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2023 Market Outlook: Rhea Stephen

The document provides an overview of the Chicago multifamily real estate market. Key points include: - The economy is cooling as the Federal Reserve raises interest rates aggressively, which is slowing inflation but may cause a recession. - Job growth in Chicago is strongest in the education/health services and professional/business services sectors. - Multifamily construction levels in Chicago remain high but absorption continues to outpace deliveries, keeping vacancy low relative to the national average. - Rent growth in Chicago is expected to moderate in 2023 but remain positive, with the strongest growth in suburban submarkets. Concessions are rising in the downtown area.

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Chicago State of the Multifamily Market 2022 Q3/Q4, CAR Rhea Stephen, Senior Director Market Analytics rstephen@costar.com 312.283.0196
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Multifamily Demographic & Economic Drivers
Economy Is Cooling ► Inflation affecting all asset type sales ► Federal Reserve is engaged in aggressive monetary tightening, to the tune of 425 bps in 2022. ► Tight labor markets may not be enough to save the economy from recession ► Housing market is cooling as eroding affordability weighs on demand ► Housing costs and rental rates are trending lower, or at least not rising as quickly.
Chicago: Job Growth By Sector Source: Oxford Economics End of 22Q4 2.9% 2.1% -1.3% 3.1% 6.1% 0.1% 2.3% 10.8% 2.5% 2.2% 3.2% (2%) 3% 8% 13% 18% Job Growth Average Annual Employment Growth (5 Years) Employment Growth (Y/Y)
U.S.B.L.S. & Placer.ai – Tell Seemingly Dissimilar Stories. They Are Not. Conclusions: • Illinois’ population undercounted by the US Census Bureau (1.97%). • Illinois’ population grew by 1.02% or 250,000 residents from 2010 to 2020. • Illinois restored as fifth largest state. • Countywide data still not available. • Chicago lost around 2.3% of its population from 2018 thru January 2022.
Strengths & Weaknesses Infrastructure, Capital & Talent Pool • Passenger and transmodal nodes in place: “L” & Metra, waterways, two international airports and freight hub. Centralized location and unparalleled rail and highway connectivity as the only U.S. city to contain six Class 1 railroads • Best in Class Infrastructure – power grid, utilities and broadband. Rebuild Illinois (2019) $45B State Funds + Infrastructure Investment & Job Act (2021) $18B Federal Funds. • Access to Capital. • Diverse economy – largest economic sector is financial with a 19% share. • Midwest draw for recent college graduates. Hundreds of area colleges and universities. • Little to no natural disasters! Fresh Water! • Crime, Taxes and Outmigration – Uncertainty Looms • Coming to the Office? Sources vary between 40% - 70%. My hunch: Suburbs 80% back; CBD 70%. • Mayor Lightfoot’s $1.7B Tax Levy passed; yet Cook County Assessor Kaegi’s CRE tax assessment system still not ironed out. • Major corporations leaving Chicagoland for no income tax states, lower crime.
Multifamily
Sources: CoStar and World Business Chicago Market Report Analytic Filters & Chicago Metropolitan Statistical Area (MSA)
U.S. Changes in Household Composition/Living Arrangements Source: Board of Governors of the Federal Reserve System, May 6, 2022
2019 Apartment Households by Type Source: US Census
Commute Areas Source: INRIX
Apartment Inventory: Units Built by Decade Source: CoStar End of 22Q4 30% 4% 11% 19% 9% 5% 5% 12% 5% Pre-1950 1950's 1960's 1970's 1980's 1990's 2000's 2010's 2020's-Present Chicago 9% 3% 11% 27% 18% 12% 10% 7% 3% United States
Multifamily New Deliveries & Under Construction
Net Deliveries As Share of Inventory 6.4 18.7 2.2 4.9 23.7 4.2 11.3 8.9 7.5 3.8 13.9 7.1 7.8 8.8 5.1 13.0 4.8 6.3 8.8 15.9 0% 2% 4% 6% 8% Boston Houston Omaha Kansas City Dallas-Fort Worth Saint Louis Seattle Denver Charlotte Richmond Phoenix Miami Orlando Tampa Raleigh Minneapolis Salt Lake City Jacksonville Nashville Austin Share of Inventory Net Deliveries (Last 4 Quarters) Note: Includes markets with 75,000+ units inventory. Labels show Net Deliveries in Thousand Units. 1.3 1.7 2.1 1.4 1.4 9.3 0.9 0.9 2.0 1.1 6.6 1.3 1.7 1.9 1.8 3.6 1.4 2.9 4.5 2.6 0% 2% 4% 6% 8% Baltimore Detroit Orange County Inland Empire Indianapolis Los Angeles Oklahoma City Tucson San Francisco Memphis Chicago Pittsburgh Cleveland Sacramento Norfolk Portland Louisville Las Vegas San Diego San Jose Share of Inventory Net Deliveries (Last 4 Quarters)
