Investors Should Take a Second Look at Opportunities in Chicagoland Multifamily

Chicago real estate has been the subject of considerable pessimism from local and national investors due to a variety of factors. Much of this can be blamed on our unfunded pension liability, which is expected to significantly increase real estate taxes across the area in the coming years.

Many institutional multifamily investors claim that their data says to avoid Chicago. Instead, they seek multifamily properties at far lower returns and cap rates in places such as Nashville, Austin and Denver. While I believe those cities offer phenomenal investments, investors across the country are missing an amazing opportunity to invest in Chicago apartment properties.

Jordan Gottlieb, Essex Realty Group

Real estate taxes

Everyone seems to agree that real estate taxes will rise significantly in Chicago in the coming years. Who pays real estate taxes? Homeowners, commercial landlords and some businesses. Noticeably absent from this list are apartment renters who are generally unaffected by an increase in real estate taxes. In fact, a significant rise in residential real estate taxes should create even more demand for rental apartments in the Chicagoland area as would-be homeowners shift into the rental pool.

Effect of high tax rates

Do Chicagoans leave the city because of high tax rates? The data is a mixed bag but generally the answer is a big “no.” According to the Center for Tax and Budget Accountability, “the top destination for households (leaving Chicago) making over $100,000 is actually the New York City metropolitan area,” followed by Houston, Los Angeles, Minneapolis (9.85 percent top marginal rate) and Denver (4.63 percent).

Resilient apartment market

The Chicago apartment market has experienced amazing growth and shown incredible resilience in the past several years. Developers continue to deliver a record number of new-construction apartment buildings and net rents continue to climb while renters absorb new units at a record pace.

In addition, jobs continue to pour into the downtown area, which has resulted in the Chicago Loop producing one of the fastest population growth rates in the entire country. According to Crain’s Chicago Business, “since 2013, the Loop has grown to more than 21,000 residents, accounting for a 28.9 percent growth in population.”

Helping fuel apartment growth are large office leases that continue to be executed in the downtown area, including:

• 450,000 square feet to Uber in the Old Post Office

• 200,000 square feet each to Walgreens and PepsiCo in the Old Post Office

• 263,000 square feet to Facebook at 151 North Franklin

• Google is nearing 1 million square feet of office space in Chicago.

• WeWork just completed new leases to bring its total Chicago footprint to over 940,000 square feet.

State income tax comparison

The Chicago population loves to groan about rising Illinois state income taxes, currently at 4.95 percent. Of course, no one enjoys paying taxes or a tax increase, but it is worth comparing Illinois state income taxes to that of other competing states.

• In New York state, most earners pay a state income tax between 6 and 8.82 percent. If you live in New York City, most workers are charged an additional 3 to 4 percent city income tax for combined rates of 9 to 12.82 percent, according to

• In California, workers making $43,000 or more are taxed at a minimum of 8 percent with higher earners paying anywhere from 9.3 to 13.3 percent.

• Even in “low tax, business-friendly” Georgia, state income tax is approximately 5.75 percent for the huge majority of payers.

• In fact, of the 43 states who charge an income tax, Illinois remains in the lower third of tax rates — even at its newly increased rate of 4.95 percent.

Unfortunately, some level of population loss is inevitable in Chicago, especially to states such as Texas and Florida that boast superior weather and no state income tax. However, Texas and Florida have several built-in advantages which allow them to bypass a state income tax.

• In 2018, Texas received more than $14 billion in taxes and royalties from oil and natural gas production, according to the Texas Oil & Gas Association. Texas also receives approximately $8.6 billion more annually from the federal government than its population pays in federal income tax, according to the Rockefeller Institute.

• Florida has some of the best weather in the country, and includes the Atlantic Ocean, the Gulf of Mexico and Disney World, which combine to generate over $100 billion in tourism spending each year. In addition, the federal government sends Florida approximately $45.88 billion more per year than its residents contribute in federal income taxes, which partially enables Florida to forego a state income tax. Illinois has no such luxury, as we send nearly $5 billion more annually to the federal government than it sends back to us.

Perhaps our Illinois state politicians should fight for a bigger piece of the federal government pie as most states take in billions more in federal dollars than they send to Washington D.C.


Chicago is ripe for multifamily investment despite the financial challenges that lay ahead. We have always been the bedrock of the Midwest and will continue to be. The downtown area has experienced tremendous population growth in recent years and apartment absorption continues to break records while jobs flood back into the city from the suburbs and the rest of the state.

The investors that have shunned Chicago in the last decade have already missed out on much of its incredible rental growth during that time and will continue to miss what lies ahead.

— By Jordan Gottlieb, Principal, Essex Realty Group. This article originally appeared in the October 2019 issue of Heartland Real Estate Business magazine.

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