Economic fundamentals and tenant preferences continue to drive change in the multifamily sector. The upcoming “Connect Midwest: Multifamily & Adaptive Reuse Trends” will address these and other issues. Connect CRE recently sat down with Gregory Mutz, AMILI Residential’s founder, chairman and CEO, one of the event’s presenters, to ask him about some of the issues impacting residential rentals.

Connect CRE: What are some of the trends and challenges that Chicago’s multifamily owners and operators face today?

Greg Mutz: It’s mixed. Chicago is a slow-growth market, though job growth is pretty solid, especially in that 20-to-35-year-old range. Inflation is also an issue, but that’s not just a Chicago issue. Inflation is impacting everything in multifamily; you’ve got wage pressures, you’ve got cost pressures and you have insurance pressures.

Still, inflation could be considered a good-news-bad-news situation for owners. It means that if you own an apartment building, you’re likely not going to have to contend with new supply. This is because the costs to develop more apartments is pretty high. But inflation is also reducing affordability. Everyone wants more affordability, but the many forces at work are making things less affordable.

We’re also seeing a decline in deal flow. For the first quarter of 2023, transactions nationwide totaled just under $13 billion. In March of 2022, the transaction volume was $47 billion. This is the lowest deal flow we’ve had in a long time, even lower than during the Great Financial Crisis. Nobody in the multifamily sector wants to sell because values are much less than they were a year ago. People are thinking the values will rebound, in time, and are taking a wait-and-see approach.

Connect CRE: How is technology enhancing apartment operations?

Greg Mutz: There’s no doubt that business intelligence and artificial intelligence are having an impact on our operations. With BI, we’re using a lot of data to come up with answers, reduce overhead and make the resident experience more enjoyable. We’re also using a lease AI program. When someone calls or emails, they think they’re talking to a live human being that answers many of the standard questions, like unit size, pet deposits or other information.

What people like today is immediate connectivity. If someone emails us, and we don’t respond within an hour or two, they’ll move on to someone else. With these kinds of AI systems, you can get back to them in seconds with answers to their questions.

I would also say that in all of our properties, people would rather go without heat and air than go without internet. Our residents at every income level are fully connected. I think multifamily owners should work hard on connectivity, making sure cell coverage is everywhere in their community and that internet speeds are fast. People increasingly don’t have landline home telephones, and they’re trading their televisions for streaming services. You have to have that robust connectivity and high speeds to support all of that for residents.

Connect CRE: What’s going on with multifamily construction and adaptive reuse in the Chicago area?

Greg Mutz: Well, the rent levels we’re seeing today are in the 60% to 80% replacement cost range. That means it doesn’t make a lot of sense to develop something; if the value of the property the day you complete it is only 80% of the money you spent, it doesn’t make sense.

On adaptive reuse, there’s been a move to try to convert empty or nearly empty office buildings in the Loop to apartments or other residential. But we haven’t really been able to make sense with it. The (Lori) Lightfoot (mayoral) administration, which is on the way out, was proposing a $165 million TIF district to help with that. It sounded good, but we just haven’t been able to make the numbers work.

The suburbs are doing a little better with adaptive reuse. Some of those campus-type, lower-rise complexes could be converted at a lower cost. It’s just more difficult to justify this in the city.

Meet Gregory Mutz and other experts at the upcoming Connect Midwest: Multifamily and Adaptive Re-Use Trends, which takes place June 13, 2023 at the W Chicago. Click here for more information and to register.