Units Under Construction As Share of Inventory 12.9 35.7 6.7 26.1 34.3 15.1 19.6 28.6 6.4 11.7 9.6 26.1 14.7 8.1 22.1 22.2 13.2 22.9 35.2 21.1 0% 5% 10% 15% 20% San Antonio Washington Richmond Seattle Atlanta Tampa Boston Phoenix Palm Beach Fort Lauderdale Jacksonville Denver Northern New Jersey Salt Lake City Charlotte Orlando Raleigh Miami Austin Nashville Share of Inventory Under Construction Note: Includes markets with 75,000+ units inventory. Labels show Under Construction in Thousand Units. 1.2 1.9 2.6 4.4 5.8 2.3 6.8 5.9 4.6 5.2 14.8 28.5 3.2 5.1 4.7 4.8 24.3 5.1 59.2 4.3 0% 5% 10% 15% 20% Tucson Memphis Norfolk Baltimore Orange County Oklahoma City San Diego Detroit Inland Empire East Bay Chicago Los Angeles Pittsburgh Indianapolis Saint Louis Cleveland Houston Sacramento New York Milwaukee Share of Inventory Under Construction
Chicago Submarkets With The Most Construction Source: CoStar As of January 2023 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 North DuPage County South Lake County IN Northeast DuPage County Far Northwest Suburban Cook East Suburban McHenry Kenosha Southwest Lake County Southwest Chicago North Lakefront Downtown Chicago Units Under Construction
Submarkets With The Most Construction Growth Source: CoStar As of January 2023 0% 5% 10% 15% 20% 25% Near North Suburban Cook Northeast DuPage County North Will County Kenosha North DuPage County South Lake County IN Far North Suburban Cook Downtown Chicago Southwest Lake County East Suburban McHenry Share of Existing Inventory Under Construction
Markets Most At Risk for 4&5 Star Over Supply — Chicago Not on the List 20 2022 Supply vs. Vacancy Rate Increase Decline in 4&5 Star 3 Year Average 4Q 21 vs 3Q 22 Rent Growth New York Palm Beach Palm Beach Austin Phoenix Las Vegas Phoenix Tucson Tucson Minneapolis Tampa Tampa Nashville Las Vegas Orange County Saint Louis Fort Lauderdale Jacksonville Tampa Raleigh Phoenix Raleigh Jacksonville Atlanta Jacksonville Atlanta Austin Seattle Norfolk Fort Lauderdale Red Yellow Jacksonville Austin Atlanta Phoenix Palm Beach Las Vegas Tampa Raleigh Ft Lauderdale Tucson
Multifamily Demand Fundamentals: Absorption & Vacancy
Chicago Supply, Demand and Vacancy Source: CoStar End of 22Q4 -5,000 0 5,000 10,000 15,000 20,000 25,000 0% 1% 2% 3% 4% 5% 6% 7% 8% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net Absorption and Net Deliveries in Units Vacancy Rate Year Net Absorption (Y/Y) Net Deliveries (Y/Y) Vacancy Vacancy Historical Avg
Chicago Baseline Forecast: Supply, Demand and Vacancy. Outside of 2020, Absorption > Supply Since 2018 Source: CoStar End of 22Q4 -5,000 0 5,000 10,000 15,000 20,000 25,000 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Net Absorption and Net Deliveries in Units Vacancy Rate Year Net Absorption (Y/Y) Net Deliveries (Y/Y) Vacancy Vacancy Historical Average
Vacancy: Interest Rate Shock Vs. Baseline Forecasts Sources: CoStar End of 22Q4 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% Vacancy Rate Year Vacancy: Interest Rate Shock Vacancy: Baseline
0K 50K 100K 150K 200K 250K 300K 0% 2% 4% 6% 8% 10% 12% 2014 2015 2016 2017 2018 2019 2020 2021 2022 Quarterly Change in Demand Quarterly Change in Supply Vacancy National Multi-Family Supply, Demand, Vacancy. Absorption Under Performing Compared to Chicago Quarterly Change in Supply & Demand Vacancy Rate
Chicago’s Multifamily Occupancy Projected to Outperform Nation Source: CoStar, January 5, 2023
Top Net Absorption 3.8 3.8 4.1 4.3 5.1 5.1 5.2 5.4 5.6 6.0 6.2 8.0 8.7 9.0 9.0 9.5 11.5 12.0 12.6 30.1 0 5 10 15 20 25 30 35 Columbus Philadelphia Portland Nashville Charlotte San Jose Kansas City Miami Orlando Boston Denver Seattle Houston Austin Chicago Minneapolis Dallas-Fort Worth Washington Los Angeles New York Thousand Units Net Absorption (Last 4 Quarters)
