Thread: 96,000 Multifamily Housing BLDG in Chicago Area Underwater

Sunday, April 11, 2010

96,000 Multifamily Housing Buildings in Chicago Area are Underwater ; 42 Percent of Small Rental Buildings at Risk of Default

Citing a DePaul University study, the Chicago Tribune reports More than 42 percent of small rental buildings in Cook County are ‘underwater’ http://www.chicagotribune.com/classifie ... 6957.story

Owners of 96,000 two- to six-unit rental buildings in Cook County are upside-down on $12.6 billion of mortgage debt, potentially putting 42 percent of small rental buildings in the county at risk of default, new data show.

A study by DePaul University's Institute for Housing Studies, released Wednesday, also found that $3 billion in multifamily building mortgages already are in foreclosure, affecting more than 32,000 rental units in Cook County, or 6.8 percent of multifamily mortgages. That compares with about 38,000 single-family homes in foreclosure in Cook County.

Researchers analyzed 25,822 sales of existing small rental buildings and 591 sales of buildings with seven or more units in Cook County.

Multi-family foreclosure rate spikes in Cook County

Here are some additional facts in a Chicago Sun Times article Multi-family foreclosure rate spikes in Cook County http://www.suntimes.com/business/214599 ... 10.article

The foreclosure rate on multi-family rental properties in Cook County has spiked, and falling property values have put 30 percent, or more than $13 billion in Cook County’s multi-family mortgages at default risk, according to a study released today by DePaul University’s Institute for Housing Studies.

The report found that there are more than 32,000 rental units in Cook County impacted by foreclosures. The percent of loans in foreclosure on small two- to six-unit properties jumped to 8.75 percent in the fourth quarter of 2009 from 1.67 percent five years ago. On large seven-plus unit rental properties foreclosure rates jumped from 0.3 percent in 2004 to 3 percent in the fourth quarter of 2009.

For one in eight rental apartment units, revenues are falling below operating costs for owners. Owners of about 74,000 rental units in Chicago or 13 percent of the market, are currently spending more to operate buildings than they are collecting in revenues, placing them at significant risk of decreased or discontinued maintenance.

“The multi-family foreclosure crisis has not received as much attention as the crisis in the single-family housing market, but the trends outlined in this report demonstrate that it should,â€

Again, I have to disagree with Mish. Government intervention would have been more benign had they stuck with fundamentals of value and common sense. When my real estate agent friend told me that housing could be counted on to rise about 10% per year back in 2005, and I looked around and asked, 'whose income can be counted on to rise about 10%' a year?' then that was a key indicator that we were in a bubble that was beng enabled by questionable financing instruments that should never have been legal to offer. If the mortgages that were being granted had been tied to documentable income with a common sense ratio, a lot of the mess could have been avoided. Mass layoffs could still kill local markets, but you would not see the nationwide devastation we have seen.