Heartland Feature Archive

The following is a Q&A with Jay Madary, president and CEO of Oak Brook, Ill.-based JVM Realty, regarding the state of the multifamily market in the Midwest. JVM owns and operates Class A and B apartment communities in Midwest markets such as Cleveland, Indianapolis, Kansas City and suburban Chicago. Madary was also quoted in the March issue of Heartland Real Estate Business in an article discussing apartment amenities and property management trends. Heartland Real Estate Business: What is your assessment of the health of secondary and tertiary multifamily markets in the Midwest? Jay Madary: They’re healthy. Supply and demand are in balance, and rents are affordable for residents. When you combine those rents with the strong income levels in the region, you can see there’s room for steady rent growth, unlike some of the primary coastal markets such as San Francisco and New York. From an investment perspective, the lower acquisition costs for apartment communities in the Midwest allow for higher returns than you’ll find in gateway markets. Residents of the Midwest are commonly described as steady and reliable, and that describes the multifamily market in the region as well. It may not have a lot of sizzle in the form of enormous rent …

Strong renter demand for affordable apartments in affluent suburbs easily outstrips the available inventory of such properties. This supply and demand imbalance creates a big gap in the market that renovated older buildings can fill. These undervalued multifamily buildings also provide a healthy investment opportunity. Cranes dot the skylines of many American cities today, and much of the development is new luxury multifamily communities. For the last 10 years, the majority of the new apartments built have been high-end apartments, often in downtown areas. Underlying reasons Two main factors are driving developers’ preference for luxury urban apartments. First, developers are turning to urban areas because many suburbs are using zoning density restrictions to prevent multifamily construction. Developers may want to build in the suburbs, but suburban communities want to maintain the relatively small class sizes in their schools and the low crime rates associated with low-density areas, so they are not granting permits for new construction. Cities, on the other hand, are eager to welcome new residents to grow their tax bases, so they’re quick to provide permits for new multifamily construction. The second factor is rising construction costs. Excluding land costs, construction costs have risen 23 percent since 2010, …