(To read more on the multifamily market, click here.)
CHICAGO-It's no secret condominium converters have been driving up prices of multifamily rental properties. However, one brokerage firm has quantified the premium converters are willing to pay.
"Almost 5,000 units were sold for conversion in 2005, the majority of which were in the Near North Side and Loop areas," Marcus & Millichap Real Estate Brokerage in a recent report. "Prices for conversions in these areas are currently more than $175,000 per unit, trading at a 43% premium over non-conversion assets."
The median price per unit jumped 17% last year to $82,000, according to the report co-authored by national research manager Erica Linn and national client services manager James H. Holt. In addition to converters, institutional buyers were increasingly active in the market in 2005, they add.
If prices in the Near North Side, Loop and other hot areas are too rich for some investors, Linn and Holt suggest the South Side. "For investors willing to take a more active role in management, properties in this area can prove to be solid opportunities and can often be purchased for less than $50,000 per unit."
Meanwhile, Linn and Holt see concessions winding down, causing asking rents to increase 2.2% this year to an average of $992 a month. The effective rent will rise 4.4%, though, with concessions burning off, they report, to $942 a month.
Construction is forecast to drop 10% to 1,750 units, Linn and Holt say, and any change in that number will likely effect the makeup of buyers. "We expect the condo trend to continue this year, yet converters may reconsider their plans if ground-up development accelerates further," they explain.
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