Why Rent Control Would Hurt Chicago

As some of you may have read Rep. Will Guzzardi, D-39th, has sponsored a bill that would remove the Illinois ban on local municipalities instituting rental control laws. While this removal would not put rent control into place it is a slippery slope that may lead to city councils, specifically the Chicago city council, passing rent control laws. While I do believe Mr. Guzzardi is trying to look out for his constituents, I do believe his logic and understanding of basic economics is flawed. I try to avoid political debates or political opinions in my blog, however, I do not look at this as political but instead as economical. I think it is important that rent control and its disastrous outcomes are explained.

First, let us quickly discuss what rent control is. Rent control is when the government puts a max price (a price “ceiling” if you will) on what a landlord can charge tenants. There are various ways in which this is implemented. Now it is important to note that rent controls must cap price levels below the prevailing market in order for them to have any effect. Otherwise, the cap would never be reached and the rent control law would be pointless. Therefore, rent control sets a rate of rent below the current market level. In Chicago, as with most areas where rent control is a topic of discussion, the goal that is looking to be achieved is to allow low income and middle income residents to stay in neighborhoods and not get “priced out.”

When rent control is in place prices are capped at below the prevailing market and several things happen.

  1. Landlords stop investing in their properties. They do so because they have less cash to invest but also because they will not see increased returns. Therefore conditions of properties deteriorate. I do not mean that they become inhabitable, but the overall the conditions of items that are not 100% essential end up deteriorating and therefore hurting the value of the property.
  2. New investment becomes less. If rents are capped below market value then there is little to no incentive for new rental units to be built. Therefore, supply does not increase. In a normal market, rents increase and therefore profits for landlords increase which entice new investment. The increased supply then helps balance the market.
  3. Existing tenants do not move. Tenants enjoying rent control have little to no reason to move out of their current place. Therefore, only those lucky few take advantage of rent control. The on the market supply shrinks. Because of this, landlords can become very picky. Since they can’t raise rents they might as well be as strict as possible and since supply has decreased they will have countless of applications. High credit scores and higher income requirements will become the new norm. Therefore those with less than perfect credit will be left in the cold.

We will also see a spillover in other neighborhoods that do not have rent control. The excess demand that typically would have been satisfied by increased supply in rent control neighborhoods will not move to other neighborhoods. However, these neighborhoods that do not have rent controls will still likely see less supply. After all, rental developers are not stupid. They know rent restrictions may be placed on them too so they in turn will have less an incentive to invest and therefore supply would become restricted in these markets as well. Therefore, since these markets are unrestricted we can expect to see rent increases greater than normal in these areas and in turn making these areas less affordable.

The reason why any price is exists is due to a supply and demand relationship. When the government tries to “cap pricing” what they end up doing is inadvertently lessening supply while demand remains the same. Therefore, those properties not affected by the rent control will increase dramatically in value. Both NYC and San Francisco have forms of rent control.

We would also see a black market exist among landlords and tenants. “Key money” is common in New York and other areas with rent control. Tenants will pay additional move in fees up front in order to help increase the overall effective rent. Tenants who no longer want to live in an a building or neighborhood, but do not want to give up their amazing rent control place will end up subletting their place. The market will always try to return to normal It is like putting up a damn. You may stop the river in one space, but somewhere else it will flood. The one thing that will not change however, will be a lack of supply as investors will not want to invest in real estate when they are dictated by the government what rents they can charge.

With landlords with less cash there will be less money to pay taxes with. There will be less money to make improvements with thus tradesmen will suffer. The upper middle class market will suffer as well as we will see a spillover into these rentals too as I mentioned before. Rents for those making good six figured salaries will increase. Don’t care about them you say? Well, they will have less money to eat out thus bartenders and waiters will make less tips. They won’t shop at that new mom and pop boutique down the road so that store may close. That cleaning person that came every week? Well, now they’ll cut that out of their budget. The worst part about all this is it will not be due to the free market system, instead it will be due to the disruption of the free market system.

