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  #1381  
Old Posted Jul 8, 2019, 9:31 PM
IrishIllini IrishIllini is offline
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Originally Posted by LouisVanDerWright View Post
^ The Chicago money machine is stuck in high gear! I have seen a notable uptick in rental demand since last year. Both quantity and quality of tenants I'm encountering is rising.
Starting to wonder when this relatively good news results in a net increase in population. We’re still lagging nationally if I’m not mistaken.
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  #1382  
Old Posted Jul 8, 2019, 11:31 PM
marothisu marothisu is offline
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Interesting and great to hear, that coincides with stronger job growth this year than last, so I guess not very surprising.
For May 2019 as a city, Chicago had a lower unemployment percentage than NYC, Los Angeles, Philadelphia, and Phoenix. At an MSA level, NYC and Chicago have the same unemployment rate (3.5%), and Philadelphia and Los Angeles is just behind at 3.6%. Houston MSA is at 3.2% while Dallas MSA is at 2.7%.
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  #1383  
Old Posted Jul 8, 2019, 11:34 PM
marothisu marothisu is offline
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Starting to wonder when this relatively good news results in a net increase in population. We’re still lagging nationally if I’m not mistaken.
White collar jobs are being added to Chicago at a big rate and that population is increasing a lot. However, areas around Englewood mostly are losing population and it's offsetting the gains of the rest of the city. Englewood's unemployment rate in 2017 was over 10 percentage points higher than it was in 2011. If you want to see that overall population number go up again, then you have to also address the areas that are losing a lot of people - which is mostly in and around Englewood.

And obviously more population = potentially more tax base, but not always. Sucks to lose people obviously but from a tax base perspective if you lose 5 people who made $25K and add 2 people who make a combined $250K, you've lost 3 people in your population but also gained $125K in tax base at the same time. That's another story though. I'd rather have those 5 people stay and those 2 people added at the end of the day, personally.
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Last edited by marothisu; Jul 8, 2019 at 11:47 PM.
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  #1384  
Old Posted Jul 9, 2019, 3:30 AM
LouisVanDerWright LouisVanDerWright is offline
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Originally Posted by Vlajos View Post
Interesting and great to hear, that coincides with stronger job growth this year than last, so I guess not very surprising.
I think it's a national trend resulting from an ongoing dearth of sellers in the housing market since everyone who was going to go under did 10 years ago and everyone else either just bought or bought at steep discounts to today's prices and are in no hurry to realize gains and reinvest that money at today's prices or plow it into stocks sitting at record highs or bonds sitting at historically low interest rates. There's basically nowhere for money to go right now and no one in a difficult position where they need to liquidate. That means prices continue to rise and rise making renting an ongoing attractive option.


Also right on time, 82% of people say renting is cheaper than buying right now:

https://www.cnbc.com/2019/07/08/rent...ning-home.html
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  #1385  
Old Posted Jul 9, 2019, 11:50 AM
marothisu marothisu is offline
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^ It seems as if some people are falling into the same trap of "prices will go up forever" as they did around a decade ago. In some cities at least. I've been told by a handful of friends in the industry to hold off on buying right now as the prices in NYC at least are too high, according to them. If a recession were to hit soon, I'd have to think that Chicago might be better suited than some other cities. Not sure about that part though. Just a hypothesis.
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  #1386  
Old Posted Jul 9, 2019, 12:57 PM
the urban politician the urban politician is online now
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I’ve stopped buying for reasons mentioned above. Unless you can get a really good deal directly from an owner of a distressed building, prices are too high.

Brokers that were nowhere to be seen 5 years ago are now everywhere trying to market properties to buyers, calling and emailing me several times per day. Once those guys show up en masse, it’s best to hold off
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  #1387  
Old Posted Jul 9, 2019, 3:18 PM
LouisVanDerWright LouisVanDerWright is offline
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^^^ Yes, I've noticed the same with brokers. I get constantly harassed by them because they have buyers and I ain't selling. I tell them "I'll sell if you can get me 20% over market", but never tell them what market is. And honestly, market keeps going higher for me because, if rates start to fall again and drop even half a percent, I stand to be able to re-cast all my debt and shave another $1500-2000 a month off by monthly payments before even taking into account what has accumulated into substantial principal reduction over the past 5 or so years...

