Key Take Aways from Chicago’s May 2022 Mastermind Group Meeting!
• Hunter Cannon, Colliers International: Retail is not good in the Chicago market. Sales are good, but developers have “their hands in their pockets.” Small business owners are not opening shops to backfill vacant spots. Market is passive. Losing a lot of business to the sunbelt. The essential business district is only at 30%. Shadow market – tenants are behind in their rent and leases are nearing the end of term. A lot of behind-the-scenes negotiations with landlords that don’t factor into data. Retail “winners” right now are positioned around transportation hubs in the neighborhoods. Crime is having an impact.
• Lauren Zangl, ECS Midwest: Trouble with communication as it relates to networking and connecting in the industry. Very busy on the environmental side. As of May 16, they will be back to phase one flat fee, 2-week turnaround.
• Lee Utke, Madison Marquette: Lemonade Fund developed to acquire vacant single tenant sites – such as a vacant bank branch. Just acquired 145 banks in the southeast. Tremendous amount of interest to lease or purchase sites post acquisition. Cap rates have not changed much despite increasing interest rates. Anticipate they will go up eventually.
• Rhea Stephen, CoStar Group: Interest rates are not having an impact on purchasing right now. Industrial supply is not meeting demand. Owners don’t seem to understand that they can get much more. Office continues to be the challenge, although there are tenants in the market. Lease sizes are increasing and for longer terms. Multi-family is hot, especially in the sunbelt.
• Matt Berry, The John Buck Company: Trying to gain control over land in Texas and Florida. Capitalizing projects – shovel ready projects in the market for debt/equity. It’s been a slow process. Pushing risk for overruns on developer – old school (2009) thinking, not working for 2022. Result is pushing the risk to the trades. Trying to buyout as much as possible in advance. Underwriting is still solid.
• Cory Walz, Walz Capital: As Obamacare rules and requirements go away, entrepreneurs are entering medical space, where it was previously cost-prohibitive. Medical practices are looking to reposition. Major players are shrinking their terms & leases for outpatient centers. Two – three-year terms are becoming norm. Where CPI used to be discounted, now seeing CPI with a 2% floor and no ceiling.
• Mark Gross, Cost Segregation Services: Focused on acceleration appreciation studies. Heavily involved in multi-family in sunbelt region, Houston, Dallas and Austin. Busy with studies on the tech and energy side. Triple net leases with portfolio of Dollar General stores. Some clients are considering tertiary markets due to costs. Bonus depreciation will change to 80% in 2023.
• Jeff Leibovich, Kiser Group: Focus on multi-family assets in Chicago and Midwest. Seeing interest rates and debt as ongoing topic of conversation and concerns. Velocity has slowed. The spread between interest and cap rates will level off. Feedback from lenders is that developers are pumping the breaks. “Anywhere but Cook” has become a trend.
• Paul LaPorte, Bureau of Labor Statistics – Trends in our Chicago economy: a look at inflation, wages and employment.
Chicago consolidated stats March 2021 – March 2022
• Inflation at 8%
• Residential rent rose 3.6%
• Construction materials price index increased 24.5% in the year ending March 2022 and rose 35.1% Y-O-Y in December 2021
• Retail property rent declined 1.1% according to PPI
• Wages and salaries rose 3.8%
• www.bls.gov/oes – salary data
• www.bls.gov/regions/economic-summaries
• Lauren Zangl, ECS Midwest: Trouble with communication as it relates to networking and connecting in the industry. Very busy on the environmental side. As of May 16, they will be back to phase one flat fee, 2-week turnaround.
• Lee Utke, Madison Marquette: Lemonade Fund developed to acquire vacant single tenant sites – such as a vacant bank branch. Just acquired 145 banks in the southeast. Tremendous amount of interest to lease or purchase sites post acquisition. Cap rates have not changed much despite increasing interest rates. Anticipate they will go up eventually.
• Rhea Stephen, CoStar Group: Interest rates are not having an impact on purchasing right now. Industrial supply is not meeting demand. Owners don’t seem to understand that they can get much more. Office continues to be the challenge, although there are tenants in the market. Lease sizes are increasing and for longer terms. Multi-family is hot, especially in the sunbelt.
• Matt Berry, The John Buck Company: Trying to gain control over land in Texas and Florida. Capitalizing projects – shovel ready projects in the market for debt/equity. It’s been a slow process. Pushing risk for overruns on developer – old school (2009) thinking, not working for 2022. Result is pushing the risk to the trades. Trying to buyout as much as possible in advance. Underwriting is still solid.
• Cory Walz, Walz Capital: As Obamacare rules and requirements go away, entrepreneurs are entering medical space, where it was previously cost-prohibitive. Medical practices are looking to reposition. Major players are shrinking their terms & leases for outpatient centers. Two – three-year terms are becoming norm. Where CPI used to be discounted, now seeing CPI with a 2% floor and no ceiling.
• Mark Gross, Cost Segregation Services: Focused on acceleration appreciation studies. Heavily involved in multi-family in sunbelt region, Houston, Dallas and Austin. Busy with studies on the tech and energy side. Triple net leases with portfolio of Dollar General stores. Some clients are considering tertiary markets due to costs. Bonus depreciation will change to 80% in 2023.
• Jeff Leibovich, Kiser Group: Focus on multi-family assets in Chicago and Midwest. Seeing interest rates and debt as ongoing topic of conversation and concerns. Velocity has slowed. The spread between interest and cap rates will level off. Feedback from lenders is that developers are pumping the breaks. “Anywhere but Cook” has become a trend.
• Paul LaPorte, Bureau of Labor Statistics – Trends in our Chicago economy: a look at inflation, wages and employment.
Chicago consolidated stats March 2021 – March 2022
• Inflation at 8%
• Residential rent rose 3.6%
• Construction materials price index increased 24.5% in the year ending March 2022 and rose 35.1% Y-O-Y in December 2021
• Retail property rent declined 1.1% according to PPI
• Wages and salaries rose 3.8%
• www.bls.gov/oes – salary data
• www.bls.gov/regions/economic-summaries
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