(To read more on the multifamily market, click here.)
CHICAGO-The lack of class A apartment product is one factor influencing the multifamily market. "The worst property is at 98% occupancy," said Jim Loewenberg, co-CEO, Magellan Development during a panel discussion at the fourth annual RealShare Chicago. Matthew Lawton, senior managing director, Holliday Fenoglio Fowler explained that condo conversions have slowed down. "Multifamily owners have been capitalizing on the sales to convert, especially within the investor pool." Nearly 400 industry insiders attended the conference, which is produced by Real Estate Media, publisher of Real Estate Forum and GlobeSt.com.
Other factors affecting the market right now for developers are cost increases. Land, labor and materials are all going up and it all affects the feasibility of a project. Loewenberg says developers "estimate what the increases will be and pass it on to the buyer. You have to."
Lawton points out that Chicago is still very affordable in comparison to other cities, especially both coasts. Lev adds that a developer has to determine what kind of return you'll get from a project. "The product type is important. Townhomes often are lower risk because you can spread out the cost over a longer period of time. You can't do that with a high-rise." <P.Alan Lev, president, Belgravia Group Ltd., described how his firm has been active in creating a product niche for first-time buyers, especially with the 20 to 30-year old age range. "Many first-time buyers can afford a unit based at $240,000. Other factors influencing the market are people shopping for second homes and baby boomers buying units for their adult children."
Laura Sherman, senior vice president, LR Development, says that the demographics for buyers have become much broader. "The appeal of living in the city has become much more widespread. Many suburbanites have decided to make a move."
One aspect of the rental arena that is hard to track is the shadow market. Lawton explained that there are some condominium properties that could be 40 to 50% rented out by investors who bought those units for that reason. "They use a different marketing strategy to rent out those units," he says.
The panel discussed how condo developers have become choosier with their buyers. Tracy Larrison, senior vice president-Commercial Real Estate Group for National City Bank, says that "sometimes 5% down just isn't enough. Higher end products need 10% down." Lev added that some project ask buyers to not just be pre-qualified, but pre-approved as well.
Larrison said lenders are looking for projects in good locations and requirements of at least 10% down by the buyer. "Many builders of smaller projects want to get in on high-rise developments. Most just don't have the experience or track record for it so we pre-screen projects looking for those red flags. Some lenders are steering clear of the condo hotel market."
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