What’s New in Net Absorption? 1. No US Region Dominates 2. Major Metros Are Coming Back 3.3 4.1 3.8 30.1 3.1 1.6 8.0 12.0 6.2 2.4 6.0 2.0 5.1 5.6 4.3 5.4 5.2 5.1 9.0 9.5 (3%) 0% 3% 6% San Francisco Portland Columbus New York Northern New Jersey Omaha Seattle Washington Denver Jacksonville Boston Salt Lake City Charlotte Orlando Nashville Miami Kansas City San Jose Austin Minneapolis Share of Inventory Net Absorption (Last 4 Quarters) Note: Includes markets with 75,000+ units inventory. Labels show Net Absorption in Thousand Units. -3.5 -1.3 -2.4 -1.9 -1.1 -0.9 -1.4 -0.5 -0.4 -0.2 0.1 0.1 0.3 0.4 0.4 1.4 0.8 2.2 1.1 1.2 (3%) 0% 3% 6% Las Vegas Tucson Baltimore Inland Empire Norfolk Memphis Detroit Oklahoma City Sacramento Atlanta San Antonio Orange County Indianapolis Cleveland Fort Lauderdale Phoenix Pittsburgh San Diego Cincinnati Saint Louis Share of Inventory Net Absorption (Last 4 Quarters)
Multifamily Rent
Sun Belt Rent Growth Dominance Ends 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 2022 Q4* Year-Over-Year Rent Growth Period Sun Belt Nation Source: CoStar, November 2022 * Forecast
| | | | | | | | | | | | | | | | | | | | | | 0% 2% 4% 6% 8% Philadelphia Washington DC Inland Empire Orange County Detroit Los Angeles Seattle Pittsburgh Orlando Chicago Denver New York Miami Cincinnati San Francisco Columbus Charlotte Kansas City Portland Northern New Jersey San Jose San Diego 2023 Forecast Pre-Pandemic 5 Yr Avg | | | | | | | | | | | | | | | | | | | | | | -2% 0% 2% 4% 6% 8% Palm Beach Phoenix Austin Atlanta East Bay Nashville San Antonio Jacksonville Minneapolis Raleigh Las Vegas Houston Saint Louis Salt Lake City Tampa Sacramento Memphis Boston Milwaukee Richmond Dallas-Fort Worth Fort Lauderdale 2023 Forecast Pre-Pandemic 5 Yr Avg 2023 Apartment Rent Growth Forecasts – Changes Coming Source: CoStar, October 2022
YOY Rental Growth, Chicago CBD (Orange) Vs. Suburban (Blue) Source: CoStar, January 5, 2023
Chicago Market Rent Growth, YOY, Base Case Vs. Inflation Adjusted Source: CoStar, December 2022
Submarkets With The Highest Rent Growth Source: CoStar End of 22Q4 7.1% 7.3% 8.5% 8.6% 10.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Near North Suburban Cook Des Plaines/Arlington Hts Corridor Porter County Elgin/Dundee North DuPage County Change from Previous Year 22Q4
Submarkets With The Lowest Rent Growth Source: CoStar End of 22Q4 2.9% 2.8% 2.4% 0.8% -1.6% (2.0%) (1.0%) 0.0% 1.0% 2.0% 3.0% 4.0% DeKalb Far North Chicago Kenosha North Lake County IN South Lake County IN Change from Previous Year 22Q4
Chicago Concessions by Location 1/1/20 2/1/20 3/1/20 4/1/20 5/1/20 6/1/20 7/1/20 8/1/20 9/1/20 10/1/20 11/1/20 12/1/20 1/1/21 2/1/21 3/1/21 4/1/21 5/1/21 6/1/21 7/1/21 8/1/21 9/1/21 10/1/21 11/1/21 12/1/21 1/1/22 2/1/22 3/1/22 4/1/22 5/1/22 6/1/22 7/1/22 8/1/22 9/1/22 10/1/22 11/1/22 12/1/22 Percent Offered Concessions Period Total CBD Suburban Source: Apartments.com, January 2023
Multifamily Sales
Chicago Sales Volume By Property Type Source: CoStar 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sales in Billion Dollars Year Office Retail Industrial Multifamily
Quarterly Sales Volume Source: CoStar End of 22Q4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sales in Billion Dollars Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Multifamily Sales Volume, by Market 27.2 23.1 22.4 20.3 18.0 16.2 12.9 11.0 10.1 9.3 8.5 8.5 7.3 7.3 7.2 0 5 10 15 20 25 30 35 Sales in Billion Dollars Sales Volume (21Q4 to 22Q3)
Inflation Adjusted, Price/Unit Expected to Drop. Thoughts on Forecast? Source: CoStar, January 5, 2023
Rising Price PSF for Class B (Orange) Value-Add Opportunities Source: CoStar, January 5, 2023
Large Multifamily Chicago Sales Transactions, 22H2 Buyer: Waterton (Local, Institutional/Investment Manager) Seller: Wood Partners (National, Private Developer) The Elle, rebranded from Alta Roosevelt Apartments 801 S Financial Place, South Loop Built 2017 Sale Price: $170,000,000 or Approximately $343,000/Unit Date: October 2022 100% occupied at time of sale; Retail was 95% leased Notes: Sold below replacement cost. In June, American Landmark Properties (Chicago) and Evergreen Residential (Dallas) backed out of $180 million agreement.
