ICAP Member Contributes to Crain’s Chicago Business
Long time ICAP member Ron DeVries (real estate consultant and Vice-President of Appraisal Research Counselors) contributed to a recent edition of Crain’s Chicago Business; read the full article below:
By: Alby Gallun
(Crain’s) — It’s still a good time to own an apartment building, but the suburban rental housing market lost a little of its mojo at the end of 2011. Rents at suburban apartment buildings fell in the fourth quarter for the first time in more than two years, while occupancies edged lower for the first time since summer 2010, according to a report from Appraisal Research Counselors, a Chicago-based consulting firm.
While the shift in the housing market away from owning continues to benefit those in the rental business, landlords can do only so much when the local jobless rate is above 9 percent. “The whole employment situation is still a drag,” says Appraisal Research Vice-President Ron DeVries. “To the extent that the job market improves, that would help the suburban market.” The declines may merely represent a seasonal drop in demand, with few people choosing to move between Thanksgiving and New Year’s. Indeed, suburban rents and occupancies were still higher than prior-year levels.
Demand for apartments has been strong over the past two years, as more people who would normally own a home or condominium rent instead as they wait out the lousy for-sale residential market. Yet the job market remains the most important driver of demand for apartments. When times are good, many renters will ditch their roommates and get their own apartments, and 20-somethings will move out of their parents’ houses and enter the apartment market. “You really need the job growth to get anything going, and it’s just a more price-sensitive market,” says Tony Rossi, an apartment developer and president of RMK Management Corp., a Chicago-based property manager.
The national unemployment rate for people 25 years or older with a college degree — a key renting cohort — is lower than the overall rate, at 4.1 percent in October. But it’s still about double what it was in 2008. And Appraisal Research doesn’t forecast any job growth for the Chicago area in 2012. If the job market improves, Mr. Rossi expects rent increases of 3 percent to 4 percent at his apartment buildings this year. Over the longer term, he’s concerned about the herd of developers that want to build apartments in the suburbs, adding supply to a market that doesn’t need it.
Developers have proposed projects in the suburbs comprising 5,226 apartments after completing just 800 over the past four years, according to Appraisal Research. Mr. Rossi plans to build one of them, an 80-unit development in northwest Evanston. He is seeking a construction loan and plans to break ground April 1. Yet many projects will never get off the ground. Mr. DeVries of Appraisal Research estimates that rents need to hit $1.75 a square foot to justify a new suburban development. “There are very few submarkets that will support that,” he says. The median net rent at North Shore apartments was $1.98 in the fourth quarter, but rent in the next most expensive submarket, Lake County, was just $1.35.
With the exception of those in high-rent areas, many developers won’t be able to get construction financing, Mr. DeVries says. He estimates that only about 1,000 of the apartments on the drawing board will ever come to fruition. “We’re not going to create an oversupply in any market with those kinds of numbers,” he says.
To read the original story Click: http://www.chicagorealestatedaily.com/article/20120221/CRED02/120229975/suburban-apartment-rents-occupancy-dip