According to the Library of Economics and Liberty, 94% of economists believe rent control not only does not work but is a terrible idea. The agreement cuts across political parties and economists such as Milton Friedman and Friedrich Hayek (who are on the “right”) agree with Nobel laureate Gunnar Myrdal (who is on the “left”). Myrdal stated “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” I could not agree more. According to Crain’s Chicago Business the executive director of the Metropolitan Tenants Organization wrote ” One in five Chicago renters pays more than half their household income on rent.” Instead of fix the systemic issue that we have 1 in 5 renters paying half their income towards rent, politicians think the solution is to pass rent control? Why? Because fixing the systemic issues takes time, planning, and thought. It does not happen in one election cycle. So instead, politicians with zero understanding of basic economics, or worse their indifference to basic economics, try to move forward legislation that sells a dream to their constituents that will simply never be realized.

 

 

 

CHICAGO RENTAL BUBBLE ABOUT TO BURST?

The Chicago rental market has been on an upward swing since 2010. Downtown Class A rents are up 36% (on a per square foot basis) since 2009 according to Appraisal Research Counselors. But is the end near? I don’t know about you, but every time I speak with someone in multi-family or read an article regarding an apartment sale, I am feeling reminiscent of the 2005 and 2006 sales market. Before I go into a rant regarding the current state of the market, let us back up and discuss the rental market in Chicago over the past decade.

Rental prices sharply declined toward the tail end of the first decade in the 2000s for several reasons. When the economy was still ticking along rental prices remained flat or only saw nominal increases (in some cases decreases) due to the fact that mortgages were not only easy to come by, but cheap to get. Factor in increasing property values and the ability to gain quick equity and everyone and their dog was buying a condo. It made more sense to buy at the time and home ownership in Chicago was at an all time high (71.2% in 2006). Less renters and more buyers meant lower or flat rents and more vacancy in rental buildings. Once the economy started to soften at the end of 2007 and then drastically so in 2008 and 2009, we saw rents decline even further. The other item to remember is during the 2000s very little new construction apartment buildings were built. ALL developers were focused on condo buildings. In addition, some existing supply of apartment buildings were converted into condos (10 E. Ontario, 440 N. Wabash…think American Invsco and Crescent Heights). Now the year is the end of 2009 and 2010. People either 1) cannot afford to buy, 2) cannot get a mortgage or 3) are still hungover from the crash of the market and are afraid to buy. These people then are forced to rent. Remember what I just said about no new construction of apartment buildings in the past 10 years? Remember what I just said about apartment buildings converted into condos? Well, it doesn’t take a genius to figure out what happened – supply on apartments were low but demand was now high. Home ownership was dropping for the first time in decades and therefore rents started spiking.

Rent prices in 2007 and 2008 were quite low in Chicago. The rent increases of 2009 and 2010 and even 2011 were simply making up for lost time. Recovering back to where they should have been had the mortgage market not been flooded with such toxic mortgages that ended up contributing to not only the decline in rental prices but the collapse of the entire financial system. But then something strange happened…rents continued to increase and developers took note. Developers could not get a construction loan to save their lives to build a condo building, but if they wanted to build a 500 unit apartment building backed by secure rents…it was like stealing candy from a baby. Financial institutions could not wait to lend money to developers and developers could not wait to get back in the game.

Why would developers want to become landlords you ask? Are they not in the condo game? Don’t they want to sell? Well, here is a secret – developers are not in the landlord business. They have ZERO interest in being so. Once developers saw the increase in rents and what institutional investors were paying for these apartment buildings they knew they could build a building, with cheap money, partially fill it and then sell it off. Guess what – that is what almost all have done in Chicago. EnV (161 W. Kinzie), 111 W. Wacker, North Water Apartments…just to name a few, were all flipped for a big profit. Developers simply went back to what they knew how to do: build and sell.

The Chicago market LOVED it. After all there had not been any high end rental buildings built in quite some time and renters craved new construction. Each building that opened up after the next had better amenities and better finishes. Renters hopped from building to building and had no problem paying the exorbitant rents. Prices were increasing double digits year after year. Then more developers rushed in and we are sitting where we are today. The question we must now ask ourselves is “Is this market sustainable?”

Is this market sustainable? That is a good question to ask don’t you think? This was a question asked to developers in 2005 in which nearly 100% responded with “Yes….” and then gave some bullshit answer derived from misconstrued facts and skewed data. But, what about now? Will we see a market crash in rentals like we did before? Well…lets check out some facts.

Here is a list provided by Appraisal Research Counselors of new rental units added in downtown Chicago. Keep in mind we are only talking about downtown Chicago and only talking about top tier buildings.

