Category: Insights

When tax reform passed Congress last year, 1031 exchanges pertaining to real estate were spared major changes in legislation. This often under-looked yet tax-advantaged solution is potentially one of the most powerful tax planning and wealth preservation strategies available to investors.  Read More

In December 2023, the Wall Street Journal published “The Rise of the Forever Renters.” The article examines a shift in housing preferences for people who could afford to purchase a home but are choosing to rent instead. Higher-end multifamily properties and built-to-rent properties have been preferred investment segments of the real estate market by many in recent years, and it appears this subcategory of real estate could still be one to watch as an investment opportunity moving forward. According to the article, between 2007 and 2022, the number of people living in rental housing in the U.S. increased by 15%, reaching 103 million. While high interest rates and a housing shortage are pushing some would-be homeowners toward renting, more and more people are simply choosing to rent. This change indicates a broader societal shift in housing across different age groups, driven by lifestyle preferences and financial constraints. The shift is particularly evident among younger professionals, with many expressing that it’s not a matter of affordability but a conscious choice based on perceived value. They prefer prime locations, convenience, and amenities of high-end rentals over the responsibilities and costs associated with homeownership. High-income earners are also increasingly choosing the rental lifestyle. In 2022, the number of renter households earning over $200,000 was four times higher than in 2010. Many older adults also prefer renting, highlighting the appeal of low-maintenance living and downsizing that rental properties offer. According to the Wall Street Journal, this increase in demand is resulting in strong property-level performance. The Heron building, a luxury apartment complex in Tampa FL, surpassed 95% occupancy seven months after opening. It also states that Built-to-rent communities designed to mimic the look and feel of traditional suburban living have occupancies exceeding 97% nationwide. Occupancy rates are only one of many important metrics to evaluate in a multifamily investment. At Chicagoland 1031 Exchange, we look at other data points including rent growth, lease renewals, loan terms, and local market performance to determine if an investment might be suitable for our clients. If you would like to learn more about luxury multifamily investments, and/or compare them to other types of real estate investments, contact our advisors today.

1. Wall Street Journal

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Affordable home ownership is under pressure for the average American. While there are many contributing factors, inventory shortages, along with high inflation that led to rapidly increasing interest rates, are chief among them. The country needs more housing units and new multifamily properties are one of the best solutions to provide that housing. The post-pandemic building boom in 2021 and the increase in millennials and Gen Z’s interest in multifamily living brought newly completed housing units to record highs in 2023 and 2024. These large buildings often have several hundred units and take about three years to complete from permit to certificate of occupancy. However, in the current environment, many developers are unwilling or unable to begin new projects. Banks have reduced the volume of lending due to lower deposits. Additionally, increased interest rates make new construction projects harder to finance. As a result, new construction “starts” are down about 40% year-over-year, according to Nick Rosenthal, Co-CEO of Griffin Capital, a major U.S. multifamily investment company. This marks the third straight quarterly annualized figure where starts have fallen by a similar amount. According to the Griffin Capital report, there were only 38,000 starts in the second quarter of 2024, which is the lowest figure since 2011. There is little sign of improvement with 12 of the top 50 major housing markets having zero starts in the second quarter of 2024.1 Accounting for this three-year lag between starts and deliveries, Griffin Capital is expecting the supply of new properties coming to market to bottom out in 2025 and into 2026. If this comes to fruition, newly completed properties will be at their lowest level in 10 years. The forecasted future lack of new supply means the supply-demand imbalance will be even higher than it is already. This long-term view of increasing demand for multi-family, coupled with the expectation of reduced supply coming to market, could be why some institutional investors are leaning into multi-family real estate investments. For 1031 exchange investors evaluating replacement property, or for accredited investors looking to diversify their portfolio, multifamily investments could potentially be a good choice. We continue to evaluate multi-family investment opportunities for our clients as both DST investments (primarily for 1031 exchange investors) and as funds (for cash investors). To learn more about Chicagoland 1031 Exchange’s take on the current real estate market, talk to one of our advisors today. 1. Email distributed by Nick Rosenthal, Co-CEO of Griffin Capital, August 2024  Read More