries that many young professionals who moved back home with their parents in recent months won’t return and renew their leases in downtown buildings. One multifamily tower in which Rossi is an investor, at 73 E. Lake St., has a meaningful number of graduate students, many from overseas.
“You have to say ‘Are they coming back?” said Rossi, president of M&R Development, an apartment developer, and chairman of RMK Management.
“We did OK in May, we did OK in June,” he said. “But I just don’t like where we’re headed.”
Downtown apartment market slumps, but it could be worse [Crain’s Chicago Business, by Alby Gallun, June 26, 2020]
Depends on what you mean by crash
While they may be loathe to do so, they can drop rates/offer incentives to drive higher occupancy. This will put more downward pressure on the 1&2 Br condo market
” This will put more downward pressure on the 1&2 Br condo market”
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It will also make for an interesting test of who shifts from apartments to single family homes. SFH give space (important for disease control) but aren’t as nice as a condo or apartment.
“It will also make for an interesting test of who shifts from apartments to single family homes.”
I think the population of people currently renting at places like Wolf Point and One Bennett Park who are in a position to purchase a SFH near downtown is extremely small.
“I think the population of people currently renting at places like Wolf Point and One Bennett Park who are in a position to purchase a SFH near downtown is extremely small.”
Depending on what you consider near DT, If you’re renting a 3BR @ Wolf Pt. You’re able to afford a SFH >$1MM, so I’d say you have a few options
“It will also make for an interesting test of who shifts from apartments to single family homes. SFH give space (important for disease control) but aren’t as nice as a condo or apartment.”
And where they’ll buy the SFH. I don’t think the city can gentrify areas quick enough to absorb the wants, price points and amenities to meet this potential demand. And honestly if you’re moving to Portage Park you might as bite the bullet and commit to the burbs
Small sample size and all but it seems like people in the burbs are putting in swimming pools at a pretty good clip. Interesting if this will be a long term trend and something that families are going to want
“Depends on what you mean by crash”
Suspect it is the inverse of the Haawt Market(tm).
Which pretty much means flat.
“Renters moving to Chicago from other cities fell 22%”
I wonder what was the percentage of renters moving OUT of Chicago to other cities?? An increase of __?
With more and more apartments in the pipeline, i.e. Parkline, etc. There will more and more pressure on pricing as all of these buildings are chasing the same renter profile.
“Depending on what you consider near DT, If you’re renting a 3BR @ Wolf Pt. You’re able to afford a SFH >$1MM, so I’d say you have a few options”
Makes sense on paper, but do you really think couples/families are renting those 3 bedrooms on a longterm basis for $9k per month? That’d be a ludicrous way to live.
“Makes sense on paper, but do you really think couples/families are renting those 3 bedrooms on a longterm basis for $9k per month? That’d be a ludicrous way to live.”
I don’t know who the target market is for a place like this. The only pool of renters I can come up with are
– Athletes
– Retiree/PT resident
– Corp Exec short term housing/Party rooms
– Fake it till you make it Tech/trader bro/broette
I agree its ludicrous, but I also think its ludicrous to buy a POS house in LS for $750k
“I don’t know who the target market is for a place like this.”
I’d guess late 20s/early 30s white-collar professionals who choose to live as roommates in order to have a place big enough to throw parties.
In other words, people who aren’t going to commit to a long-term arrangement.
“Makes sense on paper, but do you really think couples/families are renting those 3 bedrooms on a longterm basis for $9k per month? That’d be a ludicrous way to live.”
I thought Riz has posted that he has a friend renting a 3 bedroom in the NEMA for like $10,000 a month? And that they didn’t want to buy as they knew they wouldn’t be living there that long so buying was a waste of money.
But Riz would have to chime in to give us more on the story.
Also, Wolf Point isn’t the only one with expensive 3-bedrooms. One Bennett Park also has them. Some buildings are ALL expensive like this such as that new rental building in the Gold Coast (the mid-rise one.)
They haven’t had any trouble renting these either, by the way.
“With more and more apartments in the pipeline, i.e. Parkline, etc. There will more and more pressure on pricing as all of these buildings are chasing the same renter profile.”
The article says there aren’t that many in the pipeline, actually. Some buildings have postponed breaking ground or have slowed construction.
