Downtown landlords take a hit, but they’re not mortally wounded

Downtown landlords have had to cut rents to fill apartments, but the situation isn’t as disastrous as some had predicted.

“It kind of looked like the car was headed off to the ditch,” Integra Realty Resources’ Ron DeVries told Crain’s. “We hit the brakes, and it looks like we’re not going to get into a big wreck.”

The average rent for Class-A downtown apartment buildings fell to $3.01 a foot by mid-May, a drop of 7.7 percent from Q1 2019 and the biggest quarterly drop since 2001, according to Integra’s analysis. Occupancy for Class A buildings also fell to 91.8 percent, down from 94.3 percent a year earlier, Integra data shows. It’s the lowest rate since the end of 2017. Absorption also totaled just 325 units, the lowest quarterly number since 2012.

But it could be so much worse — though the number of tenants who aren’t making rent has grown, delinquencies aren’t bad enough to cause significant concern for downtown luxury landlords, Crain’s reported.
“These are not people who have lost their jobs,” said Aaron Galvin, of apartment leasing brokerage Luxury Living Chicago Realty. “These are people who have been able to work remotely.”

Galvin is tasked with renting out Hines and the Kennedy family’s 698-unit Wolf Point East. Despite the difficulties of the coronavirus, Galvin claims leasing volume is meeting the developers’ original expectations and half the units will soon be leased. Prices range from just over $2,200 a month for a studio to $9,250 for a three-bedroom apartment.

Other property managers and investors, like Tony Rossi Sr. aren’t as bullish. Rossi is concerned about the high job losses and the nation’s prospects for flattening the curve –— many tenants aren’t renewing leases, especially graduate students in downtown apartments.
“We did OK in May, we did OK in June,” he told Crain’s. “But I just don’t like where we’re headed.” [Crain’s] — James Kleimann