Buyer: Morgan Properties (Private Developer) Seller: Harbor Group International (Institutional) Addresses: Blackhawk Apartments (371 Units), Elgin The Gates of Deer Grove (204 Units), Palatine The Lakes of Schaumburg (428 Units) Sale Price: $181,000,000 or Approximately $180,000/Unit Date: July 2022 Actual Cap Rate: 5.37%
Over $1.2 B Proposals for Office → Resi Conversions Within the LaSalle Street Corridor • Lightfoot’s Goal: 1,000 New Apartments, at least 300 with affordable rents. - Paid for with TIFs, grants and historic tax credits. - Nine proposals for seven CBD vintage buildings, all in foreclosure or financial distress, approximately 535 affordable Units (AR) Proposed. Including: 400 S LaSalle (former Cboe Global Markets HQ), 226 beds for student housing 111 W Monroe (former BMO office tower), 349 Apts / 105 affordable (AR) (Prime Group) 208 S LaSalle, two proposals: 208 / 84 AR (Prime Group) or 102 / 30 AR (Brinshore Development) Clark Adams Building, 423 / 127 AR (Maven Development Group) or 247 / 185 AR (Blackwood Group) 135 S LaSalle, 430 / 129 AR (Riverside Investment & Development & AmTrust Realty) 30 N LaSalle, 432 / 130 AR (Golub and American General Life Insurance)
CoStar and Supplemental Bibliography Office The Google Effect • Chicago's Central Loop, Detroit's Corktown Hope Google Helps Them Attain Fulton Market's Office Vibe • Google Makes $156 Million Loan on Chicago’s Thompson Center, Which It Plans To Buy After Redevelopment • Chicago Office Tower Going Up for Sale After Google’s Deal To Buy Nearby Thompson Center • Chicago Office Towers Sell for $118 Million, Big Discount to Previous Owner’s Debt Central Loop Threats • Dallas-Based Developer Pays More Than $100 Million for Land in Chicago’s Fulton Market • Boston Firm Expanding Chicago Office in Fast-Growing Fulton Market • Top Office Leases Recognized for Chicago 22Q3 Opportunities • LaSalle Street Reimagined (City of Chicago) • Diverse New Tenant Mix in Chicago Bolsters a Market in Recovery • Tides Still Turning in Favor of Chicago’s Suburban Office Markets • (Transit oriented developments) Silicon Valley Bets on New Transport to Counter the Rise of Remote Work (Wall Street Journal) • Lack of Industry Diversity in Chicago's Central Loop Both Blessing and Curse for Office Market • Redevelopment a Cure for the Chicago Office Market's COVID, Supply-Demand Woes Retail While Downtown Chicago Retail Sputters, Urban and Suburban Markets Are on the Right Track
Multifamily Over $1.2 Billion in Office-to-Residential Conversions Proposed for Chicago’s LaSalle Street Corridor At $600 Million, Apartment Portfolio Sale Is One of Chicago’s Biggest in Years Large Chicago-Area Mall Hops on National Trend, Replaces Bloomingdale’s With Apartments Multifamily Conversions Could Be a Lifeline for Chicago's Ailing Hotels Chicago's Apartment Demand Fundamentals Offer Upside, Stability to Investors Despite Population Loss in Illinois, Demand for Chicago's Apartments Remains High Against the Odds, Studio Apartments Survive COVID Domestic Migration Trends - June 2022 (Placer.ai) Office • Chicago's Central Loop, Detroit's Corktown Hope Google Helps Them Attain Fulton Market's Office Vibe • Google Makes $156 Million Loan on Chicago’s Thompson Center, Which It Plans To Buy After Redevelopment • LaSalle Street Reimagined (City of Chicago) • Diverse New Tenant Mix in Chicago Bolsters a Market in Recovery • Tides Still Turning in Favor of Chicago’s Suburban Office Markets • (Transit oriented developments) Silicon Valley Bets on New Transport to Counter the Rise of Remote Work (Wall Street Journal) • Lack of Industry Diversity in Chicago's Central Loop Both Blessing and Curse for Office Market • Redevelopment a Cure for the Chicago Office Market's COVID, Supply-Demand Woes Why Chicago? City Council passes Lightfoot's $16.4 billion 2023 budget (Crain’s Chicago Business) LaSalle Street Reimagined (City of Chicago) Crain’s Forum on Climate Migrants or “Climigrants.” (Crain’s Chicago Business series) World Business Chicago, the City’s public private economic development agency Local Economic Snapshot: Chicago-Naperville-Elgin MSA (Federal Reserve Bank of Chicago) CoStar and Supplemental Bibliography
These materials contain financial and other information from a variety of public and proprietary sources. CoStar Group, Inc. and its affiliates (collectively, “CoStar”) have assumed and relied upon, without independent verification, the accuracy and completeness of such third party information in preparing these materials. The modeling, calculations, forecasts, projections, evaluations, analyses, simulations, or other forward-looking information prepared by CoStar and presented herein (the “Materials”) are based on various assumptions concerning future events and circumstances, which are speculative, uncertain and subject to change without notice. CoStar does not represent, warrant or guaranty the accuracy or completeness of the information provided herein and shall not be held responsible for any errors in such information. Any user of the information provided herein accepts the information “AS IS” without any warranties whatsoever. To the maximum extent permitted by law, CoStar disclaims any and all liability in the event any information provided herein proves to be inaccurate, incomplete or unreliable. © 2022 CoStar Realty Information, Inc. No reproduction or distribution without permission. Thank You! Rhea Stephen Senior Director of Market Analytics, Chicago 312.283.0196 rstephen@costar.com

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2023 Market Outlook: Rhea Stephen

  • 1.
    Chicago State ofthe Multifamily Market 2022 Q3/Q4, CAR Rhea Stephen, Senior Director Market Analytics rstephen@costar.com 312.283.0196
  • 2.
