Midwest Multifamily Panelists Share Insights on the “Tale of Two Cities”

At the recent Midwest Multifamily + Adaptive Reuse Trends event in downtown Chicago, panelists on the “View from the Top” panel discussed an analogy of “a tale of two cities.” This was a comparison between multifamily and office asset classes, both facing headwinds in today’s commercial real estate landscape. Gregory Mutz, founder, chairman and CEO of Amli Residential noted that Chicago tied with Seattle for having one of their worst markets in 2020-2021 but is now their best market with urban properties running slightly ahead than suburban holdings. However he added that it is still far away from reaching rent levels justifying new construction projects. Lee Golub, managing principal at Golub & Company shared similar sentiments saying occupancies are as high as they have been pre-COVID but growth has slowed down to 2%-3% on renewals and some new deals due to rising costs which are increasing faster than rent growth resulting into potential negative net operating income growth over loan terms when combined with rising cap rates environment creating a double whammy situation for investors/owners alike.
John Murphy CEO at Murphy Real Estate Services further highlighted how residential erosion values were nowhere near what was happening in office sector while also being skeptical about residential conversions being panacea for largely vacant or outmoded office buildings citing natural light availability alongwith underwriting rents (which can’t compare to those commanded by new construction) alongwith conversion costs which could be same or more compared to constructing anew making public private partnerships necessary for large scale conversions into viable propositions alongside mixed use scenarios combining multiple purposes becoming vision going forward .