Third Biggest Story of 2014: Will the Apartment Market Stay Red Hot?
The apartment rental market in the GreenZone in Chicago was red hot in 2013.
Occupancy rates in Class A buildings were above 95% for the first three quarters and only started weakening, but only slightly, in the fourth quarter.
But thousands of new luxury rental apartments are slated to come on the market in 2014, adding to inventories.
Average rental prices rose to record highs in the luxury rental towers but also spiked out in the GreenZone neighborhoods for non-luxury apartments.
This 24-unit building at 2215-2221 N. Clifton in Lincoln Park came on the market in October 2013.
It actually is a 24-unit condo building that has banded together to try and sell to an investor as one big rental building.
Located just north of Webster, it is in the heart of the DePaul neighborhood.
The building consists of:
[unordered_list style=”bullet”]
- 20 large 1-bedroom units
- 4 2-bedroom duplexes
- 24 outdoor parking spaces behind the building
[/unordered_list]
Built in 1896, the building has some of its original woodwork in the common areas.
There are only a select few pictures of the interior of the units. That will vary based on what each condo owner has done with their unit.
The listing doesn’t say anything about washer/dryers in the units.
The listing estimates the monthly income based on neighborhood rental rates at $50,200.
Originally listed at $8 million, it has been reduced to $7.8 million.
Will we see more of this in the future- with condo owners deciding to go rental and selling out to big-time investors?
And what price will it take to sell this building?
Hillary Levy at Baird & Warner has the listing. See the listing here.
2215-2221 N. Clifton: 24-unit building
[unordered_list style=”bullet”]
- Is a collection of condos that is converting to an apartment building
- Originally listed in October 2013 for $8 million
- Reduced
- Currently listed at $7.8 million
- Taxes of $125,500
- Monthly estimated income of $50,200
- Total annual estimated income: $549,512
[/unordered_list]
Let’s talk about housing, shall we?
I’ll be doing a couple of posts this week since it’s the New Year and I know you’re all at home bored out of your minds (and it’s going to be too cold to do outdoor activities.)
As I’ve said, 2014 is shaping up to be an interesting year so let’s talk about it ahead of time. The “mild” Saturday gave me an opportunity to get outside and take some new pictures.
Also- thank you to all the readers who sent me this listing. I appreciate all the tips!
“Vacancy rates in Class A buildings were above 95%”
Occupancy rates, right?
“The listing estimates the monthly income based on neighborhood rental rates at $50,200.”
Harharhar. Love the false precision of the $200; *really* love the false precision of $12 in the annual estimate (especially when it doesn’t deduct for taxes, but does for all the other expenses).
Pretty terrible return based on 7.8 mil
I don’t think of Lincoln Park as worthy of upwards of $2k per month for a one bedroom, unless this place has a doorman or something else that would distinguish it from similarly priced highrise units.
“Pretty terrible return based on 7.8 mil”
Apples and oranges for a lot of reasons, but its a better “estimated” gross return than 1225 Wells. Assuming that the estimate here is solid and that 100% of the RSF at 1225 went for $3.04/sf, or at least that they are both inaccurate in the same proportion–then this one is about 10% better on a gross basis, at current ask, which they aren’t likely to get.
Again, apples and oranges. But, also, this place has some mid-term redevelopment potential, where 1225 is locked in for a few decades.
You all probably know that the Case Shiller index came out today. Their server was crushed for an hour. SFH prices in Chicago up 10.9% YOY – best in 25 years. Condos up a record 14.2%. And Chicago is lagging 14 other cities in terms of YOY increases!
Anecdotally I’m hearing from sellers who are thinking it might be a good time to sell. Could solve the inventory shortage.
“SFH prices in Chicago up 10.9% YOY – best in 25 years. Condos up a record 14.2%. And Chicago is lagging 14 other cities in terms of YOY increases!”
Sabrina, exactly when will we see the effect of rates going up 50% that you were talking about?
“SFH prices in Chicago up 10.9% YOY – best in 25 years. Condos up a record 14.2%. And Chicago is lagging 14 other cities in terms of YOY increases!”
Gosh chuk, these are year to date numbers. No one disputes that the first 5 months of the year were red hot. Have you seen the recent monthly data? I thought not. The price increases have stalled out.
“Sabrina, exactly when will we see the effect of rates going up 50% that you were talking about?”
http://www.nytimes.com/2014/01/01/business/economy/house-prices-rise-again-but-the-pace-could-slow.html?_r=0
After plummeting during the housing bust, prices have increased steadily since the spring of 2012. Prices in 20 major American metro areas increased a modest 0.2 percent between September and October, without seasonal adjustment, evidence that the quick rebound in prices is slowing, according to the closely watched S&P/Case-Shiller data. Higher mortgage rates might continue to slow the pace of improvement going forward, analysts say.
