TCW - Jobs, Money & Opinion

Where Are the Deals in Chicago Real Estate?

condos Chicago RE-blog TCW.jpgWhile attending a holiday real estate party, where real estate professionals, such as: developers, brokers, appraisers and financial institutions gathered to celebrate, I was looking for some good news in Chicago real estate.  On a mission to discover the latest trends in deals, I spoke with anyone who would speak to me.

 

Between martinis and mini burgers, I was able to get some first hand information from the attendees, who appeared to be thrilled that 2010 was coming to an end.  Many were drinking cocktails faster than they could get served, as others complained about their lack of business, in what is proving to be the toughest real estate market since the Great Depression.

 

I spoke with appraisers who all agreed that the business was in high-end residential rental properties.  This area is the hottest ticket in town with owners of luxury rental properties getting multiple offers from potential buyers ready to part with their cash.  There is a whole lot of cash sitting on the sidelines, as investors with money, are looking for the best return on their investments.


Luxury apartment rental buildings are sought after due to a trend toward renting, instead of buying, after the downward spiral of housing prices.   More people are renting in luxury buildings while looking for an upscale lifestyle, without having to secure a mortage or tie up their money in real estate, not knowing where the bottom of the market is.  The buildings that offer numerous amenities, such as: a health club, swimming pool, a doggie park and concierge services, are the most desirable and command the highest rental fees.

 

These luxury buildings are fully leased at high rental rates. This translates into a desirable investment for investors that believe the trend in renting luxury apartments will continue for the foreseeable future.  Appraisers say that the demand for these properties is driving the value of high end luxury apartments to more than they are worth, yet the bidding continues.

 

The only other area that mortgage brokers and appraisers say has showed increased activity is the hotel sector. The most sought after hotels are those that have demonstrated a high occupancy, with good room rates going back 12 months, when many hotels were struggling.  The thinking here is that, if the hotels survived the lows in the market, they will thrive as our economy recovers.

 

Many of the professionals I spoke with don't believe that we have seen the bottom in the housing market, which has been decimated, with home values down 30-40 % from before the recent recession.  Many are saying it will take 5-7 years for the market to recover and will not return to the asset values seen before the recession.

 

The commercial office sector is not faring much better. Many firms have downsized and have not renewed their lease.  The demand is not there for new office space as companies continue to struggle to survive.  Many companies are in negotiations to unload some of their current office space, instead of expanding.


The Industrial segment is also very slow. Companies are eliminating, consolidating or moving their warehouse operations out of the country. The retail sector is also still retracting, as many bricks and mortar stores are being closed, representing a trend of increased on-line shopping.

 

By the end of the evening, I was depressed.  Never have I seen the real estate market so slow.  Real Estate has always had cycles, where one sector does better than others, but this time it's very different.  Only one sector is strong; luxury rental properties, while all other real estate segments remain stagnant.  The real estate profession has been hit hard and there's no definitive consensus of when it's coming back.  It's going to be a long road to recovery. 

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