This is why no one is selling. Why would someone sell a property worth $1.2 million that pays $10k/mo gross rent (that's an 8 CAP after you net out expenses) with $600k in debt on it when the payment on that at a 5% interest rate (including taxes) is less than $5k? What are you going to do with the $600k? Wouldn't you be better off just refinancing and pulling $300k out instead of pulling out $600k by selling and then paying 20% capital gains on it? Now with rates on commercial paper back around 5%, any additional fall in rates means you can refinance that and drive your payment even lower, again, why would you ever sell? That's not even considering the potential for long term appreciation. Even if you just assume the price increases at the rate of inflation long term, that $600k of debt rapidly diverges from the property value (which gains $36k a year just from inflation) especially as it is paid down by the amortization of the loan (which at the beginning of a $600k loan is about $1250/MO and increases with every payment).

The ONLY reasons you sell are if you need the money (which no one does right now) or if you think long term demand is going to wane.

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Originally Posted by marothisu View Post
^ It seems as if some people are falling into the same trap of "prices will go up forever" as they did around a decade ago. In some cities at least. I've been told by a handful of friends in the industry to hold off on buying right now as the prices in NYC at least are too high, according to them. If a recession were to hit soon, I'd have to think that Chicago might be better suited than some other cities. Not sure about that part though. Just a hypothesis.
I don't think that's what is happening today. I think today's prices are an utter lack of supply. Like I said, anyone who was in a precarious position debt wise was wiped up less than 10 years ago. A lot of guys like me are sitting on stuff we got virtually for free with zero reason to sell because, as TUP says, prices are absurd right now so where are we going to 1031 our profits into?

The thing is recessions don't happen because prices get too high, they happen because people have too much leverage and too little cash. Based on dozens of conversations I've had with various people from other investors to huge landlords to private equity people to just regular folks like my tenants or family, everyone is sitting on a massive amount of cash right now because they are terrified of another recession.

So while there absolutely will be another recession and it will probably be soon, it's not going to happen because people have paid too much for real estate, it will be caused by some other factor. Yes, some people have started paying too much for RE over the past two years or so, but nowhere near enough to actually cause some kind of systematic risk. Those people will be blown out in the next recession, but there are so many TUPs sitting on the sidelines waiting to swoop in as soon as prices make sense again that any correction in RE prices will have a pretty shallow bottom.

Again, it all goes back to the balance of supply and demand right now. You suddenly have a giant wave of Millenials that should have reached "peak home buyer" when they were say 27 who are now in their 30's and finally comfortable enough in their career or paid down their student loans to start looking. There are more Millenials than any generation including the Boomers. So you have that giant wave trying to crash against a beach of people who have no reason to sell in an ocean where the wind has shifted and the rollers are no longer hitting McMansion Kay, but instead all piling into urban walkable neighborhood or inner ring suburb sound.

Simultaneous to the Millenial issue, you have the fact that Boomers are now almost all empty nesters and ready to downsize. This means that massive oversized exurban homes are not only not preferred by Millenials, but are being ditched by Boomers. This means more and more housing units have to be provided where the market is because the second hand homes market has huge areas of dead weight.

All of this results in a perfect storm where there isn't a lot of supply, but there is a shit ton of demand much of which is not even being realized because it is all manifesting itself in the rental market as Millenials jaded by the housing bust aren't about to fall for that trick like Generation X did.

Last edited by LouisVanDerWright; Jul 9, 2019 at 3:29 PM.
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  #1388  
Old Posted Jul 9, 2019, 4:07 PM
IrishIllini IrishIllini is offline
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White collar jobs are being added to Chicago at a big rate and that population is increasing a lot. However, areas around Englewood mostly are losing population and it's offsetting the gains of the rest of the city. Englewood's unemployment rate in 2017 was over 10 percentage points higher than it was in 2011. If you want to see that overall population number go up again, then you have to also address the areas that are losing a lot of people - which is mostly in and around Englewood.