Nationally, the increase in home prices is moderating, the S&P/Case-Shiller analysis said. Prices decreased in nine metro areas between September and October, including Denver, Chicago and Washington, whereas just one saw price decreases between August and September.
“Monthly numbers show we are living on borrowed time and the boom is fading,” said David M. Blitzer of S&P Dow Jones Indices in an analysis of the new data. A big question, he said, is how quickly the Federal Reserve pulls back from its extraordinary efforts to keep rates low.
Sigh. You have the data, but not the ability to understand it. You see what you want to see.
“Gosh chuk, these are year to date numbers. ”
Gosh Sabrina no they aren’t.
“The price increases have stalled out.”
Ha.
“Chicago-area home prices rose 10.9 percent in October from a year ago, the best showing for the local market since December 1988, according to a widely watched housing price index released Tuesday.”
http://articles.chicagotribune.com/2013-12-31/business/chi-home-prices-case-shiller-20131231_1_home-prices-17th-consecutive-month-index-committee
Your bias is unreal. It causes you to make completely incorrect statements and decisions.
Yes- it is year over year numbers. So what? That’s not a surprise. Prices are up like 15% in 2013 over 2012 prices.
Price increases have stalled the last few months.
But what will happen in the spring selling season?
My prediction is that we’ll see homeowners listing earlier than the Super Bowl to try to get on the market to get a bit of these recent gains before the housing market slows again. That should alleviate some of the inventory crunch (but we’ll have to see if it will be enough.)
Anecdotally, I know several people who are listing the second week of January (not waiting for the first or second week of February.) But weather could also be a factor. It’s going to be brutal out there the next week or two. Who wants to drive around and look at real estate in it?
“Sigh. You have the data, but not the ability to understand it. You see what you want to see.”
(Shakes head). Clearly so do you chuk.
I see mortgage applications that have now gone negative year over year- and not just on refis.
You can’t argue with the data. The only thing propping up the housing market are investors. Take them out of the picture and it’s really no better than we saw 2 or 3 years ago. Sales would still be in the cellar.
“Yes- it is year over year numbers. So what?”
So you were completely wrong. You were talking about how good the first 5 months were and how obvious it was. Except that was 100% wrong. It had nothing to do with the first 5 months of the year. Once again, you had the data and you were not able to understand it.
“That’s not a surprise.”
It is to you. Do you need me to find your posts from the fall? You said nothing was selling. Multiple price cuts. The mortgage rate spike was supposed to decimate sales in October. None of that happened, and yet now you say it was “obvious”.
“Price increases have stalled the last few months.”
Agreed. And I think they will remain stalled for a while. I think you will see some areas slightly down YoY next year, and some slightly up. Overall, I expect a relatively flat 2014. However that is a far cry from the doom and gloom you have been predicting since rates started to rise.
“So you were completely wrong. You were talking about how good the first 5 months were and how obvious it was. Except that was 100% wrong. It had nothing to do with the first 5 months of the year. Once again, you had the data and you were not able to understand it.”
It has EVERYTHING to do with the first 5 months of the year. Duh.
Let’s just give an example.
October 2012 price: $100,000.
November 2012 price: $101,000
December 2012 price: $101,000
January 2013 price: $102,000
February 2013 price: $104,000
March 2013 price: $106,000
April 2013 price: $107,000
May 2013 price: $108,000
Whoops mortgage rates begin to rise
June 2013 price: $109,000
July 2013 price: $109,500
August 2013 price: $110,000
September 2013 price $111,000
October 2013 price: $110,500
Wow- October 2013 price is so much higher than October 2012. Imagine that?
And the vast majority of it came within the first 5 months- when mortgage rates were over 1% lower. The rate of increase has slowed sharply in the last several months and went negative from September to October (probably did the same in November and December.)
“(Shakes head). Clearly so do you chuk.”
Except I have been right, and you have been 100% wrong for the last 2-3 years. No matter how much you try to re-write history. And when the market does turn down again, you will be “right”, because that is how broken clocks are right twice a day. I will turn very bearish when the time is right. I am definitely not very bullish now. But I’m also not very bearish.
It’s very easy to be a perma-bear or a perma-bull and gloat while you are in the correct part of the cycle. It is far more difficult to anticipate both bull and bear markets.
“The only thing propping up the housing market are investors. Take them out of the picture and it’s really no better than we saw 2 or 3 years ago. Sales would still be in the cellar.”
Why in the world would you take them out of the picture? If you took all of the women out of the picture, every guy would be gay.
“It is to you. Do you need me to find your posts from the fall? You said nothing was selling. Multiple price cuts. The mortgage rate spike was supposed to decimate sales in October. None of that happened, and yet now you say it was “obvious”.”
Sales were flat year over year in November. Probably the same in December.
It all depends on rates. Get up to 5.5% rates and most people will be priced out of their dream properties at these prices. Something has to give. It’s not going to mortgage rates (most likely) so it will be prices. If we see sales go negative year over year then we’ll see prices decline several months later (at least that has been the trend over the last 5 or 6 years.)
