By Matt Halper, Kiser Group
The multifamily market in Oak Park is active with local, out-of-state and international investors despite unknown variables like property tax. In the past eight months, I’ve closed 161 units in Oak Park. Here’s why investors are flocking to the Cook County suburb:
New Development is Making Vintage Stock More Attractive
Oak Park is unique among Chicago suburbs in that there is new construction multifamily development activity similar to many city neighborhoods. The Emerson, Eleven33 and Vantage are some of the new multifamily developments in Oak Park. These properties are located downtown and provide all the amenities that are typical in new construction throughout Chicago. In properties built after 2005, CoStar says the average effective rents in the fourth quarter of 2019 for two-bedroom units in Oak Park were $2,517 per month and $1,898 for one-bedroom units.
This compares with older buildings, which make up the majority of the inventory in the area. Vintage stock apartments average $1,437 per month in rent for two-bedroom units and $1,042 per month for one-bedroom units during the same period. This substantial difference is viewed as an opportunity by many investors in the market.
While a suburban location, Oak Park is well located near multiple transportation options with strong retail, restaurant, and entertainment offerings renters demand. Oak Park borders the city of Chicago directly to the west. It is an established community with a long history and many attributes similar to Chicago neighborhoods, but because it is a separate municipality, it has its own distinct character. There is a Whole Foods, multiple other grocers and retail such as Target. Two CTA train lines provide service plus the Metra suburban line. Oak Park is well known for its school district, which has made it a popular choice for decades for former city people to move here to raise families. There is every variety of restaurant you can imagine and entertainment, including music venues, movie theatres and bars, while minutes from downtown Chicago, the United Center, and neighborhoods like Little Italy. Oak Park is an “urban-suburban” location.
Underwriting for the Unknown
Property taxes are always an important consideration for owners and investors in any location. So much has been written about Cook County property taxes. In short, Oak Park is one of the suburbs that is being reassessed in 2020, along with other west and south suburbs. The assessment is NOT the actual tax. Because the taxes are paid in arrears, the actual tax for 2020 will not be paid or known until the second installment of 2021. Many buyers have drawn the conclusion that an increase in assessed value equates to an increase of the same percentage in the actual property taxes. This is not correct.
The north suburbs were reassessed in 2019 with many substantially higher assessed values (not taxes) and was covered heavily in the media. This did cause uncertainty in the market because of increased risk. Many investors decided they would wait on the sidelines until taxes, which are a substantial fixed cost for any building, are more known.
It is and was well known that Oak Park and the other western suburbs had this reassessment coming. Yet, I personally experienced continued strong demand by the market with competitive offers on each of the properties I sold. Why?
While some investors were on the sidelines for reasons relating to property tax unknowns, other investors perceived that as an opportunity to acquire assets that fit their business model with less competition and it actually made their offers more competitive. Different types and structures of buyers were still attracted to the properties I sold of varying size, style of building, condition and location within Oak Park. I had multiple offers on each of the buildings I sold in Oak Park where the sellers were able to compare offers and buyers and select the right buyer.
The bottom line is, the market still recognizes the fundamentals of Oak Park and that there will be continued demand for rentals for all the reasons described above on the community.
When you look at the differences in rent from vintage properties to the new construction, it provides an opportunity to push rents in the older properties by making improvements to the building and providing excellent property management service that good tenants want. For the resident, it still comes in at a discount to what the newer construction buildings charge. Because of this, investors continue to flock to Oak Park.