S U B M A R K E T R E P O R T

City West Submarket, Chicago MSA Fourth Quarter 2007

SUBMARKET MAP SUBMARKET FACTS



94


41 Submarket Metro


14



90
Population 1,040,910 9,573,949
Lake
Lake
Michigan
Michigan Avg. Annual Five-Year Chg.* 0.0% 0.6%

Total Households 335,837 3,375,144

Avg. Annual Five-Year HH Chg.* -0.1% 0.4%

City
City Median Household Income $45,266 $63,393
West
West
Median Age 31.2 35.5


41



290
Employment 395,494 4,656,565

Vacancy Rate (3Q 07) 7.3% 4.6%


 90
Avg. Asking Rent (3Q 07) $960 $1,035


55

 34
* 2006-2011 Forecast

SUBMARKET VACANCY RANKING SUBMARKET HIGHLIGHTS

3Q 07 3Q 07 After a poor-performing year, the apartment sector
Submarket Vacancy Asking Rents of the City West submarket is poised for a turn around.
In 2007, apartment stock expanded at the fastest rate in
Rogers Park/Uptown 2.8% $773
over seven years, as almost 750 units were added to the
Southeast Cook County 3.6% $820 area’s inventory. Approximately 350 units are slated to
come online in 2008. These new apartments will drive
O’Hare 4.1% $924 up vacancy, but will also help to increase the area’s
average asking rent. Competition from these new com-
Oak Park 4.7% $960 plexes, however, will hinder existing owners’ ability to
decrease concessions, as they will have to attract new
Southwest Cook County 4.9% $843 tenants in order to maintain occupancy levels. Vacancy
has steadily increased over the last 12 months and is
South Shore 5.3% $929 currently the highest in the metro. Nevertheless, the
rates are forecast to improve over the next two years, as
Glenview/Evanston 5.3% $1,088 the new developments coming online are absorbed.
Investors seeking value-add properties will find
Woodridge/Lisle 5.8% $962 many opportunities in the submarket, as approximate-
ly 82 percent of the area’s total inventory are Class B/C
Downers Grove 6.7% $940 complexes. An overall lack of for-sale inventory, of
which the majority is comprised of lower-tiered offer-
City West 7.3% $960
ings, has driven down sales velocity and median sales
price over the last 12 months. Current cap rates,
although declining, are still within range to attract both
private and institutional investors seeking value-add
opportunities and long-term revenue streams.

Josh Gisselquist © Marcus & Millichap 2007

Research Associate www.MarcusMillichap.com
City West Submarket, Chicago MSA Apartment Submarket Report ◆ Fourth Quarter 2007

Construction Trends CONSTRUCTION TRENDS

800 ◆ Builders added three projects totaling 747 units to the City West sub-
market in 2007, a 3.6 percent boost to the area’s stock. 2007’s deliver-
Units Completed

600 ies mark the largest amount of completions received in the last seven
years. The biggest complex to come online was the 422-unit Grand
400 Kingsbury at N. Kingsbury Street and W. Illinois Street in Chicago.

200
◆ Two projects currently under way and are scheduled for completion
in 2008 are expected to add over 400 units to the submarket’s inven-
0
tory. Allure at K Station, slated for delivery in the fourth quarter of
03 04 05 06 07* 2008, will bring 350 units to the area.
* Forecast
Sources: Marcus & Millichap Research Services, Reis, TWR
◆ The pace of construction is forecast to remain swift going forward,
with four projects in the pipeline. If all are completed, more than 550
units will be added to the market. Developers are favoring mixed-use
developments, as three of the planned projects are expected to
include an aggregate of more than 16,000 square feet of retail space.

RENT AND VACANCY TRENDS

◆ Due to an elevated level of deliveries, vacancy has been on the rise
Asking Rent and Vacancy Trends over the last three years and is forecast to end 2007 at 7.9 percent, 70
$1,000 Average Asking Rent 8% basis points higher than year-end 2006. Vacancy is expected to remain
Vacancy
Average Asking Rent per Month

in the high-7 percent to low-8 percent range over the next 24 months,
$950 7% as developers continue to add new units to the submarket’s inventory.
Vacancy Rate

$900 6%
◆ In an attempt to curb rising vacancy, owners slowed the pace of ask-
ing rent growth in 2007. The first quarter of 2007 posted a negative
$850 growth rate of 0.6 percent. This downward trend reversed in the sec-
5%
ond half of 2007 and is forecast to end 2007 at $975 per month, a 4.8
$800
percent uptick over year-end 2006.
4%
03 04 05 06 07*
* 3Q 2007
Sources: Marcus & Millichap Research Services, Reis
◆ Despite sluggish asking rent growth, owners have been able to keep
concessions low, as effective rents have outpaced asking rents for five
out of the last seven quarters. The average effective rent in the third
quarter of this year was $922 per month, a 5.1 percent increase over
the same period in 2006. Effective rent growth is projected to modest-
ly outpace asking rent growth over the next 24 months, as competi-
tion from new developments will keep concessions relatively stable.

SALES TRENDS
Sales Trends ◆ Due to tightening lender guidelines and current economic conditions,
Median Price per Unit (thousands)

$120 sales velocity slowed 70 percent in 2007, following four years of con-
sistency. Owners have been reluctant to bring their properties to mar-
$100 ket, waiting, instead, for the market to settle.

$80 ◆ The median price has dropped approximately 11 percent to $89,110 per
unit over the last 12 months. The decline is attributed to a decelerating
$60 velocity and greater amount of lower-tiered offerings on the market,
compared to the last two years. Approximately 45 percent of transac-
$40 tions in 2007 sold for less than $90,000 per unit, while fewer than 30 per-
03 04 05 06 07* cent of transactions in 2005 and 2006 sold for under $90,000 per unit.
* Trailing 12 Months Ended September 30
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
◆ Cap rates have been compressing over the last five years. Rates have
fallen approximately 50 basis points in 2007 to the low-6 percent range.
Assets that are not properly priced at the beginning of the marketing
period often receive little interest from investors, thereby running the
risk of chasing the market down over an extended period of time.

Josh Gisselquist © Marcus & Millichap 2007

Research Associate www.MarcusMillichap.com
Sources: Marcus & Millichap Research Services, BOC, CoStar Group Inc., RCA, Reis, SRC, TWR
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.