12-May-16 – Chicago’s apartment dwellers should find some rental deals downtown this spring despite the gloomy forecast for higher rents this year.

However, analysts say owners of smaller North Side properties likely will be forced to pass along hefty rent hikes because they are anticipating extraordinary real estate tax increases when the second installment of the property tax bill arrives in August.

And, “Ma and Pa” landlords who own two-to-four-flat buildings also will feel the sting of the new garbage collection fees, which will add hundreds of dollars to operating costs.

Higher property taxes and fees are needed to help the city raise $588 million in new revenue to pay for pensions of teachers, police, and firefighters, according to Mayor Rahm Emanuel. If there is one ray of sunshine in the city’s rental market, experts say it may be the glut of new apartment buildings in such hot downtown neighborhoods as the Loop, West Loop, South Loop, River North, Streeterville, and Gold Coast. (Left) Wolf Point West from Franklin Street Bridge on January 19.

Appraisal Research Counselors reports 16 new rental high-rises – containing a total of 5,759 units – are under construction downtown and scheduled for delivery in 2016 and 2017. The majority of the new 2016 units are expected to hit the market this summer.

Eight additional buildings are currently in the active lease-up stage. They include…

• Wolf Point West – 509 units
• 1000 South Clark – 469 units
• North Water Apartments (340 East North Water Street) – 398 units
• State & Chestnut (845 North State Street) – 362 units

“We are projecting another nine buildings with about 2,183 units to start construction during the first half of 2016, with 2017 delivery dates,” said Ron DeVries (right), vice president of Appraisal Research.

While the prospect of rising real estate taxes downtown is a major issue for developers, Appraisal Research noted that wealthy owners are counting on lowering their assessment levels through aggressive Board of Review appeals by their lawyers, and lower final levels are expected.

Rents steady due to high supply

As a result of the huge supply of new apartments and all the competition, rents in new downtown Class A and luxury buildings have been nearly flat, up only 1.42 percent over a year ago, on occupancy of 93.5 percent.

Average net rents in luxury downtown apartment buildings at the start of 2016 were $2.97 per square foot, while Class A buildings posted an average net rent of $2.81 per square foot. But elite new buildings are posting significantly higher net rents.

For example, the 153-unit Walton on the Park (left) on the Gold Coast has net rent of $3.79 per square foot, while State & Chestnut two blocks south is netting $3.68 per square foot, and Wolf Point West is at $3.53 per square foot.

In addition, about half of the new buildings in the lease-up stage are offering rental concessions or deals.

“We have seen an increasing frequency of free rent being offered on top of revenue management quoted rents,” DeVries said. “Through revenue management, vacant units are continually repriced up or down to reflect daily demand, particularly in new luxury buildings.”

Besides a month’s free rent, downtown concessions also can include gift cards and waiving or reducing application and move-in fees.