Market Shifts and Opportunities: A Conversation with John George and Kyle Sissell

In an engaging discussion between John George and Kyle Sissell, both real estate experts reflect on the changing dynamics of the market over the past year, offering insights into where the market was, where it’s headed, and how investors can navigate ongoing challenges. Below are key takeaways from their conversation.

The State of the Market: Then and Now

John George: “A year ago, most of our deals were concentrated in Morgan Park and Beverly, with some activity in Marquette Park. These areas still have strong demand, but the supply has dried up. So we’ve shifted focus to the West and Southwest suburbs, which have shown great potential. Our goal is to build relationships and expand our pipeline in these suburban markets.”

This pivot reflects the broader trend of moving beyond urban centers where inventory is tight, and focusing on suburban areas with growth potential. George points to Southeast DuPage and Cook County’s suburban areas as markets that continue to be strong. Despite rising interest rates and compressed cap rates, there is still interest from buyers, a sentiment echoed across the Midwest.

Sissell adds: “A lot of coastal capital is intensely focused on acquiring Midwest assets, and for good reason. We still have strong rent growth and solid fundamentals, particularly in cities like Indianapolis, Columbus, and Grand Rapids.”

Institutional Buyers and the Midwest Market

One of the most notable shifts discussed is the rise of institutional buyers in markets that were historically dominated by mom-and-pop operators.

John George: “These smaller, family-owned properties were often held for decades. But now we’re seeing institutions from the coasts, buying these ‘heirloom’ properties, and recycling deals every three to seven years, compared to the 10 to 30 years mom-and-pop operators would hold onto them.”

Sissell highlights that these larger firms focus on value-add opportunities, quickly injecting capital into properties for improvements, which allows them to return investors’ capital more rapidly. However, this quicker turnaround time means that value-add and distressed assets are often at the top of their priority lists.

Challenges Facing Coastal Capital in the Midwest

Although coastal capital is flowing into the Midwest, John and Kyle discussed several hurdles that investors face when entering these markets.

Sissell mentions: “Politics and taxes are two major concerns. The tax landscape across the Midwest can be unpredictable, with each state having its own approach to commercial property taxes. This makes it difficult for investors from New York or California to assess deals properly without professional help.”

Beyond taxation, some investors are hesitant due to misconceptions about the region’s rent growth potential. Coastal investors often see declining growth in other parts of the country and project that onto the Midwest, but as Sissell points out, the fundamentals in the Midwest remain strong.

Overcoming Obstacles and Looking Ahead

Despite the challenges, both John and Kyle see plenty of opportunity in the market. George shares that their team currently has about 30 listings in the South and West Side markets, and they’ve seen a notable uptick in buyer interest recently.

John George: “There’s been an increase in buyer activity, which could be driven by optimism around upcoming elections or hopes that interest rates will decline. Sellers who were previously hesitant are now more open to selling due to maturing debt and the pressure to refinance at higher rates.”

Sissell agrees that the market is improving, noting that the gap between buyers’ and sellers’ price expectations is closing. Whereas last year, deals were off by about 30%, today that figure is down to 10%.

Kyle Sissell: “At this rate, we’re expecting a strong second half of the year. As Noah Birk once said, ‘Buying good deals now will likely pay off big in the coming years.’ I think we’re in for a great year ahead.”

In summary, the conversation between John George and Kyle Sissell highlights both the challenges and opportunities in today’s market. Shifting focus to suburban areas, navigating institutional competition, and understanding the local tax landscape are all key elements for success in the Midwest real estate market. Despite the hurdles, both are optimistic about the future, seeing strong rent growth and increased deal activity as promising signs for the remainder of the year.