    The most comprehensive commercialreal estate data. The most influential network of CRE professionals. $3B 170K invested in research and technology CoStar users 35 years of experience 25 1.3B brands visitors to our websites annually 4,900 employees
  • 3.
    CoStar Group hasthe industry’s most trusted brands
  • 4.
  • 5.
    Economy Is Cooling ►Inflation affecting all asset type sales ► Federal Reserve is engaged in aggressive monetary tightening, to the tune of 425 bps in 2022. ► Tight labor markets may not be enough to save the economy from recession ► Housing market is cooling as eroding affordability weighs on demand ► Housing costs and rental rates are trending lower, or at least not rising as quickly.
  • 6.
    Chicago: Job GrowthBy Sector Source: Oxford Economics End of 22Q4 2.9% 2.1% -1.3% 3.1% 6.1% 0.1% 2.3% 10.8% 2.5% 2.2% 3.2% (2%) 3% 8% 13% 18% Job Growth Average Annual Employment Growth (5 Years) Employment Growth (Y/Y)
  • 7.
    U.S.B.L.S. & Placer.ai– Tell Seemingly Dissimilar Stories. They Are Not. Conclusions: • Illinois’ population undercounted by the US Census Bureau (1.97%). • Illinois’ population grew by 1.02% or 250,000 residents from 2010 to 2020. • Illinois restored as fifth largest state. • Countywide data still not available. • Chicago lost around 2.3% of its population from 2018 thru January 2022.
  • 8.
    Strengths & Weaknesses Infrastructure,Capital & Talent Pool • Passenger and transmodal nodes in place: “L” & Metra, waterways, two international airports and freight hub. Centralized location and unparalleled rail and highway connectivity as the only U.S. city to contain six Class 1 railroads • Best in Class Infrastructure – power grid, utilities and broadband. Rebuild Illinois (2019) $45B State Funds + Infrastructure Investment & Job Act (2021) $18B Federal Funds. • Access to Capital. • Diverse economy – largest economic sector is financial with a 19% share. • Midwest draw for recent college graduates. Hundreds of area colleges and universities. • Little to no natural disasters! Fresh Water! • Crime, Taxes and Outmigration – Uncertainty Looms • Coming to the Office? Sources vary between 40% - 70%. My hunch: Suburbs 80% back; CBD 70%. • Mayor Lightfoot’s $1.7B Tax Levy passed; yet Cook County Assessor Kaegi’s CRE tax assessment system still not ironed out. • Major corporations leaving Chicagoland for no income tax states, lower crime.
  • 9.
  • 10.
    Sources: CoStar andWorld Business Chicago Market Report Analytic Filters & Chicago Metropolitan Statistical Area (MSA)
  • 11.
    U.S. Changes inHousehold Composition/Living Arrangements Source: Board of Governors of the Federal Reserve System, May 6, 2022
  • 12.
    2019 Apartment Householdsby Type Source: US Census
  • 13.
  • 14.
    Apartment Inventory: UnitsBuilt by Decade Source: CoStar End of 22Q4 30% 4% 11% 19% 9% 5% 5% 12% 5% Pre-1950 1950's 1960's 1970's 1980's 1990's 2000's 2010's 2020's-Present Chicago 9% 3% 11% 27% 18% 12% 10% 7% 3% United States
  • 15.
    Multifamily New Deliveries &Under Construction
  • 16.
    Net Deliveries AsShare of Inventory 6.4 18.7 2.2 4.9 23.7 4.2 11.3 8.9 7.5 3.8 13.9 7.1 7.8 8.8 5.1 13.0 4.8 6.3 8.8 15.9 0% 2% 4% 6% 8% Boston Houston Omaha Kansas City Dallas-Fort Worth Saint Louis Seattle Denver Charlotte Richmond Phoenix Miami Orlando Tampa Raleigh Minneapolis Salt Lake City Jacksonville Nashville Austin Share of Inventory Net Deliveries (Last 4 Quarters) Note: Includes markets with 75,000+ units inventory. Labels show Net Deliveries in Thousand Units. 1.3 1.7 2.1 1.4 1.4 9.3 0.9 0.9 2.0 1.1 6.6 1.3 1.7 1.9 1.8 3.6 1.4 2.9 4.5 2.6 0% 2% 4% 6% 8% Baltimore Detroit Orange County Inland Empire Indianapolis Los Angeles Oklahoma City Tucson San Francisco Memphis Chicago Pittsburgh Cleveland Sacramento Norfolk Portland Louisville Las Vegas San Diego San Jose Share of Inventory Net Deliveries (Last 4 Quarters)
  • 17.
