So far, values have held up better than they did during and after the global financial crisis, when the Real Capital index for the Chicago market fell 35 percent. Where values go from here will depend on the direction of the economy and the coronavirus, and how much distressed property gets flushed out into the market in the coming months.

Values also will vary by sector and location. Hotels and retail have suffered especially devastating blows and still face an uncertain future, and downtown office and apartment occupancies and rents have fallen. A Real Capital price index for downtown Chicago fell 0.2 percent last year. But industrial landlords are flourishing, lifted by a booming e-commerce sector that has boosted demand for warehouse space, mainly in the suburbs.

Chicago remains a laggard among big cities tracked by Real Capital, a New York-based research firm. An 18-city global price index rose 3.1 percent last year, while a U.S. index rose 4.7 percent, according to a Real Capital report. Boston led the pack in the U.S., with a 14.4 percent gain. Among overseas markets, London and Hong Kong tied for the biggest drop, 7.7 percent.

As the pandemic swept across the globe, many real estate investors braced for big price declines. But values have held up in most places. One reason: Lenders have not retrenched like they did after the financial crisis. Another: Buyers and sellers are in a bit of a standoff over what properties are worth these days, something that often happens in the early stages of a downturn.

Buyers expect a big price cut, embracing a gloomy view of the future. But sellers “will look past the pandemic to rosier times in the future,” the Real Capital report says. So they decide not to sell and just wait out the market instead.

As a result, many properties don’t trade—Chicago-area commercial property sales hit a 10-year low last year—and prices don’t move all that much because of the lack of transactions.

Finding recent deals that offer clues on what Chicago-area properties are worth isn’t easy these days. In August, Ravenwood Terrace, a 150-unit apartment building in Ravenswood, sold for $46 million, down from the $48.1 million it fetched in 2016. But investors are still paying top dollar for big warehouses, especially ones leased to Amazon.

In a downturn, distress often drags values lower, a process that takes time as investors and their lenders try to restructure loans or wrangle in court. In the last real estate bust, as foreclosures piled up, Real Capital’s Chicago-area price index fell for four years, hitting bottom in early 2011 after a 35 percent decline. The index has risen nearly 55 percent since then.

Distress is a concern today. Delinquencies on some local commercial real estate loans have dropped in recent months. But many properties here face foreclosure, including some big ones, like the Palmer House Hilton and the North Riverside Park Mall. More foreclosures are likely.

When distressed properties change hands, they usually sell for such a discount that they depress real estate values. In one recent distressed deal, the Waldorf Astoria Chicago hotel in the Gold Coast sold for just $54 million, less than half what it traded for in 2015.

But lenders seem to be patient with their real estate borrowers these days, one reason to hope the market won’t be flooded with distressed properties, Real Capital Senior Vice President Jim Costello writes in an email. For many lenders, it doesn’t make much sense to seize a property and then sell it for a discount just as the pandemic and economy seem to be turning a corner.

“Best to leave the asset in the hands of somebody who can maintain some value in the property and keep everything as is for now until we get through the crisis,” Costello writes. “Especially now that vaccines are going into arms and maybe by late summer we can all get vaccinated, why force things now when these assets might be performing better in a few months.”



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