2013: 2,750 units     2014: 2,000 units    2015: 3,100 units and projected in 2016 an additional 3,500 units and in 20017 an additional 4,500. 

This is only downtown Chicago. This does not count north side markets and this certainly does not count any suburbs.

Rents have continued to increase even as new supply has come on the market. There are many reasons for this. Millennials continue to rent as opposed to buy. Baby boomers are coming into the city and renting second homes or selling their home in the burbs and making their rental in the city their primary residence. Job growth in Chicago is steady (it is doing well, but not amazingly well) and lets face it, people love new construction. Home ownership has declined back to 1999 levels in the city of Chicago as well. These are all great factors and reasons why the market has done well, but this is not the only data that we should consider. The most important item to consider is the following: VACANCY. Vacancy is the ultimate determining factor. During the real estate boom of the 2000s the major factor that would have let you known the market was cooling off way ahead of a decline in prices was market time and number of homes on the market. We saw market time increase and number of homes on the market start to increase 1 year before pricing actually peaked. 1 full year…it goes to show you how slow the real estate market is to react to change. There are many reasons for this but the main reason is because most investors and many of us brokers in sales love to have blinders on and simply focus on only the good and not the bad. No one likes the bear in the room.

So, here is a fun fact for you. Apartment occupancy rates on a national level decreased for the first time since 2009 last quarter. Specifically in Chicago Class A (top tier luxury rental buildings) occupancy rates went from 94.2% in the 3rd quarter of 2014 to 93.7% in 2015. This may not seem like much of a change, only half a percent but it is drastic. In 2006 for instance, due to many apartment buildings being converted to condos, occupancy was at 97%. In 2007 and 2008 we saw occupancy dip to 91%. We are really only dealing with a small percentage range of occupancy between the lowest occupancy we’ve seen in a while and the highest. Therefore, a half a percent year over year is something to take note of.

So we have looked at occupancy and we saw it decline a nominal amount. What else should we be considering? Well, let us consider new units projected. Perhaps, if not many new units are coming online then the market will be fine.

Well, in 2016 and 2017 a total of 8,000 new units will be coming to market. This is more than 2013, 2014, and 2015.

During this winter I’ve seen more buildings offer concessions than I have in several years. I’ve seen rent prices at some buildings in downtown down 20% from their summer prices PLUS 1 month or 2 month concessions offered. Some will say “but prices always decrease in the winter.” While this may be true; what I would like to note is the amount prices have decreased this winter is more than years prior and the level of concessions have increased more than years prior.

Continue to bear with me here!

Restaurant Theory:  Pretend a new hot restaurant has opened up. During the “Hot” time of 6:30pm to 9:30pm getting a table is impossible. But you really want to try this restaurant so you go at an off peak time, maybe 5pm or 4pm or 10pm. You walk in and you notice how crowded the restaurant is during that off-peak time. You think wow, this restaurant is doing very well! Once that restaurant starts to loose its luster and is no longer as desirable any more, the first sign would be 4pm diners will stop dining. People will no longer wait until 10pm to eat dinner or want to start at 4pm because either 1) They don’t feel that inconvenient time is worth it or 2) They’re able to snag  reservations during peak times. Now, if you were just looking at the number of tables full between 6:30pm and 9:30pm you might think that restaurant is doing very well. You might think that the sky is the limit and this restaurant needs to expand! But what you’ve failed to realize is that there is already a sign right in front of you that demand is starting to taper off and that would be the fact that less diners are there during the less desirable times. If you only looked at the peak times then your understanding of the restaurant would be mistaken.

Obviously the rental market is very different from the restaurant business, but basic observations of supply and demand can be looked at in the same way. It is important to understand the leading indicators in the rental market. These leading indicators are occupancy rates (vacancy rates) and rent prices and concessions during the slow months of the year.

My Thoughts

If you’ve made it this far thank you for reading through my long winded blog. I’ll keep my thoughts short. The rental market party is over, plain and simply. It may take another 3 quarters for us to start to see price adjustments in the downtown market, but we will see price adjustments eventually. As occupancy rates continue to slide, especially among buildings that are now owned by institutional investors, they will have no choice but to lower rents or increase concessions to attract renters. I believe this will be most prevalent at the end of 2016 / beginning of 2017 as we head into next winter and see the new 2016 supply hit the market. Overall, I do not see a CRASH in rental pricing, but I do see a decrease on the horizon and I would not be surprised if we see rents decrease in Class A buildings by 10% over the next 2 years.

