Multifamily Transaction Volume in Chicago Concentrated in $20M+ Assets

Demand for multifamily assets in the Windy City has been significant, with $1 billion worth of properties in the sector trading this year.

Chicago—Demand for multifamily assets in the Windy City has been significant, with $1 billion worth of properties in the sector trading this year.

To be sure, much of the volume has been concentrated in large transactions in the $20 million and up range, reports David N. Gaines, senior associate, National Multi Housing Group in Marcus & Millichap’s Chicago office.

Because of the surge in sales of large properties, the median price per unit was pushed upward to $91,900, from $83,3000 per unit the year before.

“I think there’s still potential for a lot of growth in that $1 million to $20 million market, in the number of transactions being completed from this point forward versus the last 12 months,” Gaines tells MHN.

Large urban Class A assets, which, Gaines points out, “have been a magnet for institutional capital,” are trading at cap rates around 5 percent. Cap rates for suburban Class B properties near major employment hubs or mass transit, meanwhile, are around 7 percent.

Vacancy in the city was 5.1 percent as of the third quarter, down 40 bps, while asking and effective rents increased 1.4 percent and 1.6 percent, respectively. For the end of the year, Marcus & Millichap is projecting that vacancy in the city will reach 5 percent, with asking and effective rents rising 2 percent and 2.4 percent respectively.

Meanwhile, in the suburbs, vacancy was 4.7 percent as of the third quarter, with asking and effective rents up 0.6 percent and 0.7 percent, respectively. For the remainder of the year, Marcus & Millichap expects to see vacancy decline to 4.5 percent, with asking and effective rents increasing 2.2 percent and 2.5 percent, respectively.

What’s really driven the rent growth downtown, says Gaines, is the lack of new construction. In fact, only about 670 units are slated to come online in 2012 throughout the metro; this is a large decline from the 2,500 units that were completed last year. Additionally, approximately 16,000 units are currently in the planning pipeline over the next four years; while it’s unlikely these will all be built, “it just tells me the development community feels that the demand is there,” points out Gaines.