CRE Professionals Sounding Notes of Caution
More than 48% said the city and state’s political and financial woes is of great significance and 38.5% ranked the significance as modest.
CHICAGO—One of the iron laws of economics is that the good times don’t last forever. And amidst the plethora of good news on today’s economics front, including solid job growth, consumer confidence and exploding demand for new industrial property and in portions of the multifamily market, most observers, while not predicting a decline, have at least sounded notes of caution.
That was the conclusion the Mid-Year Chicago CRE Market Survey conducted by The Real Estate Center at DePaul University. The US economy has rarely experienced an expansion that stretched nine years, as the present cycle has already done. And 44.2% of the roughly 3,000 real estate professionals surveyed say their outlook for the second half of 2018 trends toward concerned. Furthermore, the Chicago region has a few specific problems that provoke worry about the metro’s long-term health.
“It’s not the time to maximize leverage,” Brian Rogan, vice president, Associated Bank, tells GlobeSt.com. Still, he has a generally positive outlook on the region’s prospects. “Obviously, there is a lot of capital out there,” and that is helping to push up prices. “Lenders are still aggressively pursuing transactions,” but “it’s also prudent to plan for a potential softening in the market.”
One longstanding concern for those in Chicago and IL is the state of the region’s finances. More than 48% said the city and state’s political and financial woes is of great significance and 38.5% ranked the significance as modest.
“The fiscal ills of the city and the need to further raise real estate taxes is a concern of mine,” says Don Pafford, senior vice president, US Bank. “At some point this all has to bubble up and be a roadblock, whether you’re an investor or a developer.”
Rogan counters that the high quality of Chicago real estate is still quite compelling. “Chicago had a reputation as a flyover market; a market that investors would fly over for other cities in the country,” he says. “But Chicago has done a great job of building really good properties. So good that today people can’t achieve the returns they want from the coasts” and continue turning their attention to Chicago.
Some investors, like Michael Episcope, principal, Origin Investments, believe the financial woes of the city and Cook County create a great deal of uncertainty which makes it more difficult for deals to pencil out.
“We’re still buying, and looking for more acquisitions in the Chicago area,” he says. “We are being conservative in how we are underwriting taxes so that we minimize the impact any property tax increases might have on our returns.”