NORTH WATER APARTMENTS AT THE LOEWS HOTEL IN CHICAGO

North Water Apartments is located in Chicago’s Streeterville neighborhood; east of Michigan avenue and just north of the river at 340 E. North Water. North Water is connected to Chicago’s Loews Hotel which makes North Water Apartments Chicago’s first building to have only rentals and a hotel in one (The Aqua has rentals and condo). What makes North Water unique is residents enjoy private amenities and do not need to share their amenities with the hotel guests. However, you have many benefits from being connected to the Loews hotel which I will explain shortly.

North Water Apartments & Loews Chicago

North Water Apartments & Loews Chicago

I am going to give my review of North Water Apartments from my perspective of not only a Realtor, but also a resident in the building. I moved into the building at the end of April, 2015 only a few weeks after the building opened.

North Water Apartments is a fully amenity building. We have a phenomenal gym, cycle room, outdoor heated pool (they always keep it at 85 degrees) with sun deck, outdoor grills with eating area and outdoor TV.  We have a free coffee bar 24/7 and business area / conference room. There are two indoor lounges, both complete with kitchens, TVs and fireplaces. The lounge on the 50th floor can be reserved and the 50th floor also has a roof deck. Door staff is 24/7, dry cleaners / tailors are in the building and additional storage and bike storage is available as well. All of the above amenities are for residents only and hotel guests have zero access to them. That is the best part and is what differentiates this building from other hotel / apartment concepts not only in Chicago but in the country.

As the building fills up we will soon be able to order from the hotel’s room service…this can get addicting! You can access the hotel without walking outside which means you have access to 3 bars and a restaurant. Trust me, this can get quite addicting as well!

The units themselves are outfitted with what you’d expect from a higher end rental building. Wood Flooring, Quartz Countertops, SS Appliances. A few nice pluses: All the cabinet drawers and doors are self close. There are more outlets than you will know what to do with, including in the hallway closet! I am in an 08 tier which is the “J” unit. My unit has a HUGE walk in closet which is one reason we were attracted to this unit. We were moving from a condo with a 6 x 10 walk in closet and I’m happy to say this closet fits everything we have and then some.

I’m a big fan of the hallways in this building. Even though you are not in a hotel, the hallways make you feel like you are. It is always as disappointing feeling when I step into what looks like a nice building from the lobby, but the hallways disappoint. Here, no expense was spared.

Views, Views, Views!

There are 2 “main” views in the building as the building runs length wise north and south, meaning the majority of the units face either East or West. If you face east you get perfectly clear lake views no matter what floor you are on. Watching the fireworks at Navy Pier is not a problem at all, nor is watching the sunrise in the wee hours of the morning. The west views offer incredible city, river and sunset views. What is important to note, however, is that this IS A VIEW BUILDING! LITERALLY ALL THE UNITS have a great view. We opted for the west view. I love looking down the river early in the morning when I wake up and the view is even more stunning at night. See below!

North Water Apartments

                     North Water Apartments

Service

Service, in my opinion, is just as important as the aesthetics of the building or the amenities inside. The door staff at North Water Apartments goes above and beyond to take care of anything you need. From packages brought up and put inside your unit while you’re away, to hailing a cab in the rain to helping you get stuff out of your car…the list goes on.

Our building manager has also arranged to many different events in the building. We’ve had “Move in the Pool” night when management arranged to have a giant blow up screen and movie play at the pool (complete with popcorn, cotton candy and floating pool chairs). We’ve had brunches and cocktail hours so we can get to know our neighbors and we’ve even had cooking classes.

About Me

If you’ve read any of my blogs in the past about rental buildings or renting in Condo Buildings versus Apartment Buildings, you know I have ALWAYS been biased toward renting in condo buildings. I’ve recommended them for a multitude of reasons including better finishes, better kept building, etc. However, in this case, I personally have moved into North Water Apartments because for the money I have yet to find a condo building that can compare or another rental building that can compare. Now I know there are many new rental buildings opening up in 2016 and 2017, but at the current time, in my humble opinion, North Water Apartments is one of the best places to rent in the city.