    Units Under ConstructionAs Share of Inventory 12.9 35.7 6.7 26.1 34.3 15.1 19.6 28.6 6.4 11.7 9.6 26.1 14.7 8.1 22.1 22.2 13.2 22.9 35.2 21.1 0% 5% 10% 15% 20% San Antonio Washington Richmond Seattle Atlanta Tampa Boston Phoenix Palm Beach Fort Lauderdale Jacksonville Denver Northern New Jersey Salt Lake City Charlotte Orlando Raleigh Miami Austin Nashville Share of Inventory Under Construction Note: Includes markets with 75,000+ units inventory. Labels show Under Construction in Thousand Units. 1.2 1.9 2.6 4.4 5.8 2.3 6.8 5.9 4.6 5.2 14.8 28.5 3.2 5.1 4.7 4.8 24.3 5.1 59.2 4.3 0% 5% 10% 15% 20% Tucson Memphis Norfolk Baltimore Orange County Oklahoma City San Diego Detroit Inland Empire East Bay Chicago Los Angeles Pittsburgh Indianapolis Saint Louis Cleveland Houston Sacramento New York Milwaukee Share of Inventory Under Construction
  • 18.
    Chicago Submarkets WithThe Most Construction Source: CoStar As of January 2023 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 North DuPage County South Lake County IN Northeast DuPage County Far Northwest Suburban Cook East Suburban McHenry Kenosha Southwest Lake County Southwest Chicago North Lakefront Downtown Chicago Units Under Construction
  • 19.
    Submarkets With TheMost Construction Growth Source: CoStar As of January 2023 0% 5% 10% 15% 20% 25% Near North Suburban Cook Northeast DuPage County North Will County Kenosha North DuPage County South Lake County IN Far North Suburban Cook Downtown Chicago Southwest Lake County East Suburban McHenry Share of Existing Inventory Under Construction
  • 20.
    Markets Most AtRisk for 4&5 Star Over Supply — Chicago Not on the List 20 2022 Supply vs. Vacancy Rate Increase Decline in 4&5 Star 3 Year Average 4Q 21 vs 3Q 22 Rent Growth New York Palm Beach Palm Beach Austin Phoenix Las Vegas Phoenix Tucson Tucson Minneapolis Tampa Tampa Nashville Las Vegas Orange County Saint Louis Fort Lauderdale Jacksonville Tampa Raleigh Phoenix Raleigh Jacksonville Atlanta Jacksonville Atlanta Austin Seattle Norfolk Fort Lauderdale Red Yellow Jacksonville Austin Atlanta Phoenix Palm Beach Las Vegas Tampa Raleigh Ft Lauderdale Tucson
  • 21.
  • 22.
    Chicago Supply, Demandand Vacancy Source: CoStar End of 22Q4 -5,000 0 5,000 10,000 15,000 20,000 25,000 0% 1% 2% 3% 4% 5% 6% 7% 8% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net Absorption and Net Deliveries in Units Vacancy Rate Year Net Absorption (Y/Y) Net Deliveries (Y/Y) Vacancy Vacancy Historical Avg
  • 23.
    Chicago Baseline Forecast:Supply, Demand and Vacancy. Outside of 2020, Absorption > Supply Since 2018 Source: CoStar End of 22Q4 -5,000 0 5,000 10,000 15,000 20,000 25,000 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Net Absorption and Net Deliveries in Units Vacancy Rate Year Net Absorption (Y/Y) Net Deliveries (Y/Y) Vacancy Vacancy Historical Average
  • 24.
    Vacancy: Interest RateShock Vs. Baseline Forecasts Sources: CoStar End of 22Q4 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% Vacancy Rate Year Vacancy: Interest Rate Shock Vacancy: Baseline
  • 25.
    0K 50K 100K 150K 200K 250K 300K 0% 2% 4% 6% 8% 10% 12% 2014 2015 20162017 2018 2019 2020 2021 2022 Quarterly Change in Demand Quarterly Change in Supply Vacancy National Multi-Family Supply, Demand, Vacancy. Absorption Under Performing Compared to Chicago Quarterly Change in Supply & Demand Vacancy Rate
  • 26.
    Chicago’s Multifamily OccupancyProjected to Outperform Nation Source: CoStar, January 5, 2023
  • 27.
    Top Net Absorption 3.8 3.8 4.1 4.3 5.1 5.1 5.2 5.4 5.6 6.0 6.2 8.0 8.7 9.0 9.0 9.5 11.5 12.0 12.6 30.1 05 10 15 20 25 30 35 Columbus Philadelphia Portland Nashville Charlotte San Jose Kansas City Miami Orlando Boston Denver Seattle Houston Austin Chicago Minneapolis Dallas-Fort Worth Washington Los Angeles New York Thousand Units Net Absorption (Last 4 Quarters)
  • 28.
    What’s New inNet Absorption? 1. No US Region Dominates 2. Major Metros Are Coming Back 3.3 4.1 3.8 30.1 3.1 1.6 8.0 12.0 6.2 2.4 6.0 2.0 5.1 5.6 4.3 5.4 5.2 5.1 9.0 9.5 (3%) 0% 3% 6% San Francisco Portland Columbus New York Northern New Jersey Omaha Seattle Washington Denver Jacksonville Boston Salt Lake City Charlotte Orlando Nashville Miami Kansas City San Jose Austin Minneapolis Share of Inventory Net Absorption (Last 4 Quarters) Note: Includes markets with 75,000+ units inventory. Labels show Net Absorption in Thousand Units. -3.5 -1.3 -2.4 -1.9 -1.1 -0.9 -1.4 -0.5 -0.4 -0.2 0.1 0.1 0.3 0.4 0.4 1.4 0.8 2.2 1.1 1.2 (3%) 0% 3% 6% Las Vegas Tucson Baltimore Inland Empire Norfolk Memphis Detroit Oklahoma City Sacramento Atlanta San Antonio Orange County Indianapolis Cleveland Fort Lauderdale Phoenix Pittsburgh San Diego Cincinnati Saint Louis Share of Inventory Net Absorption (Last 4 Quarters)
  • 29.