They now expect just 1800 new units in 2021, down from 3,000 originally expected. But lenders are still loaning and they expect the number to explode in 2022 with 4800 new units.
If that happens, according to Crain’s, it would be highest one year total in 20 years.
Presumably, this will include One Chicago Place complex which is two big apartment buildings across from Holy Name Cathedral (with one tower being a condo/apartment mix.)
Meanwhile, the only new condo construction is at the luxury end like the Tribune Tower.
“With more and more apartments in the pipeline, i.e. Parkline, etc. There will more and more pressure on pricing as all of these buildings are chasing the same renter profile.”
The article says there aren’t that many in the pipeline, actually. Some buildings have postponed breaking ground or have slowed construction.
They now expect just 1800 new units in 2021, down from 3,000 originally expected. But lenders are still loaning and they expect the number to explode in 2022 with 4800 new units.
If that happens, according to Crain’s, it would be highest one year total in 20 years.
Presumably, this will include One Chicago Place complex which is two big apartment buildings across from Holy Name Cathedral (with one tower being a condo/apartment mix.)
Meanwhile, the only new condo construction is at the luxury end like the Tribune Tower.”
You really channeled your inner JoeZ with this bit of prose…
“You really channeled your inner JoeZ with this bit of prose…”
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It is a gift, isn’t it?
“You really channeled your inner JoeZ with this bit of prose…”
Because I’m quoting Crain’s statistics?
And the one who shall not be named focused on condos, not apartments, until condos went bust and then he did apartments. Is he still doing apartments? I’m assuming he’s just retired and living it up in Florida.
“It is a gift, isn’t it?”
It sure is, johnc
https://yochicago.com/zekas-im-sabrina-from-cribchatter/14598/
CribChatter hasn’t changed much – a tiny group of know-nothing commenters, a weird dude who pretends to be a lawyer, a psycho anti-Semite that I banned long ago … and the current “Sabrina” making assumptions instead of taking a few seconds to learn that I’m still around and doing apartments.
“ and the current “Sabrina” making assumptions instead of taking a few seconds to learn that I’m still around and doing apartments.”
What does this mean? Were you Sabrina previously, and someone bout the site from you or something else?
NEVER SAY HIS NAME.
So I guess I can chime in as one of the ppl you all deem as crazy in this instance and try to shed some light. We sold our SFH in LP last spring after watching our property taxes almost double and crime increase; we moved into a 3BR in One Bennett (and yes we pay an asinine amount). Given that we just renewed an extended lease, as did many neighbors, I can tell you there is a market for ppl that will rent in these buildings ‘long’ term as opposed to buying again in IL. Ppl are here (and I assume WPE and similar buildings) for the finish level of the units, the amenities and the level of service; and it’s those same thing that is keeping tenants after one year. Many renters here also have more than one residence so the fact is that they don’t want to own or deal with maintenance or HOAs. Rents have certainly come down from the a year ago but that’s everywhere (minus an outlier or two) but we’ll take it (and hope it means they won’t break ground on 400 LSD for awhile).
“NEVER SAY HIS NAME.”
I didn’t say it!!! Don’t blame me.
Lol.
“and the current “Sabrina” making assumptions instead of taking a few seconds to learn that I’m still around and doing apartments.”
I’m so flattered, Joe, that you are still reading the site, as there’s no other way you would know that you were mentioned since we didn’t even mention your name (lol).
I figured you’d be long retired by now. I didn’t check to see because I don’t follow the rental market so I don’t know who is doing what in that space.
“What does this mean? Were you Sabrina previously, and someone bout the site from you or something else?”
JohnnyU- his post from YoChicago was an old April Fools joke. Literally from 10 years ago now (time flies.)
“We sold our SFH in LP last spring after watching our property taxes almost double and crime increase; we moved into a 3BR in One Bennett (and yes we pay an asinine amount).”
Thanks for checking in Leo. I know several people who are renting smaller units in luxury buildings because they aren’t going to live there long enough to pay down enough of the loan versus the rise in the property taxes and what that would cost them so why not rent?
Also, the loss of the tax deduction makes it even more attractive to just rent.
“I figured you’d be long retired by now. I didn’t check to see because I don’t follow the rental market so I don’t know who is doing what in that space.”
