CHICAGO—The lucrative sales of class A multifamily properties, especially ones in the city, typically generate headlines, but underneath the radar many investors have developed an appetite for older suburban product, and the Kiser Group felt it was time to publish some research on the topic. The Chicago-based firm just produced a sales data report, the first of its kind on this slice of the sector, and found that in 2015 buyers spent about $642 million on B and C properties in the suburbs, and in 2014, suburban Cook developments alone brought in more than $600 million.
"There is a theory that the suburbs are dying," John Meyer, senior managing director at Kiser, tells GlobeSt.com, mostly due to the migration of local companies into the city. "But every multifamily property I list out there has multiple potential buyers."
Kiser examined the sales of class B or C properties that were built before 1990 and had 100% market-rate units. What brings buyers in, Meyer adds, is the enormous potential for rental growth these properties have. "The older it is, the more upside there is; class A properties have very little upside." Furthermore, "there is no more new supply getting built. And the lack of affordable housing has become a crisis, so class B and C landlords are going to benefit. The amount of desire people have for these classes is never ending."
Meyer says that for suburban Cook, 2014 was an outlier, with several purchases worth more than $90 million closing around the same time. In 2015, B and C sales there totaled $259 million, and the average price per unit was about $75,000, roughly equal to 2014 but a 20% increase over 2013. "Select suburban Cook locations like Evanston, Arlington Heights, and Mt. Prospect continue to generate pricing premiums due to factors such as low velocity, limited new construction, and public transit accessibility," the report notes.
"The strength of DuPage County was a surprise," Meyer says. "Buyers absolutely love DuPage," and spent about $213 million in 2015, with an average price per unit of $81,000, the highest of any suburban region. The county saw a 28% increase in sales and a 26% increase in transaction volume over the previous year.
These properties have even proven to be popular with out-of-town investors. As reported in GlobeSt.com, for example, last fall Los Angeles-based Canyon Partners Real Estate LLC, through its Canyon Multifamily Impact Fund, expanded its suburban Chicago holdings by purchasing Parkway Commons in Carol Stream. The 384-unit apartment community was built in 1970 and sits adjacent to Preserve at Carol Stream, a 285-unit apartment community that the CMIF acquired in September 2014. The partners established CMIF as a joint venture in May 2013 to provide higher-quality housing in underserved communities across the US and now own 2,009 units in the Chicago-area.
"There are definitely a few players out there who flip these properties every 12 to 18 months," Meyer says, but "the vast majority are looking at these as a long-term investments."
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