FOR MORE INFORMATION ON NORTH WATER APARTMENTS FEEL FREE TO REACH OUT TO ME!

PAUL BLACKBURN IS AN ILLINOIS LICENSED REALTOR AND BROKER WITH @properties IN CHICAGO. HE CAN BE REACHED VIA HIS CELL OR E-MAIL PAUL@PKBLACKBURN.COM 

My Chicago Real Estate Predictions for 2015!

The Real Estate market in Chicago, for both sales and rentals did quite well not only in 2014 but in 2013 as well. Pricing in some areas have returned to 2006 and 2007 levels so the question is what is in store for 2015? Is it the best time to sell or the best time to buy? What will happen to rent prices which have continued to increase year after year for the past 4 years?

The Residential Sales Market in Chicago

I believe we will see steady price growth throughout the Chicago area, likely around 3%. Inventory levels should increase year over year as new construction comes on line and sellers continue to realize that market conditions have improved. Over the past 2 years we have seen much of the “back log” of buyers, that have been sitting on the fence for years, start buying. I believe much of this backlog has already entered the market. Driving demand in 2015 will be first time home buyers at various price levels, those trading up or down (current home owners moving within the city), and investors / second home purchases.

Interest rates are lower than they have been in well over a year. Current APR on a 30yr fixed is hovering in the 3.8% range.

Now is an excellent time to buy because I believe the hysteria we saw a couple years ago is over and the market is now normalized. This allows buyers who are currently in the market to breath a little as they are looking at property. Keep in mind, however, well priced properties are still selling in a day or twos time and receiving multiple offers. However, unless improperly priced, I do not see residential properties receiving 5 offers and selling for 10/20% above list like we did over a year ago. Is this a bad thing? Not at all! What we saw in 2013 and in 2014 was simply the market equalizing which happens after any crash in any kind of market. We do not want that type of market to continue because it is not stable and it is not sustainable. What we will have in 2015 is a normalized, highly stable and highly sustainable residential real estate market. In short, this means it is a great time for both buyers and sellers as both parties have lower risk when making financial decisions regarding their property.

The Rental Market in Chicago

As many of you know rental prices have been increasing dramatically since 2009/2010. Due to various economic factors that I will not bore you with here, investment money flew into multi family property throughout Chicago. Developers who could not get financing for a 30 unit condo building had no problem shoring up financing for a 300 unit rental building. Currently rents are at all time highs in Chicago.

I believe in 2015 we will see rent prices, in the majority of the city, remain flat or slightly decline. As thousands of new, high end, rental units hit the market in downtown Chicago we will see market times increase for rentals and vacancy rates slightly increase as well. We will see a great deal of units hit the market toward the end of spring through the beginning of fall 2015. We will see in additional 5500+ units hit the market in 2016 as well.

I believe low interest rates and a now steady inventory of for sale properties in Chicago will continue to act as a ceiling for what rental buildings can charge for rent in Chicago.

While we may see base prices high at many of these new buildings opening up, keep an eye out for concessions such as 1 to 2 months free, free parking, along with free utility packages, discounted move in fees, etc. I believe the biggest price declines for rentals in Chicago, however, will not happen until middle / end of 2016.

Some recent articles have been released stating that the current demand for high end rentals in Chicago is sustainable. The sustainability, however, of current demand is almost irrelevant. What is relevant is how the current demand relates to supply. Supply for rentals in increasing heavily in Chicago and continues to do so, not only on a large scale (300 to 500 unit buildings in downtown) but also on a much smaller scale (20 to 40 unit buildings in outlying Chicago neighborhoods away from the city center).

While job growth does continue in Chicago, we need to understand that incomes are not increasing on a citywide level which has determined the ceiling of rent prices in the downtown market.

What rent price range will do well in 2015? We will continue to see the $1,000 to $2,000/mo price point do well. This price point is perfect for those recently removed from college and those transferring to Chicago who plan to purchase in the next year or two but want to save money. The area I believe that will be hardest hit by the new rental supply in Chicago will be the higher end 1 Bedroom prices, priced between $2,500 and $3,500/mo. I believe it will be these units where we will see the largest concessions in 2015.