And obviously more population = potentially more tax base, but not always. Sucks to lose people obviously but from a tax base perspective if you lose 5 people who made $25K and add 2 people who make a combined $250K, you've lost 3 people in your population but also gained $125K in tax base at the same time. That's another story though. I'd rather have those 5 people stay and those 2 people added at the end of the day, personally.
Yeah, I get that’s happening in the city, but estimates suggest most suburbs are down slightly between 2017 and 2018. The city is also down slightly, but high income households are growing. The only part of the region with any widespread increases are along the fringe in the far SW and NW suburbs. The metro is aging, but the median age here is younger than NYC and LA. The economy is in a good spot - downtown office market is strong and industrial spaces have had several strong quarters. Unemployment is low. Yet we’ve lost ~20,000 people each year for the last 3-4 yrs.
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  #1389  
Old Posted Jul 9, 2019, 4:16 PM
the urban politician the urban politician is online now
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Originally Posted by LouisVanDerWright View Post
but there are so many TUPs sitting on the sidelines waiting to swoop in as soon as prices make sense again that any correction in RE prices will have a pretty shallow bottom.
^ Ain't that the truth, unfortunately I'll be waiting a very very long time.

I don't think we will ever see a period like 2009-2015 (or so) in Chicago real estate again.

I loved swooping in and buying 2, 3, hell 6 flats for under $250k in already gentrifying parts of the city and then gut renovating them.

Not gonna happen again on the north side, at least, and probably not in Pilsen, unless you have an insider direct-to-owner deal. Even if we have a recession, I'm pretty sure that most people aren't too over-leveraged to let the whole shithouse go down in flames and for massive amounts of property to go up for sale at rock bottom prices.

I'd like to thank the subprime mortgage meltdown of 2008 for providing me a once in a lifetime opportunity
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  #1390  
Old Posted Jul 9, 2019, 4:44 PM
marothisu marothisu is offline
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Originally Posted by LouisVanDerWright View Post
^^^ Yes, I've noticed the same with brokers. I get constantly harassed by them because they have buyers and I ain't selling. I tell them "I'll sell if you can get me 20% over market", but never tell them what market is. And honestly, market keeps going higher for me because, if rates start to fall again and drop even half a percent, I stand to be able to re-cast all my debt and shave another $1500-2000 a month off by monthly payments before even taking into account what has accumulated into substantial principal reduction over the past 5 or so years...

This is why no one is selling. Why would someone sell a property worth $1.2 million that pays $10k/mo gross rent (that's an 8 CAP after you net out expenses) with $600k in debt on it when the payment on that at a 5% interest rate (including taxes) is less than $5k? What are you going to do with the $600k? Wouldn't you be better off just refinancing and pulling $300k out instead of pulling out $600k by selling and then paying 20% capital gains on it? Now with rates on commercial paper back around 5%, any additional fall in rates means you can refinance that and drive your payment even lower, again, why would you ever sell? That's not even considering the potential for long term appreciation. Even if you just assume the price increases at the rate of inflation long term, that $600k of debt rapidly diverges from the property value (which gains $36k a year just from inflation) especially as it is paid down by the amortization of the loan (which at the beginning of a $600k loan is about $1250/MO and increases with every payment).

The ONLY reasons you sell are if you need the money (which no one does right now) or if you think long term demand is going to wane.



I don't think that's what is happening today. I think today's prices are an utter lack of supply. Like I said, anyone who was in a precarious position debt wise was wiped up less than 10 years ago. A lot of guys like me are sitting on stuff we got virtually for free with zero reason to sell because, as TUP says, prices are absurd right now so where are we going to 1031 our profits into?

The thing is recessions don't happen because prices get too high, they happen because people have too much leverage and too little cash. Based on dozens of conversations I've had with various people from other investors to huge landlords to private equity people to just regular folks like my tenants or family, everyone is sitting on a massive amount of cash right now because they are terrified of another recession.