  • 30.
    Sun Belt RentGrowth Dominance Ends 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 2022 Q4* Year-Over-Year Rent Growth Period Sun Belt Nation Source: CoStar, November 2022 * Forecast
  • 31.
    | | | | | | | | | | | | | | | | | | | | | | 0% 2% 4%6% 8% Philadelphia Washington DC Inland Empire Orange County Detroit Los Angeles Seattle Pittsburgh Orlando Chicago Denver New York Miami Cincinnati San Francisco Columbus Charlotte Kansas City Portland Northern New Jersey San Jose San Diego 2023 Forecast Pre-Pandemic 5 Yr Avg | | | | | | | | | | | | | | | | | | | | | | -2% 0% 2% 4% 6% 8% Palm Beach Phoenix Austin Atlanta East Bay Nashville San Antonio Jacksonville Minneapolis Raleigh Las Vegas Houston Saint Louis Salt Lake City Tampa Sacramento Memphis Boston Milwaukee Richmond Dallas-Fort Worth Fort Lauderdale 2023 Forecast Pre-Pandemic 5 Yr Avg 2023 Apartment Rent Growth Forecasts – Changes Coming Source: CoStar, October 2022
  • 32.
    YOY Rental Growth,Chicago CBD (Orange) Vs. Suburban (Blue) Source: CoStar, January 5, 2023
  • 33.
    Chicago Market RentGrowth, YOY, Base Case Vs. Inflation Adjusted Source: CoStar, December 2022
  • 34.
    Submarkets With TheHighest Rent Growth Source: CoStar End of 22Q4 7.1% 7.3% 8.5% 8.6% 10.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Near North Suburban Cook Des Plaines/Arlington Hts Corridor Porter County Elgin/Dundee North DuPage County Change from Previous Year 22Q4
  • 35.
    Submarkets With TheLowest Rent Growth Source: CoStar End of 22Q4 2.9% 2.8% 2.4% 0.8% -1.6% (2.0%) (1.0%) 0.0% 1.0% 2.0% 3.0% 4.0% DeKalb Far North Chicago Kenosha North Lake County IN South Lake County IN Change from Previous Year 22Q4
  • 36.
    Chicago Concessions byLocation 1/1/20 2/1/20 3/1/20 4/1/20 5/1/20 6/1/20 7/1/20 8/1/20 9/1/20 10/1/20 11/1/20 12/1/20 1/1/21 2/1/21 3/1/21 4/1/21 5/1/21 6/1/21 7/1/21 8/1/21 9/1/21 10/1/21 11/1/21 12/1/21 1/1/22 2/1/22 3/1/22 4/1/22 5/1/22 6/1/22 7/1/22 8/1/22 9/1/22 10/1/22 11/1/22 12/1/22 Percent Offered Concessions Period Total CBD Suburban Source: Apartments.com, January 2023
  • 37.
  • 38.
    Chicago Sales VolumeBy Property Type Source: CoStar 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sales in Billion Dollars Year Office Retail Industrial Multifamily
  • 39.
    Quarterly Sales Volume Source:CoStar End of 22Q4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sales in Billion Dollars Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
  • 40.
    Multifamily Sales Volume,by Market 27.2 23.1 22.4 20.3 18.0 16.2 12.9 11.0 10.1 9.3 8.5 8.5 7.3 7.3 7.2 0 5 10 15 20 25 30 35 Sales in Billion Dollars Sales Volume (21Q4 to 22Q3)
  • 41.
    Inflation Adjusted, Price/UnitExpected to Drop. Thoughts on Forecast? Source: CoStar, January 5, 2023
  • 42.
    Rising Price PSFfor Class B (Orange) Value-Add Opportunities Source: CoStar, January 5, 2023
  • 43.
    Large Multifamily ChicagoSales Transactions, 22H2 Buyer: Waterton (Local, Institutional/Investment Manager) Seller: Wood Partners (National, Private Developer) The Elle, rebranded from Alta Roosevelt Apartments 801 S Financial Place, South Loop Built 2017 Sale Price: $170,000,000 or Approximately $343,000/Unit Date: October 2022 100% occupied at time of sale; Retail was 95% leased Notes: Sold below replacement cost. In June, American Landmark Properties (Chicago) and Evergreen Residential (Dallas) backed out of $180 million agreement.
  • 44.
    Buyer: Morgan Properties(Private Developer) Seller: Harbor Group International (Institutional) Addresses: Blackhawk Apartments (371 Units), Elgin The Gates of Deer Grove (204 Units), Palatine The Lakes of Schaumburg (428 Units) Sale Price: $181,000,000 or Approximately $180,000/Unit Date: July 2022 Actual Cap Rate: 5.37%
  • 45.
