Chicago South shore Multifamily?

Question

Hello fellow Investors/Brokers,

we are looking at a Multifamily 10+ unit property in south shore Neighborhood between jeffery and 70th east. its fully stabilized and Cash flows pretty well. I'm intrigued by the fact that Obama Presidential Centre will be taking Place in Jackson Park and this property looks like 2-3 blocks away. I also heard my Broker saying Capital chasing Multifamily in south shore.

Posting here to get Locals opinion on what you guys seeing and your future Projections for this neighborhood? TIA!

Crystal Smith · Answer

Here's my opinion regarding the South Shore- Purchasing a stabilized and cash flowing building is a good bet; but I don't believe you will see very much appreciation due to the Obama Presidential Centre. (Purchasing a stabilized cash flowing building anywhere is a good bet) Bottom line- People need someplace to live with or without the Obama Centre being there. The Centre will draw tourist; the new golf course will draw golfers, but the demographics will not change.  Purchasing the property for the cash flow is the bet- I would not expect great appreciation on the property.

Michael K. · Answer

@Mallikarjun Reddy Pateel South Shore and Chatam are up about 24% on the year but Woodlawn is up a staggering 35% and Greater Grand Crossing somehow gained 65%. In general, I like this part of the city for investment. With access to the lake, Jackson Park, U of C, lakeshore drive, and 90/94 it's got more immediate potential than the neighborhoods west of the highway. If it has long-term tenants and is cash flowing that's a good sign. If they just filled it up with tenants in the last month or two and put it on the market id be cautious, especially if the rents seem high. In either case, make sure you get a rent roll before close so you know that people are actually paying on time.

Crystal Smith · Answer

Good question. South Shore Rental income has increased \ has increased 24.2% over the past 5 years for an average of 4.84%.  (Data source: Stacker) Over the past year commercial sales price in the area for properties over $450K has gone up 7.4%.  (Data source MRED: Assuming expenses on a building are 50% of the income and remains that way, with a 4.84% income growth and 7.4% price appreciation then the CAP Rate will not compress.  Those are big assumptions and assume starts w/ ASS for a reason.

With that said- I expect the rent income on the South Shore to continue to grow around 5% but I would not bet on 7.4% increase in property value (Data over 3 years) As you know much also depends on the age of the building and how well you manage CAPEX.

John Warren · Answer

@Mallikarjun Reddy Pateel cap rates have already compressed in areas like South Shore. I don't think you are going to see cap rates go from 6 or 7 down to 3. The game in an area like South Shore is to buy with a strong management team in place so you can have excellent operations.

John Warren · Answer

@Mallikarjun Reddy Pateel South Shore has been the not so secret area where a lot of people have been chasing capital. You would want to speak with a property manager in the area as this would be a very hands on area. You can get excellent tenants in some pockets of South Shore, but this area is very block by block.

@Mark Ainley can you tag Jared Kott?

Jonathan Klemm · Answer

@Mallikarjun Reddy Pateel - I'd agree in general with your statement and then just advise that South Shore is definitely still blocked by block.  You'll need solid boots on the ground (Property Manager) who can advise you specifically on the blocks and make sure your property doesn't take a turn for the worse.

Things can still go bad quickly in that Chicago area if the property is not managed properly so that is the key, being an out-of-state investor.

I think everything East 90 in that area will continue to appreciate faster than the west side.

Mallikarjun Reddy Pateel · Answer

@john

@John Warren Thanks john, it will be crazy to expect 3 or 4 cap for south shore. all i wanted to know is whether or not there will be a Upward trend in pricing for the coming years with fundamentals getting Improved

Raheem Moore · Answer

South Shore is definitely still block to block meaning you should contact with a property management that is familiar with the location. After reading some of the above post I do agree with investing numerically for a great deal vs speculatively. This location will experience change from the Obama Library but who knows when this will happen.

Best of luck my friend!

Mallikarjun Reddy Pateel · Answer

thanks @Crystal Smith. definitely cashflow is our game.

Agree that Demographics won't change but if there is Opportunities that Improves Living Conditions of these Distressed Neighborhoods do you think that will Compress cap rates over Long term Horizon?

Chicago South shore Multifamily?

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