 

Paul Blackburn is an Illinois licensed Realtor and Broker with @properties in Chicago. He can be reached anytime via e-mail at Paul@PKBlackburn.com

New Apartment Buildings Still Going Up In Chicago!

Well, the craziness continues. Another apartment developer just acquired a piece of land in the west loop on Jackson and plans to break ground by November on a new apartment building. Buildings that broke ground at the beginning of the rental boom are now finally open and filling up quickly but the question still remains how long will this craze last?

Personally, I’ve seen market times increasing for rentals in Chicago. I’m observing this from my own personal listings only and have not run my own data analysis but I would assume market times are slowly increasing across the board. Prices increased a great deal over the past couple years but I cannot see any large year over year increase in 2014 as thousands of new class A rental units hit the market.

What I find most amazing are the amount of developers who continue to push forward and investors who continue to acquire large scale apartment projects as cap rates continue to decline as prices rise….when will it end? Many apartment developers continue to use to the phrase “apartment demand is sustainable” but for those of us who have a half way decent memory we heard this phrase plenty of times from developers in 2005, 2006 and even at the end of 2007 when the condo boom was coming to a screeching halt. Will we ever learn?

Smart Money: I saw smart money move over a year ago from apartment buildings back into condo development. Right now they’re sitting pretty selling out even before completion of their small projects.

Sure, there will always be demand for apartments but if there is one thing the real estate market has taught me, it is that when demand is for 2,000 units developers love to build 4,000.

Chicago Real Estate Market Update!

 Chicago Market Update

I am sure you have seen market updates in the news and in the paper over the past months speaking of the positive trends in the real estate market. While these market reports can be very valuable in understanding the current market conditions, however, I prefer to write my own to explain in my own words with regard to what is taking place in the current real estate market.

Buyers

Buyer traffic has increased dramatically not only for my own business but for that of my colleagues. When the market first started to stabilize we saw first time home buyers primarily driving the numbers up. However, in recent months we have seen an increase in second and third time buyers as well as those purchasing in-town and vacation properties in Chicago.

While individual markets within Chicago are highly localized with respect to demand levels, we have seen increased demand throughout Chicago’s most popular neighborhoods.

Inventory

Believe it or not the largest challenge currently facing the market place, from the Realtor perspective, is the lack of inventory. While great deals can still be had and property prices are phenomenally low, demand has gobbled up excess inventory in most markets. This decrease in supply levels has caused multiple offer situations and some properties to sell in excess of the list price.

Investors Getting Back Into the Market

We have seen a tremendous amount of investors get back into the housing market, which is more than likely due to the low return in other areas such as treasuries and equities. Foreclosed properties, particularly in the downtown market are often selling for well above list price and are receiving multiple offers within hours of hitting the market.  This has greatly helped the market overall as it has started to increase prices in some of Chicago’s most troubled buildings such as 10 E. Ontario, 440 N. Wabash, 345 N. LaSalle, etc.

We are even starting to see areas that were dramatically over built during the boom, such as the South Loop, regain excellent traction. Specific areas within the South Loop (short walking distance to Roosevelt & Michigan/State) have seen a great Increase in buyer demand. These buyers have depleted inventory in several of the South Loop’s most established buildings.

Sellers

Some seller’s are under the assumption that since the market is picking back up they can now obtain the price they paid years ago. This is definitely NOT the case. While the market has picked up significantly we are only seeing marginal increases in pricing at the current time.  While demand is strong it is not strong enough to sustain excess levels of price increase or interest rate increase.

Financing

Financing has eased slightly and is heading in the right direction but obtaining a mortgage still requires good qualification on the part of the borrower. We have, however, seen increased lending options for investors as well as owner occupants in “troubled” buildings. These financing options are definitely more expensive as the lender must take into account the increased risk, but we are starting to see a glimmer of hope for some buildings that were impossible to finance years ago.

Is it a Good Time to Buy?

It is actually a great time to buy! Currently this market requires patience, as inventory levels are low. The positive side is that interest rates and prices are still extremely low.  Builders are slowly starting to enter the market again and are delivering High Quality product that in 2007 would have cost anywhere from 20 to 50% more.

 

Rental Market

The rental market in Chicago remains strong and we have seen double digit rent increases over the past several years. As the job market recovers we are seeing increased demand for rental property as young professionals seek housing in the downtown market place. However, developers are quick to answer that call and currently have 15 high rises under construction in downtown Chicago which will add over 5,000 units to the market in the next year.

