Developers dish on the rental market

This morning I attended Bisnow’s Multifamily Summit at the Metropolitan Club to hear six developers and lenders — Tony Rossi of RMK Development, Greg Mutz of AMLI Residential Partners, David Schwartz of Waterton Associates, Mark Segal of The Habitat Companies, Joel Kaplan of Walker & Dunlop, and John Luka of Freddie Mac — talk about the state of the rental market in Chicago and other cities.

Much of the conversation was old news: Inventory is shrinking, and rents are rising. A few observations and aside caught my ear, though — here are a few pulled from my notes:

  • The number of households declined in recent years, as young adults moved in with their parents or opted to live with roommates. That’s starting to change, resulting in a decline in inventory and an increase in demand; even a rising divorce rate is a good sign for rental developers, Mutz said, only half-jokingly.
  • Most of the jobs that are being created right now are going to young people who prefer to rent, Schwartz said. Most of the people who live in Habitat’s buildings work in relatively healthy industries and aren’t losing their jobs, resulting in high retention rates, Segal added.
  • New construction is still a difficult prospect in Chicago, but barring any major changes in the market, new developments could begin to break ground in 2012, with lots of activity coming in 2013 and 2014, Schwartz said.
  • The next round of buildings will be “dramatically different” than what renters are used to, Mutz said. Units will be smaller but more “tricked out,” and “super amenity packages” will be a must.
  • Developers had avoided upgrades during the downturn, but are once again looking to make their buildings attractive to tenants. AMLI is putting money toward improving its buildings’ curb appeal, Mutz said. Habitat is trying to add more hard surfaces — granite countertops and hardwood floors — in its units.
  • More buildings, both new and old, will be LEED certified, although no one seemed sold on LEED’s economic benefits. “The young demographic likes it — we’re just not sure if they’ll pay more for it,” Segal said.
  • Social networking sites aren’t driving new tenants to buildings (Craigslist is still better at this, Rossi said), but they are helping current tenants communicate with one another, and they may have a positive effect on retention rates. Tenants expect property managers to pay attention to requests or complaints posted online, and if managers don’t create and maintain a Facebook page or other social space for a building, tenants inevitably will, Schwartz said.
  • Not all markets are the same. The lack of interest in Hyde Park properties is “striking,” Segal said, in reference to the difficulty Crescent Heights has had in selling Regents Park. The difference in perception of the Hyde Park and Streeterville markets, he says, “couldn’t be more profound.”
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