Assessing Multifamily Risk (and Opportunity)

GeoPhy Neighborhoods’ quantitative scores highlight hidden risks and opportunities that otherwise go unnoticed – unless your analysis taps our proprietary granular level of detail 

In recent weeks, we’ve shown you how GeoPhy Neighborhoods can identify properties in neighborhoods at highest risk of COVID-19-related layoffs and furloughs – whether because, as a lender, you need to initiate remediation efforts or because, as an investor, you need to understand any mounting risks in your CMBS investments.

Understanding risks such as these is one of the reasons we created GeoPhy Neighborhoods. Its ability to break submarkets down in much finer detail quickly puts investors and lenders’ evaluation of properties within the context of 90,000+ neighborhoods nationally. Traditional submarkets divide Chicago into 40 submarkets, for example, while our new data offering lets you easily evaluate 800 distinct GeoPhy Neighborhoods in Chicago.

And while the COVID-19 crisis has everyone focused on risk mitigation, at some point animal spirits will revive. Investors will begin looking for opportunities. And that’s where GeoPhy Neighborhoods’ other purpose comes into play. It will help you further understand and prioritize attractive local areas.

GeoPhy Neighborhoods groups together similar locations within counties based on three categories of inputs from our AVM: 

  • Housing
  • Demographics
  • Amenities

We’ve scored each neighborhood across the country on these three categories. The average of the three category scores is the overall neighborhood score. The data provides the national rank and within-market rank.

Case study: Cook County Neighborhoods

Chicago’s 800 neighborhoods show substantial variation. Consider these two neighborhoods that sit halfway between Chicago and Evanston, along Lake Michigan’s western shore. In some ways, they look pretty similar. Both are ranked in the top 10% of all Cook County neighborhoods. They have comparable shares of units in multifamily buildings (around 38%), occupancy rates (around 90%), shares of renters (around 50%), and median rents ($1,000-1,100/month).

GeoPhy Neighborhoods, however, reveals meaningful differences between the two neighborhoods. Although West Ridge ranks significantly higher in terms of amenities, a quick look at its Demographic Rank shows a huge countervailing factor. 

Although the median rent in the two neighborhoods is similar, household income is significantly higher in West Edgewater. When we normalize annual rents by income, it turns out residents in West Ridge spent 25% of annual income on rent, whereas the residents in West Edgewater neighborhood spend 16%.

West Ridge is in the less affordable tail of the rent-to-income ratio distribution – one of two criteria in our analysis of the two neighborhoods’ COVID-19 layoff/furlough risks. And when we overlay the neighborhoods with the Census Bureau’s American Community Survey employment data, we see that almost 30% of West Ridge residents work in COVID-19-impacted industries such as restaurants. We’d expect the recent job losses to precipitate a wave of missed rent payments in that neighborhood.

The 29% percent of West Ridge residents working in COVID-impacted industries is higher than 97% of the more than 90,000 neighborhoods analyzed by GeoPhy. For West Edgewater, by contrast, just 13% of its residents work in such industries. 

For an investor focusing on a particular class of neighborhoods within a given market, this information could be a deciding factor in precisely where to deploy capital. A conservative investor might steer a search to West Edgewater. An opportunistic investor might focus on West Ridge to find the right opportunity. GeoPhy Neighborhoods presents both of them this massive labor force risk difference instantaneously so they can find opportunities that match their risk profiles.

To learn more about GeoPhy Neighborhoods or to order a report on opportunities you’re evaluating, please visit www.geophy.com/neighborhoods.

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April 22, 2020 | by Luke Fitzpatrick

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