So while there absolutely will be another recession and it will probably be soon, it's not going to happen because people have paid too much for real estate, it will be caused by some other factor. Yes, some people have started paying too much for RE over the past two years or so, but nowhere near enough to actually cause some kind of systematic risk. Those people will be blown out in the next recession, but there are so many TUPs sitting on the sidelines waiting to swoop in as soon as prices make sense again that any correction in RE prices will have a pretty shallow bottom.

Again, it all goes back to the balance of supply and demand right now. You suddenly have a giant wave of Millenials that should have reached "peak home buyer" when they were say 27 who are now in their 30's and finally comfortable enough in their career or paid down their student loans to start looking. There are more Millenials than any generation including the Boomers. So you have that giant wave trying to crash against a beach of people who have no reason to sell in an ocean where the wind has shifted and the rollers are no longer hitting McMansion Kay, but instead all piling into urban walkable neighborhood or inner ring suburb sound.

Simultaneous to the Millenial issue, you have the fact that Boomers are now almost all empty nesters and ready to downsize. This means that massive oversized exurban homes are not only not preferred by Millenials, but are being ditched by Boomers. This means more and more housing units have to be provided where the market is because the second hand homes market has huge areas of dead weight.

All of this results in a perfect storm where there isn't a lot of supply, but there is a shit ton of demand much of which is not even being realized because it is all manifesting itself in the rental market as Millenials jaded by the housing bust aren't about to fall for that trick like Generation X did.
I understand what you are saying, and I agree but that wasn't my point. I said nothing about what will cause the recession and certainly did not tie it to prices being too high. What I said was more that people's opinions right now is that prices will continue to rise seemingly forever. People did that a decade ago too, but this isn't about a cause. I'm just saying that people are sometimes shortsighted. I've been hearing about the upcoming recession for the last year from my group's CFO. There's reasons why I personally don't want to invest in a property right now due to various things I've heard.

Anyway, it seems as if you took my statement as something about what will cause the recession. My statement had nothing to do with that.
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  #1391  
Old Posted Jul 10, 2019, 12:58 AM
the urban politician the urban politician is online now
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Damn.

That right there justifies another 1.5 new apartment towers that nobody can build any more. Let the rents rise further!
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  #1392  
Old Posted Jul 10, 2019, 1:51 AM
marothisu marothisu is offline
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Damn.

That right there justifies another 1.5 new apartment towers that nobody can build any more. Let the rents rise further!
Was there an executive order signed or something about the affordable housing stuff? As far as I can tell, the ARO hasn't been actually changed by law from what it was before Lightfoot was elected. I know she has proposed things but I didn't think any of it was signed into law yet. I mean, yeah there's 6 DSA on the city council now but they alone aren't going to change much unless they get others to agree.
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  #1393  
Old Posted Jul 10, 2019, 2:02 PM
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Was there an executive order signed or something about the affordable housing stuff? As far as I can tell, the ARO hasn't been actually changed by law from what it was before Lightfoot was elected. I know she has proposed things but I didn't think any of it was signed into law yet. I mean, yeah there's 6 DSA on the city council now but they alone aren't going to change much unless they get others to agree.
Yeah, I'll admit that it's certainly hyperbole to claim that no rental buildings will go up as a result of the ARO, but I do think it will slow things down and make many new projects not pencil out. Plus, LL hasn't completely gotten rid of Aldermanic prerogative so some of the DSA Aldermen still seem to have to power to, at their own whims, block new projects in their wards.

Anyhow, we will not see the immediate affects of rents skyrocketing for another year or two, assuming we don't hit a huge recession. There are still previously entitled projects u/c to sop up some of the demand. But I definitely see a huge shortage of apartments starting around 2021, again assuming that job growth remains steady. But, ya never know....
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  #1394  
Old Posted Jul 10, 2019, 2:49 PM
moorhosj moorhosj is offline
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Yeah, I'll admit that it's certainly hyperbole to claim that no rental buildings will go up as a result of the ARO, but I do think it will slow things down and make many new projects not pencil out. Plus, LL hasn't completely gotten rid of Aldermanic prerogative so some of the DSA Aldermen still seem to have to power to, at their own whims, block new projects in their wards.

