Clubhouse with Office, Laundry Facilities, Fitness Area, Outdoor Pool, and Courtyard
Located in Montgomery Illinois | 40 Miles Southwest of Downtown Chicago
Upgraded Kitchens and Baths
Tenant Paid Electric Baseboard Heat
Value-add component, upside in rents
Map Overview
Investment Overview
Marcus & Millichap is proud to present to market Victorian Apartments, a 152-unit apartment community located in west suburban Montgomery, Illinois bordering Kendall County to the South, the fastest growing county in Illinois, and the City of Aurora, IL to the East, the second-largest city in Illinois.
The subject property is approximately 40 miles southwest of downtown Chicago. Victorian Apartments consists of 16 two and three-story apartment buildings and clubhouse spread out over almost 10 acres; offering 32 large studios, 72 one-bedrooms, and 48 two-bedroom apartment homes. Community amenities include a clubhouse, an on-site management office, laundry facilities, a fitness area, an outdoor pool, a central courtyard area with a playground, and ample off-street parking. Each unit has separately metered, tenant paid, low maintenance, electric baseboard heating, and ac sleeve units. Units have updated kitchens and baths.
RealPage recently held a webinar where they discussed the differences between the recent performance and the future prospects of the urban core apartment markets compared to the more suburban markets.
Inspiration for this webcast came from the widespread recent speculation that the COVID-19 pandemic had disproportionately impacted properties in the urban core. The presentation was conducted by Greg Willett, Chief Economist at RealPage, and Adam Couch, Market Analyst at RealPage.
Defining terms
For purposes of this analysis, RealPage defined “urban” areas to be densely populated and highly developed areas around the central business districts of major cities. The “suburban” areas are more affordable and less densely populated areas outside the urban core. However, “suburban” areas may still be within the city limits.
Tracking occupancy
RealPage presented information on occupancy dating back to 2011. It showed that occupancy in urban properties was significantly higher than that in suburban properties at the beginning of the period. However, urban occupancy remained at about the same level, with seasonal variations, while suburban occupancy rose. Starting around 2015, suburban occupancy exceeded that in urban areas, a trend that is still in place today.
Although occupancy has fallen in both urban and suburban areas since the pandemic started, the impact has been more pronounced in the urban areas. This is shown in the first chart from the webinar, below.
Source: RealPage
While the chart shows the overall occupancy difference between the two regions, the occupancy difference varies by apartment class. Suburban class A and B apartments achieve higher occupancies than their urban core counterparts, but urban class C apartments actually have higher occupancy than their suburban equivalents. However, the higher prices of urban apartments mean that there are fewer class C apartments available there than in the suburbs, so the overall average occupancy for the suburbs remains higher.
Urban flight
Despite reports of people fleeing the urban core, RealPage’s analysis indicates that this is not generally true. Much of the loss in occupancy being seen is the result of young people who are experiencing unemployment moving in with their parents or with roommates. Therefore, the fall that is being observed in occupancy is not so much due to households relocating as it is to the number of rental households decreasing.
While urban flight may be overstated in general, there are metro areas where it is taking place. RealPage identifies these as expensive gateway metros. The second chart, below, identifies several of them and illustrates the extent of their occupancy losses.
Source: RealPage
Tracking pricing
In addition to occupancy, pricing changes are a key metric to examine in assessing the disparate impact of the pandemic on urban versus suburban apartment markets. RealPage presented the next chart showing the long term trends in annual changes in effective asking rents for new leases for both markets.
Source: RealPage
The chart shows that rent growth has been stronger in suburban areas than in urban areas since 2013. While rent growth has fallen in both areas recently, overall rent growth has remained positive in suburban areas while it has fallen to -1.7 percent in urban areas.
Despite the years of higher rent growth in suburban areas, absolute rents remain higher in the urban apartment markets. RealPage estimated the average rent for an urban apartment at $1,955 per month while the average rent for a suburban apartment was estimated at $1,349 per month.
One key to the higher rent growth of suburban area apartments is illustrated in the next chart. It shows the average annual inventory growth rates in the two regions. The much higher inventory growth rate for apartments in the urban core since 2012 has been a factor in dampening rent growth in those markets and in keeping occupancy lower than in suburban apartment markets.
Source: RealPage
Looking ahead
The next chart is the most surprising of the presentation. It depicts the shares of total apartment demand supplied by the urban and suburban markets. The chart shows that the suburban apartment market is much larger than is the urban apartment market. In 2011, over 80 percent of apartment demand was provided by the suburban apartment market. In recent years, that share has fallen to around 75 percent.
Source: RealPage
While the bars in this chart always add to 100 percent, the actual total number of units being absorbed quarter by quarter could be substantially different. These figures were not provided as part of the presentation.
The chart provides a projection of future demand. It predicts that the share of total demand being supplied by the urban apartment market will rise significantly during the quarter we are now completing and during the next two quarters. This is a little surprising since the attractions of the urban environment: the clubs, restaurants, bars and entertainment, continue to be impacted by COVID-19 related shutdowns.
The next chart projects how occupancy will change through the end of 2021. It is consistent with the previous chart in that it shows occupancy rising in the urban apartment markets over the next two quarters while it continues to fall in the suburban markets. By 2021, it shows apartment occupancy returning to its usual annual cycle, albeit at lower levels of occupancy than in the recent past.