“Get up to 5.5% rates and most people will be priced out of their dream properties at these prices.”
What you will see is a short term decline in demand. When rates go up quickly, people have a psychological problem paying the much higher rate than it was just a month before. Once the rate increases level out, it becomes the new norm and people adjust to it. 5.5% rates will not price people out of their dream properties.
“5.5% rates will not price people out of their dream properties.”
Let’s say you’re a 30 year old looking for a Lakeview or Lincoln Park 2/2.
At 3.5% rates you can get a mortgage for $400,000 with an $1800 a month payment.
At 5.5% rate you are getting a mortgage for $320,000 for that same $1800 a month payment.
You ever see what $400k buys in those neighborhoods versus $320,000? Yeah- it’s not going to be pleasant for the housing market. Something has to give. The buyers will have to move down in price or they don’t buy.
But the Fed has little choice. It has to “normalize” the rates. Heck 5.5% is still very, very low. The problem we now have is that housing prices didn’t correct enough to handle higher rates. Housing prices STILL have to go lower. You can’t get blood from a stone, as I keep saying over and over again. Or, rates have to go lower. It’s either or. Because there is now an affordability problem heading into 2014.
“The only thing propping up the housing market are investors. Take them out of the picture and it’s really no better than we saw 2 or 3 years ago. Sales would still be in the cellar.”
“Why in the world would you take them out of the picture? If you took all of the women out of the picture, every guy would be gay.”
Because the percentage of all cash buyers isn’t normal. It’s been averaging over 30% this year when historically it’s about 6% to 8% of all buyers.
The whole market is distorted. There is nothing “normal” about it. What is happening right now in the housing market is no different than the distortions we saw in the market when the government had the first time home buyers tax credits and those other “props.”
The all cash buyers will go away. Prices have risen. In many markets, it doesn’t make sense to buy at those levels (as an investor.) Once those buyers are gone- look out below.
“Because the percentage of all cash buyers isn’t normal. It’s been averaging over 30% this year when historically it’s about 6% to 8% of all buyers.”
That’s what happens at market bottoms. Guess what happens at market tops.
The Chicago YOY price increases have been increasing lately. The normal seasonal dip isn’t happening as much as it did last year. I see that as bullish.
Also, just checked VERY preliminary December data and sales will be up at least 6.5%. I’ll come up with my final preliminary on the 7th and at that time also give a preview of what IAR is going to say on the 20th.
And it’s not all investors. Investors are buying the crap shack SFHs and the 2 – 4 flats. They’re certainly not buying condos in buildings with rental caps.
I actually looked at the reported financings of recent purchases a short while ago. It’s mostly below 200K. Above 200K it’s less than 20% and often it’s just people who don’t like mortgages. You will see cash purchases of 2 – 4 flats though.
“And it’s not all investors. Investors are buying the crap shack SFHs and the 2 – 4 flats. They’re certainly not buying condos in buildings with rental caps.”
Why would they? Can’t be an investor is you’re not able to rent it out.
Sales up are over 5% and prices continue to rise? Wow. Maybe we will have a melt-up due to the stock market being at record highs. All of those in the top 10% who own the vast majority of stocks are getting rich beyond belief. They HAVE to be feeling good given the year we just had.
Maybe the GZ will see prices soar and the rest of the city will tank this year? The lack of inventory in the GZ will continue to push prices up, regardless of the increase in mortgage rates because such little amount of inventory is on the market, but in other areas where stock market money isn’t in play it will be dead.
This is the bifurcated market. It means move-up properties will do better than smaller starter condos. Not many 20-somethings have big chunks of cash in the stock market but the 30 and 40-somethings should.
Can we talk about this property? If it sells, would each owner of a 1 bedroom get the exact same amount of money?
“The lack of inventory in the GZ will continue to push prices up, regardless of the increase in mortgage rates because such little amount of inventory is on the market”
Now you are starting to get it.
“Why would they? Can’t be an investor is you’re not able to rent it out.”
Exactly. But my point is that this is a lot of the condos out there.
“Sales up are over 5% and prices continue to rise? Wow. Maybe we will have a melt-up due to the stock market being at record highs.”
As you said later it’s the low inventory driving up prices. And I suspect if the inventory materializes we’ll see higher sales.
“Can we talk about this property? If it sells, would each owner of a 1 bedroom get the exact same amount of money?”
I would think the proceeds would be split based on each owner’s percentage interest in the condo, but that’s not necessarily the case. Would be surprised if that wasn’t the starting point in discussing it, tho.
Not taking the time, but curious what the aggregate face amount of outstanding mortgages on the property is.
Side note, Jordan’s house reduced to 16mil after failing to meet 13mil bid at auction:
http://money.cnn.com/2014/01/03/real_estate/jordans-house/index.html?hpt=hp_t2