Ever tried understanding the Chicago weather? If so, you know it can be as unpredictable as a surprise snowstorm in April. When it comes to the multifamily real estate market in the Windy City, things are a tad more decipherable.

While other cities swing to the tunes of national trends, Chicago seems to dance to its own bluesy beat. And if you're a multifamily investor trying to find your rhythm in this diverse market, you've come to the right place.

Let's break down the bustling multifamily scene, sans the over-the-top real estate jargon. While there are many worthwhile sources for multifamily data, we’ve used Matthews’ second-quarter multifamily report as a starting point. It’s definitely worth a read.

Chicago’s Multifamily Market Stability

In the world of real estate, stability is a sought-after attribute, and Chicago's multifamily market has it in spades. The city boasts a commendable 94.7% occupancy level, even amidst the constant introduction of new developments.

Unlike many regions across the U.S. that face wavering rent stability, Chicago stands as a beacon of consistency, reinforcing its reputation as a reliable market.

Deciphering Rent Trends and Growth

Rent growth requires a nuanced understanding. On the surface, a shift from a 4.9% growth in 2022 to 3.5% this year might raise eyebrows. However, when placed against the national backdrop — where rent growth averages at 1.2% — Chicago's 3.4% signifies a strong performance. After all, it’s not 2021 anymore.

The city isn’t merely doing well on its own terms; it’s setting a benchmark on the national stage. In essence, while the growth rate has slightly decreased, it's crucial to view it in context.

The Role of Supply and Demand

Supply and demand drive every market. In Chicago's multifamily arena, it's a narrative of scarcity versus appetite. With a limited influx of new residential properties, especially in the suburban spaces, demand remains robust. This inherent scarcity isn't a momentary blip but has become one of the pillars contributing to the market’s historical stability.

When you zoom in on the city's 43 multifamily submarkets, most have seen favorable rent growth over the past year, with very few falling below the 3% mark. It's evident that the supply constraints, coupled with healthy demand, continue to bolster Chicago's multifamily sector.

Dive into Construction Dynamics

When it comes to construction, Chicago's scene is pulsating with activity. The past year alone witnessed the arrival of over 8,000 units. Yet, in comparison to this robust addition, the rate of new property deliveries seems to be taking a more measured pace, alongside a national slowdown.

This might lead one to ask where all the construction is happening. The answer? Predominantly in the Downtown and North Lakefront submarkets. These areas are the epicenters of construction activity, accounting for nearly 7,000 of the ongoing projects. With over 15,000 units under construction currently — significantly higher than the market's average — it's clear that developers see potential and promise in Chicago's multifamily landscape.

Sales Figures and What They Indicate

Sales numbers aren't just figures on paper; they paint a picture of market health and investor sentiment. Over the last 12 months, Chicago's multifamily market reported sales volumes of $4.9 billion, a testament to its ongoing allure.

A closer look reveals Downtown Chicago leading the pack, with completed multifamily transactions nearing the $829 million mark. And while sales volume in the first two quarters of 2023 saw a dip, this decline wasn't as pronounced as in other real estate sectors.

Simply put, even with market ebbs and flows, Chicago’s multifamily sales remain a force to be reckoned with.

Considerations for New Multifamily Investors

For those eyeing the multifamily market in Chicago, there are a few nuances worth noting. First, property taxes can be a potential stumbling block for many. Couple that with potential financing challenges, and you have a landscape that necessitates careful navigation. Moreover, a flatlining or even declining population growth might not seem like a tailwind for multifamily, but it's essential to remember that the Midwest as a region is outperforming many others.

Then there's the pricing advantage. Chicago's price points are considerably lower compared to other primary markets, making it an attractive proposition for many investors. However, the recent surge in interest rates adds another layer to the decision-making matrix. Navigating these considerations requires diligence, but with the right strategy, Chicago's multifamily market holds immense potential for both newcomers and seasoned investors.

Potential Hotspots for New Investors

If you're considering planting your investment flag in Chicago, knowing where to stake your claim can make all the difference. A few areas, both within the city and in the broader metro, are emerging as favorable grounds.

Within city limits, neighborhoods like Rogers Park, Bridgeport, and Humboldt Park are gaining traction. Their relative proximity to The Loop, coupled with affordability and connectivity, make them stand out. If you're looking beyond the city's borders, Tinley Park, Buffalo Grove, and Elk Grove Village are garnering attention in the wider metro area. Each of these locales brings a unique blend of amenities and growth potential, making them worthy of an investor's shortlist.

Navigating the Financing Landscape

With interest rates soaring, financing your multifamily investment in Chicago requires a strategic approach.

Here's a crucial tidbit for those venturing into this territory: It's a best practice to shop your loan around to as many lenders as possible. By doing so, you not only increase your chances of securing a favorable rate but also gain a clearer understanding of the terms available in the market.

Given that the federal funds rate has climbed substantially since the start of 2022, a diligent approach to financing is more important than ever. By actively seeking out and comparing options, investors can position themselves for success, ensuring they leverage their capital in the most efficient manner possible.

At Janover, we offer a low-effort way to shop your loan to thousands of lenders, from the bank down the street to a credit union you’ve never even heard of three states away. Not to mention life companies, debt funds, and many other types of lenders.

Wrapping Up

Chicago's multifamily market, in many ways, mirrors the spirit of the city itself — resilient, dynamic, and brimming with opportunities. While it dances to its own beat amidst national trends, understanding its nuances and rhythms can pave the way for fruitful investments.

As with any real estate venture, due diligence is key. By staying informed about market trends, being strategic with financing, and identifying potential hotspots, both new and seasoned investors can find value in the Windy City's multifamily scene.

In this article:

Chicago’s Multifamily Market Stability
Deciphering Rent Trends and Growth
The Role of Supply and Demand
Dive into Construction Dynamics
Sales Figures and What They Indicate
Considerations for New Multifamily Investors
Potential Hotspots for New Investors
Navigating the Financing Landscape
Wrapping Up
Get Financing

The Chicago Multifamily Market: Looking to Late 2023