December 19, 2018
By Dennis Kaiser
Alliant Credit Union’s Charles Krawitz, Vice President and Head of Commercial Lending, shares insights about the property types and markets lenders favor. Check out his thoughts about why industrial and multifamily are popular asset classes, as well as the key trends shaping the Chicago market in our latest CRE Q&A.
Q: Industrial and multifamily continue to be investor darlings. What do you think about those property types compared with others like retail?
A: Cash flow is better insulated for industrial properties due to longer term leases than multifamily, but apartments offer a highly-diverse tenant base. While retail also benefits from longer leases, tenant viability is increasingly a concern as the retail landscape faces unprecedented change.
We look for the right tenant mix in retail properties. That may include destination tenants, or ones that are small local merchants offering services that you can’t get over the internet and you have to get in-person. We want to see tenants that draw consumers on a consistent basis. There are plenty of retail opportunities since about 90% of shopping is still done at brick-and-mortar locations.
Other factors we consider in a neighborhood center are good visibility, less clutter, and good ingress and egress. In a lifestyle center, if there’s a large tenant, we want to know whether their sales are trending up or down, what the length of their lease is and how it compares to the market, and how the center would fare in a stress situation where the tenant vacated.
Q: How has the Midwest and the Heartland performed in the last year? What is your outlook for the next year?
A: The Midwest is very stable. It doesn’t elicit much excitement, but it is appealing. Cash flows aren’t going to see a lot of fluctuation, which allows us to pick our spots and win deals that show resilience over time. We’ll look at job growth and in-migration, things over time that may impact the Midwest vs. the coastal markets.
Q: How do you think Chicago compares to other major gateway markets you lend in?
A: Chicago is a city troubled by its legacy financial obligations. The state also has issues, yet Chicago has proven to be resilient and dynamic. Prices have not rebounded from the last recession as strongly as other markets, so there’s value to be found, you just have to be selective.
Industrial properties have fared quite well due to mid-country location and great rail and air connectivity, so that’s an asset class that works well in Chicago. We don’t rule out anywhere; we’re detailed underwriters who look to identify enduring opportunities.
For comments, questions or concerns, please contact Dennis Kaiser