My concern for the rental market is with interest rates low and a stabilized housing market we will see a decrease in demand growth for rental property. While I do believe that rental demand will increase in the coming year it will do so at a slower pace than expected and I do believe that developers are outpacing demand with supply for 2014.

WHAT YOU SHOULD KNOW WHEN RENTING IN CHICAGO

What should you know when you rent a condo, apartment or home in Chicago? Chicago is a very TENANT friendly city. The Chicago Landlord & Tenant Ordinance favors tenants which makes my job difficult when I represent landlords but makes it a breeze when I work with tenants. This post focuses on your rights as a TENANT. These are items you should be aware of both positive and negative.

Security Deposit:The strictest portion of the ordinance in Chicago pertains to your security deposit. Your landlord must do a couple things:

1. Hold your security deposit in a separate account

2. Pay you interest on your security deposit. The amount of interest is determined by the Chicago Landlord Tenant Ordinance. For 2012 it is a whopping .057%.

3. On the FRONT of the lease the landlord must provide the Bank Name as well as a Branch Address of where the security deposit is held. Furthermore, the bank MUST be in the State of Illinois.

4. Your security deposit must be returned within 45days of vacating your unit. IF the landlord is with-holding a portion of the security deposit for damages the landlord must provide written notice within 30days of tenant vacating the unit with an itemized statement of damages.

What if the landlord violates any of these items? Well, if the landlord has been found to have violated any of the Security Deposit or Prepaid Rent provisions of the ordinance then the tenant shall be awarded damages in the amount of two times the security deposit amount plus interest.

Late Fees: Some landlords try to charge a late fee PER DAY the rent is late and this is illegal in Chicago. The Maximum late fee a landlord can charge is $10 for the first $500 of rent and 5% for anything above. This means that if your rent is $450 then your late fee is $10. If your rent is $1500 then your late fee is $10 for the first $500 and 5% of the remaining $1,000 which would equal $50. The total late fee would be $60 PER MONTH.

Locks: As of 2012 landlords in Chicago must do one of the following:

1. Change the locks after each tenant

or

2. Give the tenant the right to change their own locks.

Failure to do so may result in the landlord being responsible for any theft that may take place in the unit during the lease period.

Is your rental unit covered by the Chicago Landlord Tenant Ordinance?

All rental units in Chicago are covered WITH THE FOLLOWING EXCEPTIONS:

– Units in OWNER OCCUPIED BUILDINGS with 6 or fewer units.

– Units in hotels, motels & rooming houses unless your rent is paid monthly and occupied more than 32days.

– School dormitories, shelters, employee’s quarters, non-residential rental properties.

– OWNER OCCUPIED co-ops and condos. Meaning an owner in a 2 bedroom condo rents out his/her room to you.

As always I am not an attorney and this is not meant to be taken as legal advice. Instead, this is meant to be taken as practical advice for renting and living in Chicago.

Paul Blackburn is an Illinois licensed Realtor and Broker with @ Properties. He can be reached anytime via e-mail at Paul@PKBlackburn.com

Condo Inventory Falls; thanks to high demand for rentals?

From Crain's Chicago Real Estate Daily

That is right, inventory for new construction condos in downtown Chicago has had a dramatic decline from last year. According to Appraisal Research downtown developers had only 2,031 unsold condos at the end of the first quarter of this year. Number still seem high? Well compare it with the number from the same time last year; 4,182.

Due to the high demand of rentals many developers have changed their projects from condos to apartments. Also, many investor pools have bought blocks of condos from developers who are receiving pressure for their banks to come due on their construction loans. What does this mean for the condo market? Continued stabilization in prices.

Real Estate prices are mostly controlled by Supply & Demand. When there is over supply in the market, those who really need to sell lower their prices and this pulls the market downward. We cannot see stabilization in prices, until inventory levels increase, or demand increases to meet the levels of supply. Since Chicago is not seeing a mass influx of thousands of people a week typical buyer demand cannot be expected to soak up all the extra supply. Ironically, the intensified rental market has soaked up much of the supply, much more than many developers expected.

While there is still more inventory on the market than developers would like, it is a positive sign for those developers still holding many empty units.