Illinois Real Estate Journal December 2013/January 2014 : Page 1

VOL.16 NO.6 ©2013 LAW BULLETIN PUBLISHING CO. DECEMBER 2013/JANUARY 2014 DIRECTORIES: Ad Agencies/PR Firms, Architects, Auction Companies, Top Brokerage Firms, Developers, EDC, Financial Institutions, Green Sustainable, Multi-family Finance, Property Management, Real Estate Law Firms, Space Planners, Sub Contractors, Top Contractors, Union/Trade Groups/Associations, pg. 24 Riding The Wave: Legal Issues In The Apartment Development Boom By Michael D. Firsel, Partner, Ruben Firsel & Ross LLC T O’Hare vacancy rate continues to see dramatic improvement By Brian Wasag he O’Hare vacancy rate continued its dramatic improvement in the third quarter, dropping 34 basis points to 8.10 percent, according to a third-quarter Chicago industrial market report by Colliers Interna-tional. The Colliers report noted that the vacancy rate has recovered more than five full percentage points from the all-time high of 13.17 percent posted in the second quarter of 2011. Available supply at the end of the third quarter totaled 11.3 million square feet, a decline of 400,000 square feet from the 11.7 million square feet available in the second quarter. Third quarter sale activity was the primary contributor to the improvement, according to Colliers. While the decrease in vacant space in the O’Hare market is encourag-ing, the Colliers International report points out that there are still 28 va-cancies between 100,000 square feet and 300,000 square feet that account for 3.9 million square feet or 34.9 percent of the overall vacant supply. “Activity overall has been pretty solid both from a leasing and sale perspective,” said Jonathan Kohn, senior vice president at Colliers In-ternational. “Specifically, in the past quarter we saw more transactions in that 10,000-to 30,000-square-foot range than we’ve seen in years. Maybe that’s an indication of more confidence among small businesses and companies taking excess space. “During the recession, certainly the market as a whole struggled, but specifically that size range was impacted,” Kohn added. “That range makes up such a large portion of the inventory of O’Hare. So it was no-ticeable. You’d drive through an area like Elk Grove and you’d see signs all over the place for 10,000-, 20,000-and 25,000-square-foot units, but the velocity in that range has really picked up over the last 12 months. The third quarter in particular was very strong.” The boom in multifamily rental development rolled on unabated throughout 2013, and looks to continue into 2014 and beyond. The growth of this sector has resulted from a perfect storm of economic and demo-graphic factors: continued high unemployment and tight mortgage policies have made home ownership inaccessible for many, while a growing number of baby boom retirees and echo boom young adults find the flexibility of renting to be an affirmative advantage. As a result, large numbers of developers – including many who previously would have focused on single-family residential, condominium or retail development – are looking at apartment development as “the answer” to jumpstart their stagnant project portfolios. While the enthusiasm for this market is well found-ed, at least for now, development of multifamily resi-dential property is a specialized area, with ever-evolving opportunities and pitfalls, which require significant equity, patience, and most of all, perseverance. Some legal issues faced in these developments are common to other types of commercial projects, but frequently have a unique twist in the residential rental context. Some of LEGAL ISSUES (continued on page 8) and DLJ Real Estate Capital Partners LLC acquired approximate-ly 8 acres of land at 1780 Birchwood O’HARE FEATURE (continued on page 10) Construction Brennan Invest-ment Group LLC Activity Most recently, PRSRT STD U.S. Postage PAID TWIN CITIES, MN PERMIT NO. 31515

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