It’s harder now to get a successful multifamily development out of the ground in Chicago and elsewhere than only a short while ago, but not so tough that the most experienced players are coming up short. That was the consensus among a panel of Chicago multifamily experts speaking at the Marcus & Millichap/IPA Multifamily Forum Chicago.
Participating were CRG Real Estate Solutions’ Jay Case, JDL Development’s Yale Dieckmann, the Habitat Co.’s Matthew Fiascone, Ginsberg Jacob’s Sonny Ginsberg, Belgravia’s David Goldman and Marcus & Millichap’s Steve Rachman, who moderated.
Land costs are up somewhat, and construction costs are as well, the speakers noted, though not enough to keep strong deals from going forward. Thus experience matters very much in the current market. Projects that aren’t going well often have unanticipated problems that more experienced developers could have anticipated, such as issues with the city or unions or the neighbors.
Experience also matters more now because relationships are huge in lending, in both directions. Lenders are more cautious on multifamily deals, but borrowers and lenders who have strong relationships are able to work together to get deals done, the panelists explained.
As for equity partners, they still want what they’ve always wanted: strong returns. The speakers said they’re seeing a lot more local equity investors now, including local family offices, who perceive that the equities markets are overheated, and who are therefore looking for a safer place to put their money. Real estate is a natural alternative.
So there’s plenty of equity out there for stabilize properties, but again, experience matters. Developers with a strong track record are naturally going to have the advantage as much on the equity side of funding as the debt site.
The speakers also discussed rentals vs. condos, and how the trend of condo de-conversion to apartments has been strong in recent years, but which is slowing down now. One reason is the influx of new rental properties, which have the edge in attracting residents, even against rentals that feature condo finishes. That’s because condo finishes aren’t so different now than high-end rentals.
The conversion of apartments to condos—so popular even for smaller properties in the ’90s and ’00s—is even less likely in the current climate, because the gap in size and finishes and amenities is so wide, that it would be expensive to do. On the other hand, if the economics make sense, developers will do it. If a gut rehab apartment-to-condo deal is worth it, the conversion will be done.