Source: RealPage
The final chart projects how rent growth will change through the end of 2021. It predicts that the worst is yet to come for rental housing providers, with rent growth in both urban and suburban markets turning negative by the first quarter of 2021. It does not project overall rents to increase until some time in 2022.
With a broader pool of potential renters, close-in apartments exceed expectations for one company.
While COVID-19 has slammed many parts of the economy, suburban apartments are performing well for one company.
Chris Berry, managing director and co-portfolio manager for Barings, says several of the firm’s close-in suburban multifamily holdings “have exceeded expectations since fourth quarter 2019.” Berry says that Barings these properties, some of which are located outside of Boston, Denver, and Austin, have experienced increasing rents and expect to keep occupancies high.
These suburban properties often rent at a discount to urban apartments, which broadens the pool of potential renters. That’s valuable in times of economic dislocation.
“We see in our portfolio that the rents have been pretty strong in the suburban assets,” Berry says. “We’ve seen more strength in those suburban locations, and we’ve seen occupancies not really move at all. They are still very high for suburban locations.”
Even before the current crisis, the suburban product is better positioned to weather the current storm because its cost basis is lower. “Most of the product you find in the CBD [central business district locations] is mid- and high-rise construction,” Berry says. “Land is costly, or it’s tougher to build in those locations. So you need pretty strong rents to make those deals pencil out.”
In the suburbs, the land is usually cheaper, and construction is less complex. “That has created a competitive discount for the suburban assets relative to the CBDs,” Berry says. “Now that everyone is so focused on affordability, you’ve got a broader pool of renters who are looking at those suburban locations.”
While suburban performance has been strong so far, Berry isn’t ready to declare victory. The economic dislocation caused by coronavirus could take years to play out.
“It’s very early,” Berry says. “Right now, I think everyone is looking to see what’s going to happen with this extension or non-extension of the benefits right now, which I certainly think needs to get done. Since the start of the pandemic, we’ve had 50 million people put in for unemployment. So I think we do need something right now.”
Berry says the high unemployment numbers highlight why people are focused on affordability. “That is why we think those suburban locations are doing a little bit better right now than the urban stuff,” he says.
Berry said Bearings’ primarily Class A portfolio has achieved 96 percent collections so far. “The renters who are in class A apartments can generally work from home, and they haven’t been as impacted by what’s going on in the economy,” he says. “In general, Class A is still doing pretty well, which is where we focus our attention.”
Barings, which represents a $45 billion global real estate platform, owns properties in both close-in suburbs and downtown areas. “If you were thinking about Seattle, we would go to a Redmond or Bellevue—somewhere that’s still close in and still has good access to jobs,” Berry says.
Source: GlobeSt By Les Shaver|August 06, 2020, at 07:35 AM
An online real estate database company just released new figures showing that renters’ preferred location is tiling toward the suburbs.
Zillow attributed the new data to the impact of the coronavirus because of the spike in unemployment. Zillow reasoned that renters were hit more severely by the economic effects of the coronavirus than homeowners Instead of shelling out their savings on an apartment, for instance, millions of people who previously rented have chosen to move back in with family.
Joshua Clark, an economist at Zillow, said that while the change may be viewed as a trend of shifting tastes that would be a misleading conclusion. Clark said the trend is due to the economic reality that renters face since the government issued stay-at-home orders and shutdown of many parts of the economy.
Now, real estate investors will have to decide how this recent trend will factor into their investments. To make that decision, investors will have to decide whether this trend will continue past the beginning of the year 2021 when a human vaccine for the coronavirus will likely be publicly available because offices will safely reopen and no longer ask employees to work remotely.
For the analysis, Zillow looked at 34 of the largest U.S. metro areas. In its analysis, Zillow found that rent growth slowed from the months of February to June.
During that period, rent price growth slowed more in urban ZIP codes than in suburbs. And less expensive suburban rentals are now more appealing to price-conscious consumers because they do not need to factor in a premium of commuting to work into their living location as they had to before the coronavirus pandemic.
These changes were able to happen quickly likely due to renters having more flexibility than homeowners. Renters usually have short lease terms and that impacts the fluidity of prices.
Zillow pointed out that the split between urban and suburban rent growth was present in over half of the large U.S. metros studied. It was the largest in Dallas-Fort Worth, Sacramento, San Francisco, and the greater New York metro.
But Clark has warned investors not to jump to a conclusion too quickly based on the indication of the new data.
“It may be tempting to conclude that urban renters who have been cooped up without outdoor space and unable to visit their favorite local bar are ready to commit to suburban life, and that is likely true for many,” Clark said. “But that narrative ignores the job loss that has hit renters, who are disproportionately employed in the industries most affected, and has likely played a bigger role in recent moves.”
Source: GlobeSt By Michael A. Mora|August 05, 2020, at 07:12 AM
If you own an apartment building in downtown Chicago, the grass looks a lot greener out in the suburbs right now.
With developers adding thousands of apartments to the city skyline, the supply of downtown units is exceeding demand, dragging down rents. But that’s not the case in the suburbs, where development also has surged, but not enough to weigh on the market.
A gang of real estate investors has descended on the western suburbs, dropping more than $350 million in a flurry of apartment deals near Interstate 88.
Four firms including Goldman Sachs and CBRE Global Investors have acquired big multifamily properties in Wheaton, Naperville, Warrenville and Aurora, according to DuPage County property records. In another nearby deal, a San Francisco investment firm is buying the 640-unit Addison of Naperville but has yet to close on the acquisition, according to people familiar with the transaction.