Anyhow, we will not see the immediate affects of rents skyrocketing for another year or two, assuming we don't hit a huge recession. There are still previously entitled projects u/c to sop up some of the demand. But I definitely see a huge shortage of apartments starting around 2021, again assuming that job growth remains steady. But, ya never know....
The 78 has zoning for 10,000 units, Lincoln Yards has 6,000, another 1,500 in the River District, and Riverline/Southbank has 3,700. If the demand continues, there seems to be some cushion.
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  #1395  
Old Posted Jul 10, 2019, 3:08 PM
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The 78 has zoning for 10,000 units, Lincoln Yards has 6,000, another 1,500 in the River District, and Riverline/Southbank has 3,700. If the demand continues, there seems to be some cushion.
Also, many parcels downtown are zoned already for moderate to large buildings. The people who might be affected are those developers trying to build very luxury places that need a zoning change. I don't think this will be a problem on average downtown. A lot of those would probably go under as of right. I don't know what their plans for as of right are for the ARO though. It doesn't seem like downtown area need to worry too much about this, I think? It's the other areas perhaps. The very luxury 8 unit building looking to go up in Lincoln Park that needs a zoning change will be impacted.
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  #1396  
Old Posted Jul 10, 2019, 3:08 PM
the urban politician the urban politician is online now
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The 78 has zoning for 10,000 units, Lincoln Yards has 6,000, another 1,500 in the River District, and Riverline/Southbank has 3,700. If the demand continues, there seems to be some cushion.
^ Right, but only the 78 is properly planned to have a subway station.

The demand right now is for TOD. Particularly hot these days is the Blue/Pink lines, but yes the other ones are always going to be popular too.
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  #1397  
Old Posted Jul 10, 2019, 3:11 PM
the urban politician the urban politician is online now
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Also, many parcels downtown are zoned already for moderate to large buildings. The people who might be affected are those developers trying to build very luxury places that need a zoning change. I don't think this will be a problem on average downtown. A lot of those would probably go under as of right. I don't know what their plans for as of right are for the ARO though. It doesn't seem like downtown area need to worry too much about this, I think? It's the other areas perhaps. The very luxury 8 unit building looking to go up in Lincoln Park that needs a zoning change will be impacted.
I think this is the problem. The idea here is that we want more density outside of the core. We were beginning to see that with Rahm's TOD ordinance; but with this new wave of go-getters in the City Council, I'm feeling like we're going to go back to Chicago's tradition of mostly pushing density into the core, and seeing mostly townhomes and SFH, perhaps small as-of-right condo buildings everywhere else.
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  #1398  
Old Posted Jul 10, 2019, 3:30 PM
moorhosj moorhosj is offline
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^ Right, but only the 78 is properly planned to have a subway station.

The demand right now is for TOD. Particularly hot these days is the Blue/Pink lines, but yes the other ones are always going to be popular too.
You make a good point. I think an argument could be made that building out TOD near the Green line on the near south side might be more beneficial overall to the city.
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  #1399  
Old Posted Jul 10, 2019, 3:44 PM
marothisu marothisu is offline
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I think this is the problem. The idea here is that we want more density outside of the core. We were beginning to see that with Rahm's TOD ordinance; but with this new wave of go-getters in the City Council, I'm feeling like we're going to go back to Chicago's tradition of mostly pushing density into the core, and seeing mostly townhomes and SFH, perhaps small as-of-right condo buildings everywhere else.
Yeah, totally agreed. I was just saying that downtown is probably mostly safe. Outside of it, I agree. Some developers might not have a problem, some will I'm sure. They're (govt) going about it the wrong way too, but we mostly know that.
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Last edited by marothisu; Jul 10, 2019 at 3:54 PM.
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  #1400  
Old Posted Jul 10, 2019, 3:48 PM
IrishIllini IrishIllini is offline
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^ Right, but only the 78 is properly planned to have a subway station.

The demand right now is for TOD. Particularly hot these days is the Blue/Pink lines, but yes the other ones are always going to be popular too.
Where along the Pink Line? Pilsen?

Good news from Accenture. That’s a big W.
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