Quote:
Originally Posted by VivaLFuego
Is it really a sure shot? The supply of downtown rentals is getting so large (between new rental buildings and all the accidental landlords in the new condo buildings) that downtown rental rates are now trending downward. At this point, I'd expect almost any developer to just get PD approval, then sit on it until the market comes back. Obviously rental supply varies by submarket, and I'm not sure how this particular corner of River North is looking from that standpoint, but in general there is already a major glut of both condo units and rentals.
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It's not a sure shot, but that has more to do with JDL having very little or no experience in apartment development - developing apartment towers vs. condo is completely different as far as the financing - a lot of the condo guys (get a bank loan or package of loans at 90-95% ltv) right now are thinking they can just say it's going to be rental and financing will go there way are going to find out you need strong relationships with institutional investors (debt and equity) to get apartment finanincing and they won't be able to do it.
Now for the market - appraisal research's latest apartment report is more of a blip - the apartment market remains strong and will continue to be so (although of course you won't have occupancy/rental rate growth like the past few years - that of course being unsustainable). Yes, there will be added competetition from the shadow (condo) market, and yes, job growth will decelerate from the past few years as well. But there are two factors that overshadow all of this that will be working to the apartment market's advantage over the next few years - market share grabs (both cbd vs nieghoborhood/sub-wise and own vs rent-wise). Renters are and will continue to increasingly choose downtown vs other city neighborhoods and suburbs on an incremental basis. Also, and this will have a huge, huge impact (you heard it here first, people - don 't underestimate it!) there will be a sustained reverse (decline) in the home-ownership trend (both in Chicago and nationally - we're talking several percentage points toward renting and away from home and condo ownership - the positive impact this has on apartment demand will be very powerful (even 1 percentage point shift would be an exceptional boost to demand). Quickly, let's talk about the shadow (condo) market - even if you add all the condos under construction, recently delivered, etc that will end up as stealth additions to the apartment market downtown, the impact of this will be completely overpowered by the number of apartment units over the last 10-15 years that have been converted to condo - in other words, you would probably show no gain in supply or even a net loss of units including the shadow market - this is incredible, and when this lack of supply is met with the positive demand impacts from the two types of market share gains I mention above - look out folks, apartment demand will be very robust - I think truly professional apartment investment companies like Avalon Bay, the two Texas Apartment companies that are looking to enter the downtown chicago market for the first time, etc really are getting this. Of course a lot of the amateurs at apartments - JDL, and many others who are finding themselves with nothing to build now that the condo market have tanked and are frankly desperate, will fail. Another name that comes to mind along these lines would possibly be D2 - the Curve bombed (I think most likely because he might not know how to finance apartments as opposed to condos), although he's trying a 2nd apt go at the parcel with a new Booth/Hansen design - we'll see.
Anyway, I severely digress. My point is that apartments will be the strongest performing property type (despite quarterly volatility in the data and negative impact from stealth condo market rentals), over the medium-term (next 3-4 years), and not hotel. A lot of people think hotel offer the brightest prospects, but they will be proven wrong within 12-18 months, as there will be a real issue in a year or two with all this increase in supply meeting a sharp drop in demand (everyone in commercial property knows hotels have the most volatility and respond with the quickest and most severe downturn with a sharp downturn in economic acitivity (already companies are sharply reducing travel expenses - if you don't think Chicago we'll see the impacts of this by late this year/early next year at the latest, you're in for a shock). In addition, consumers are very overburdened and domestic discretionary travel expenses will be cutback sharply this year too. Someone will assuredly point out the observed increase in foreign travel to chicago, and yes, that will be a mitigating factor in the hotel sector's coming decline but will completely be overpowered by the reductions in domestic business and vacation travel.
By the way, all my comments refer to the near-and medium-term, as in the long-term, I am very optimistic about all the property types' prospective performance for downtown Chicago. In another post, I'll get into why the leading property type downtown will not be office for the 1-to-3 year outlook...
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dude, the no glass areas are balconies. 
Crappy painted concrete (again), fake Arts and Crafts parking garage at the base, little respect for the LaSalle canyon. What a shame... I hope it doesn't happen.
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