For owners and operators of multi-family buildings in the Chicago area, the pandemic has been only part of the challenge the past two years have presented. Stay-at-home orders, mass dismissals, moratoriums on evictions and more come coincidentally around the same time that the rules have changed between the landlord-tenant relationship.
But even so, those who have been able to weather the continuous waves of adversity may have found themselves in a very good position.
“The positives, or at least the things that re-energized me, are as follows,” says Sal Becovic, president of Becovic, a family-owned real estate group that owns and manages 2,000 units in Chicago’s far north. “First and foremost, what we do as housing providers is very important. And number two: Multifamily is the place to be right now compared to other real estate asset classes. “
Becovic acknowledges the struggles of the past two years, but believes the pandemic has only reaffirmed how vital and somewhat isolated the apartment market can be in the event of an economic downturn or other challenges.
“Multifamily played. And even if it got tough for us, we played, and that’s where I think the multifamily will be ready to really take the next step as we move forward, ”he says. “And that’s why we get all this capital and why a lot of guys who have been invested in offices, or invested in hotels, or in retail, come here investing in multi-family housing.”
Indeed, neighborhood multi-family assets are trading at a rapid pace and at high prices. And the capital injected into neighborhood apartment buildings may reflect the broader economic recovery, or at least a testament to the story of the ‘big city dying’ at the height of pandemic uncertainty in the summer. last was overdone.
Even still, the multi-family sector has its challenges. Despite news of a fully recovered, downtown Class A apartment market since the start of the year, various messages are coming from neighborhood owners and operators. And while the asset class has performed during the recession, the recovery is still underway.
“Some properties were more isolated, but overall it was difficult. And now we are digging. We stabilize. We are not downtown and back at all time highs; no, we are not there yet. But we have an upward trend, ”Becovic says of the current situation.
However, news of a fully recovered downtown area is still important to neighborhood owners and operators, he adds.
“I consider what is happening downtown as a great signal of what is going to happen in the neighborhoods”, explains Becovic. “The city center is always the first to party, then leave the party early. “
A November report from the Neighborhood Building Owners Alliance offers a more detailed look at what independent owners experience outside of the city center. A particularly positive note is that of solid collections. More than half of members surveyed say they received 95% or more in collections for the month of September, suggesting better stability in the housing market. In March, only 46% of those surveyed had> 95% blood drives, then in June that number only increased slightly to 49% of those surveyed.
But even with stronger collections, owners make fewer improvements or have to cut costs in other ways. Almost 40% of respondents to the November report plan to cut their maintenance and repair budgets. About 20% are making staff cuts, while 6% say they are unlikely to pay their property tax bills on time or in full. Only 3% of NBOA homeowners surveyed said they couldn’t pay their mortgage on time.
In terms of methodology, the report states that NBOA members surveyed own 30,000, collectively. Almost half of the cohort owns five or fewer properties in Chicago, suggesting that the membership composition is largely small independent owners.
Market conditions were ripe for private equity to step in and recover large numbers of units from distressed owners. In other cities, especially in Texas markets like Dallas, there isn’t such a strong community of independent owners. However, Chicago could be – and arguably already is – on the path to more corporate apartment ownership.
Having a strong and successful independent homeowner community is not just about variety or the opportunity for small investors to build equity and a path to financial stability. Independent owners are probably more willing to understand and meet the needs of tenants, says Mike Glasser, owner of Magellen Properties and president of the Neighborhood Building Owners Alliance.
“We favor situations where there is local ownership over local ownership. There is a lot of outside money that will come in and sweep the property; it’s a nationwide trend, ”he says of the theme. “Outside money doesn’t have that connection to property and to individual tenants and sees it more as a numbers game.”
And in many cases, a change in ownership from an independent neighborhood owner to a larger outside corporate interest can have ramifications for existing tenants.
“When [a private equity group] buys an apartment building, they see it as a source of income, not as the 20 or so different people who depend on that apartment, ”Glasser explains. “This long-time, senior tenant on a fixed income may find himself at a premium and dealing with a ruthless outside landlord who is unable to be compassionate.”
Owning two and three apartments in Chicago is a tradition worth keeping, Glasser adds, giving families a way to build capital while providing others with much-needed housing.
“It’s a great thing for a hard-working immigrant or postman, or for anyone who has dedicated their life to building a family heritage, to be able to pass it on to their next generation,” he says. “This has been happening for years and [multifamily home ownership] should be available to anyone who wants to work and sweat equity. “
This article also appears in the December 2021 issue of the Illinois Real Estate Journal.