Chicago has always been seen as a safe market for real estate investors, but multifamily sales have typically been reserved for local buyers who have a presence in the market. Not anymore. Apartment sales are on a historic run in Chicago and the activity is attracting a much larger contingency of out-of-area investors than in past years.

In 2014 alone, we have closed with buyers from California, Washington D.C., New York, Japan, Canada and Israel. Many of these are not minor deals either.
In March, we arranged the sale of an eight-building North Side portfolio to a New York buyer for $29 million.
Last month, we represented a client in the sale of an apartment building in Evanston for $7.9 million to a Japanese investor.

With continued rent growth and a lack of new supply, fundamentals are very strong in the North Side apartment market, giving out-of-area buyers the confidence to make larger plays than perhaps they would have in the past. In fact, the entire Chicago market is performing very well in terms of rent growth, with Chicago recording a 3.1 percent increase in the second quarter of 2014.

Of course, doing business in Chicago comes with certain local idiosyncrasies that out-of-area buyers should keep in mind. Solid opportunities abound for savvy investors willing to do their due diligence, but they should be prepared to follow a unique set of local buying customs that can greatly impact a deal if they are overlooked.

1) Cook County property taxes. If you are purchasing in Cook County, you need to understand the property tax system. In Cook County, property taxes are paid one-year in arrears; and the county has a unique system of protesting property tax assessments. There is a whole cottage legal industry built around this process. For many out-of-area buyers, this is not normal, but they should always consider it when buying in Chicago. The basic takeaway is that you need professional help in Cook County to argue the proper assessment for your property, and you should seek the advice of someone within the tax protest industry for the appropriate level of property taxes for a property you’re interested in purchasing.

2) The Chicago Residential Landlord Tenant Ordinance (CRLTO). In the City of Chicago, buyers will have to understand the CRLTO. This is a very strict ordinance that can open an owner up to liability if it is not followed to the letter of the law. The CRLTO governs the entire relationship between landlord and tenant in Chicago (evictions, security deposits, tenant rights, etc.) which differ in Chicago when compared to other major metropolitan areas. Non-local buyers should be familiar with this ordinance and make sure they have a system in place to adhere to it. The best way to handle this is to hire a local third-party manager who can buffer an owner from liability and has ample experience in working with the CRLTO.

3) Attorney review. In Chicago, attorney review is a customary part of the purchasing process; however, for anyone outside of the area, this is likely a foreign concept. Out-of-area buyers must understand that in Chicago, parties typically begin moving forward with a contract prior to all the legal details being finalized. A buyer can begin their inspection and financing due-diligence, while the respective attorneys simultaneously begin their negotiation of the contract. This adds an additional level of contingency to the process as both the buyer’s and seller’s attorney must agree to the overall contract. While this may not be a normal part of the process for investors outside of Chicago, they should be prepared to move forward as per local custom and understand that attorney review is simply the way business is done locally.

While these Chicago-specific real estate practices may add a certain level of complexity for national and international investors, the opportunities today are worth the effort. Be sure to work with a strong local brokerage firm that can act as a sounding board or a guide in the purchasing process and these nuances will be less daunting, making the process much smoother and ultimately, much more rewarding.