A commercial real estate panel titled “Making the Numbers Work” is going to have a different focus in June 2023 than it would have had a year ago, or even six months ago. The development and finance experts gathered for this discussion at Connect Midwest Multifamily and Adaptive Reuse Trends, held earlier this month in Chicago, didn’t mince words in charting current capital markets conditions. 

“The only deals that pencil today in the condo market are the absolute top of the market,” said Cory Robertson, principal with Corwin Partners, Jameson Sotheby’s. “It’s the only way to swallow the construction costs, the affordable housing costs, everything else. We deal with one percenters only right now on the mid-rise and high-rise space.” 

On the development side, Thomas Shanabruch, VP of investments and capital markets—residential at CRG, told the audience, “We were very fortunate in both December and January to close ground-up construction loans with some of our partner banks, because when we went back to them in in March and April on a couple of other projects, the answer was no, 100% no.” 

Jerry Lumpkins, SVP—Chicago division head at Valley National Bank, provided the lender’s perspective. ‘We’ve got a lot of headwinds right now, hence we’re not necessarily looking at anything brand new right now,” he said. “And I think that’s the case for most of my friendly competitors out there. We’re minding our books where we’re taking care of our existing clients, doing a lot of portfolio management and in the very early innings of workouts again.” 

Susan Tjarksen, managing director, strategic multifamily capital markets at Cushman & Wakefield, pointed out, “The other problem that we didn’t talk about is that we also haven’t seen construction pricing come down. We thought when everything slowed down, we’d see some construction pricing level off, so that that would offset interest rates, that would offset rising cap rates, that would offset only 3% rent growth.” That hasn’t been the case, she said. 

However, later in the discussion, Tjarksen said, “Deals are still being done, for the right sponsor in the right submarket…. It isn’t two guys with a truck who are getting financed today, It’s somebody with good experience with the right project in the right location and the right backing.”  

Shanabruch added, “Agency studies that say there’s four million-plus housing units that are still lacking in this country. That’s going to be solved through multifamily as long as it costs too much for a renter to get out of an apartment and into a home.” Reid Bennett, national multifamily council chair at SVN – Chicago Commercial, moderated the panel.

The conference concluded with “Operations and Design: Staying Ahead of Trends,” featuring a panel of experts from the operations, engineering, architecture and construction sectors who discussed what needs to be done to stay current. They included moderator Angie Wallin of Arkadis Inc., ARCO/Murray’s Ross Allen, Andrea Caputo at Ratio, Roger Daniel at Daniel Management Group and Michael Hayford at Kastle. 

With an increasing number of multifamily projects springing up across Chicago and its suburbs, “It’s important that you build a community around your properties because you can only get a certain dollar per square foot from a lease,” said Hayford. “There’s a cap to it. So what’s preventing your leaseholders from going to the building next door? It’s community. If my best friends live there, I’m not going to leave regardless of this brand new, beautiful building” elsewhere. 

Along with presenting insights live on stage at the W Chicago – City Center, the Connect Midwest Multifamily and Adaptive Reuse Trends experts also shared further market intelligence for our video cameras. In the video below, panelists discuss the opportunities they’re seeing currently that they wouldn’t see in a more conventional market.

In the second video below, panelists discuss the question of whether they’re seeing challenges in the current market that they haven’t seen before.