State of the South Side Real Estate Market in 2017

The general mood of the first SSCIA meeting of 2017 was upbeat, as has been the case for our group in the last two to three years. Yet with an improving market comes the downside of increasing prices, shrinking cap rates and more competition for value add properties.

Forecasts from the experts

Tamika Marks of Trademarks & Associates, a firm that specializes in 1–4 unit distressed properties, spoke about a shrinking inventory of REOs and an increase in what banks are looking to get per property. On the purchase side, Tamika’s properties are receiving multiple offers with a significant percentage coming from national and international buyers.

Perdure Carter of Dream Spots Leasing and Sales is seeing heavy rental traffic as well as increasing demand for homes to purchase due to an increase in available financing for buyers with credit scores as low as 580. Current low interest rates and affordable price points for single family houses make home-ownership cheaper than renting in some cases. Perdure also shared his insights on what makes a typical good tenant stay or move. Quality units and quality management increases that odds of keeping tenants long term in any given property.

Noah Berk of Kiser Group focuses on 5+ buildings and has seen a continuing increase in price per unit across all the South Side neighborhoods, with the areas surrounding Hyde Park and North South Shore commanding consistently higher values. In addition, Noah is seeing more lenders who are willing to lend on South Side deals, which is a big shift from previous years. One last point from Noah is that appraisals have managed to keep up with contract pricing.

Anthony Hardy of Marcus & Millichap reviewed the need for property owners who are considering putting their buildings on the market to work with their broker on assessing their properties before doing so. That way they can better understand where their properties are positioned compared to similar properties and the rest of the market. Anthony emphasized that selling a property is more than just a decision one day to sell but is instead a multi-year process of getting the property ready. He also described how he works with out-of-town buyers to pair them with local operators to insure increased chances of success on their investment. The lack of competitive cap rates in many markets locally and nationally is pushing new buyers that are not experienced operators into affordable housing markets such as the South Side.

Who’s buying what and why

The flow of new buyers for entry-level investment properties is growing and appears to be putting added pressure on the REO market. Even though the number of foreclosures has dropped, the South Side has always had a steady flow of distressed properties and will continue to have them for the foreseeable future.

President Trump and the media’s negative coverage of Chicago and its violence have scared some potential buyers away but has seemed to draw others. Current draws to the South Side market include the newly-announced Obama library in Jackson Park, the South Shore golf course being redesigned by Tiger Woods, the planned redevelopment of U.S. Steel’s South Works site, and the increased focus of University of Chicago on investing in its surrounding neighborhoods in collaboration with Theaster Gates. The impact of such highly publicized projects for the short-term seems to be on the speculative buyer level. Buyers that are more cash-flow conscious and in it for the long haul should continue to focus on current South Side market fundamentals. And the SSCIA will continue to offer a forum for new and seasoned property owners and real estate professionals to discuss the Chicago housing market and learn how to make the most of it.