Good ol’ Joe sure thinks highly of himself but in reality he’s an idiot who bounced around from job to job never really getting good at any of them and moving onto the next thing. He used to shill real estate before the last crash then had to pivot to apartments when his shilling became obvious to even the most uninformed potential customers.
So I’m not surprised he isn’t retired. He has lived a life of poor decisions and now has to keep up the grind to pay his bills. That’s usually how it works with those with personalities like him.
“Thanks for checking in Leo. I know several people who are renting smaller units in luxury buildings because they aren’t going to live there long enough to pay down enough of the loan versus the rise in the property taxes and what that would cost them so why not rent?
Also, the loss of the tax deduction makes it even more attractive to just rent.”
So this would have a net negative effect on the HAWT Market Theory ™ No?
And now you’re arguing that Property Taxes (in projected increases) will have an effect on the market as well?
Jeez, its almost like you’re showing some honesty in this post
“I didn’t say it!!!”
Someone posted the link to Yo in your name. So, yeah, it was “you” who said it:
Sabrina on June 30th, 2020 at 8:09 pm
“It is a gift, isn’t it?”
It sure is, johnc
https://yochicago[dot]com/zekas-im-sabrina-from-cribchatter/14598/
The link isn’t saying his name. And that link isn’t going to tell him that we’re talking about him.
“So this would have a net negative effect on the HAWT Market Theory ™ No?”
Depends on the inventory of what they used to own.
If they owned a 2-bedroom in the West Loop, sold, and decided to rent in Streeterville, is the West Loop market still not hot? Or does that cool it? All depends on how many other buyers there are for those 2-bedroom condos in the West Loop.
If they owned a large 1-bedroom in a luxury building, however, and are now renting, then, yes, they are taking a possible buyer of those big luxury condos off the market. And the inventory for those is high.
“And now you’re arguing that Property Taxes (in projected increases) will have an effect on the market as well?”
There’s a reason there are over 6,000 apartments in the pipeline over the next 2 years but not 6,000 new condos.
If you were an old Millennial with a half mil budget, looking for a SFH your family of 5 with young kids could live in until you were an empty-nester, where would you move?
” that link isn’t going to tell him that we’re talking about him.”
Inbound link tracking. Yes, someone would have had to click on it, but at best it was an attractive nuisance.
I mean if a retired spinster chemist link me knows about inbound link tracking, you’d thing someone who’s run a website for over a decade would, too.
He’s got Google Alerts set up for various forms of his name and several properties he shills for. It’s not rocket science. JohnnyU mentioned him.
“If you were an old Millennial with a half mil budget, looking for a SFH your family of 5 with young kids could live in until you were an empty-nester, where would you move?”
In Chicago? The Chicago suburbs? The United States?
More specific please.
Chicagoland
“In Chicago? The Chicago suburbs? The United States?
More specific please.”
Also: career type. Matters if all (likely) job opps are “downtown” wherever, or if suburban/exurban employers are in play.
Software engineer who changes jobs every couple of years and could work work anywhere in Chicagoland.
“Software engineer who changes jobs every couple of years and could work work anywhere in Chicagoland.”
Depends on what kind of scene you want and how much space.
Could buy in many western suburbs or the south suburbs or the north shore for half a million. The further away from downtown Chicago you go, the more space you will get.
Also taxes are different in many different counties. It would behoove you to compare and contrast.
In the city you’ll have to be in Portage Park, Jefferson Park some outer neighborhoods.
Too many choices to answer that. Depends on what you personally do in your life and what you and your family are interested in.
If that were my budget and plan now, I’d look west, and probably somewhere in DuPage. Lincolnshire and Highland Park (hi Dan #2!) would also be a possibility, but Lake County is kind of a mess.
“but Lake County is kind of a mess.”
Lake County went totally woke, and now, it’s going totally broke.
“Software engineer who changes jobs every couple of years and could work work anywhere in Chicagoland.”
Lisle, Woodridge or Lombard (Only the areas that go to Glenbard West or South)
You’ll be paying 10k in property taxes
Homedelete,
In light of events in AZ, TX, and FL wondering if you have any new perspectives on how Pritzker handled IL.