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’

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

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,” study author James Shilling, chair of Real Estate Studies, said in a statement.

He added the problem is not just a Chicago issue, noting the same trends are happening in New York, Los Angeles, San Francisco, Phoenix, Atlanta and other cities.

Multifamily Housing Market Analysis

Inquiring minds are investigating the DePaul University Multifamily Housing Market and Value-at-Risk Study By James Shilling

Summary of Key Findings

• Prices of large (7+ unit) rental properties in Cook County have declined from an index value of 166 in the third quarter of 2006 to 123 in the second quarter of 2009, a decline of 26%. Prices of small (2–6 unit) rental properties in Cook County have fallen from an index value of 193 in the second quarter of 2007 to 104 in the second quarter of 2009, a decline of 46%.
• Falling property values in Cook County have put roughly $13 billion of multifamily mortgages (or approximately 30% of the total outstanding multifamily mortgage debt) at risk of default. Total value-at-risk for small 2–6 unit rental properties is $12.6 billion. For large 7+ unit rental properties, the total value-at-risk is $747 million.
• Falling property values have forced many lenders to “pretend and extend