    Over $1.2 BProposals for Office → Resi Conversions Within the LaSalle Street Corridor • Lightfoot’s Goal: 1,000 New Apartments, at least 300 with affordable rents. - Paid for with TIFs, grants and historic tax credits. - Nine proposals for seven CBD vintage buildings, all in foreclosure or financial distress, approximately 535 affordable Units (AR) Proposed. Including: 400 S LaSalle (former Cboe Global Markets HQ), 226 beds for student housing 111 W Monroe (former BMO office tower), 349 Apts / 105 affordable (AR) (Prime Group) 208 S LaSalle, two proposals: 208 / 84 AR (Prime Group) or 102 / 30 AR (Brinshore Development) Clark Adams Building, 423 / 127 AR (Maven Development Group) or 247 / 185 AR (Blackwood Group) 135 S LaSalle, 430 / 129 AR (Riverside Investment & Development & AmTrust Realty) 30 N LaSalle, 432 / 130 AR (Golub and American General Life Insurance)
  • 46.
    CoStar and SupplementalBibliography Office The Google Effect • Chicago's Central Loop, Detroit's Corktown Hope Google Helps Them Attain Fulton Market's Office Vibe • Google Makes $156 Million Loan on Chicago’s Thompson Center, Which It Plans To Buy After Redevelopment • Chicago Office Tower Going Up for Sale After Google’s Deal To Buy Nearby Thompson Center • Chicago Office Towers Sell for $118 Million, Big Discount to Previous Owner’s Debt Central Loop Threats • Dallas-Based Developer Pays More Than $100 Million for Land in Chicago’s Fulton Market • Boston Firm Expanding Chicago Office in Fast-Growing Fulton Market • Top Office Leases Recognized for Chicago 22Q3 Opportunities • LaSalle Street Reimagined (City of Chicago) • Diverse New Tenant Mix in Chicago Bolsters a Market in Recovery • Tides Still Turning in Favor of Chicago’s Suburban Office Markets • (Transit oriented developments) Silicon Valley Bets on New Transport to Counter the Rise of Remote Work (Wall Street Journal) • Lack of Industry Diversity in Chicago's Central Loop Both Blessing and Curse for Office Market • Redevelopment a Cure for the Chicago Office Market's COVID, Supply-Demand Woes Retail While Downtown Chicago Retail Sputters, Urban and Suburban Markets Are on the Right Track
  • 47.
    Multifamily Over $1.2 Billionin Office-to-Residential Conversions Proposed for Chicago’s LaSalle Street Corridor At $600 Million, Apartment Portfolio Sale Is One of Chicago’s Biggest in Years Large Chicago-Area Mall Hops on National Trend, Replaces Bloomingdale’s With Apartments Multifamily Conversions Could Be a Lifeline for Chicago's Ailing Hotels Chicago's Apartment Demand Fundamentals Offer Upside, Stability to Investors Despite Population Loss in Illinois, Demand for Chicago's Apartments Remains High Against the Odds, Studio Apartments Survive COVID Domestic Migration Trends - June 2022 (Placer.ai) Office • Chicago's Central Loop, Detroit's Corktown Hope Google Helps Them Attain Fulton Market's Office Vibe • Google Makes $156 Million Loan on Chicago’s Thompson Center, Which It Plans To Buy After Redevelopment • LaSalle Street Reimagined (City of Chicago) • Diverse New Tenant Mix in Chicago Bolsters a Market in Recovery • Tides Still Turning in Favor of Chicago’s Suburban Office Markets • (Transit oriented developments) Silicon Valley Bets on New Transport to Counter the Rise of Remote Work (Wall Street Journal) • Lack of Industry Diversity in Chicago's Central Loop Both Blessing and Curse for Office Market • Redevelopment a Cure for the Chicago Office Market's COVID, Supply-Demand Woes Why Chicago? City Council passes Lightfoot's $16.4 billion 2023 budget (Crain’s Chicago Business) LaSalle Street Reimagined (City of Chicago) Crain’s Forum on Climate Migrants or “Climigrants.” (Crain’s Chicago Business series) World Business Chicago, the City’s public private economic development agency Local Economic Snapshot: Chicago-Naperville-Elgin MSA (Federal Reserve Bank of Chicago) CoStar and Supplemental Bibliography
  • 48.
    These materials containfinancial and other information from a variety of public and proprietary sources. CoStar Group, Inc. and its affiliates (collectively, “CoStar”) have assumed and relied upon, without independent verification, the accuracy and completeness of such third party information in preparing these materials. The modeling, calculations, forecasts, projections, evaluations, analyses, simulations, or other forward-looking information prepared by CoStar and presented herein (the “Materials”) are based on various assumptions concerning future events and circumstances, which are speculative, uncertain and subject to change without notice. CoStar does not represent, warrant or guaranty the accuracy or completeness of the information provided herein and shall not be held responsible for any errors in such information. Any user of the information provided herein accepts the information “AS IS” without any warranties whatsoever. To the maximum extent permitted by law, CoStar disclaims any and all liability in the event any information provided herein proves to be inaccurate, incomplete or unreliable. © 2022 CoStar Realty Information, Inc. No reproduction or distribution without permission. Thank You! Rhea Stephen Senior Director of Market Analytics, Chicago 312.283.0196 rstephen@costar.com