Chicago’s south and southwest neighborhoods are facing a sharp correction as speculative development during the pandemic era collides with rising property taxes and stagnant rents. Kevin Rocio, founder of ROC Advisory Group and a multifamily specialist with 38 deals closed this year, warns that these areas are now suffering from overvaluation, with property tax increases eroding investment returns and sending many properties back to market.
The Development Trap
A clear pattern is emerging in several south and southwest Chicago neighborhoods: many developers who bought inexpensive land and built three-flats during the pandemic – often selling them for $700,000 to $900,000 – are now facing a sharp shift in financial performance. Property taxes that were roughly $4,000 at the time of development have climbed to $12,000–$13,000 by 2025, while rents have largely stayed flat. The result is a financial model that no longer pencils out, leaving many recent projects struggling to remain viable.
This dynamic has led to a surge in distressed properties. Rocio estimates that around 20 of these recently developed buildings are now back on the market, a direct result of property tax assessments catching up to new construction values and undermining the once-promising financial models.
Property Tax Shock
Recent property tax bills highlight how widespread the problem has become for investors, with year-over-year increases ranging from about 9% on the low end to as high as 50% in some cases.
This wide range of increases creates significant disparities between neighborhoods, but areas that saw the fastest development during the low-rate environment are now being hit hardest. In these neighborhoods, stagnant rents have failed to offset rising taxes, fundamentally changing the return profile for investors – especially those holding newer assets that face the steepest reassessments.
Market Maturity vs. Speculation
Rocio pushes back against the notion that Chicago’s neighborhoods are uniformly priced, arguing that some areas appear overvalued and driven more by speculation than by underlying market fundamentals.
He emphasizes that most investors still conduct thorough due diligence and generally price assets in line with each market’s strengths and weaknesses. The real issue, he notes, is concentrated in a few pockets where development moved faster than actual demand, creating price levels that are ultimately unsustainable.
Financing and Investment Flow
Despite these challenges, Chicago’s multifamily market still draws a broad mix of investors – from early-career real estate professionals looking to purchase their first property, to tech employees with disposable income, to institutional players seeking large-scale assets in the 200-to-300-unit range.
Financing remains accessible, with Fannie Mae and Freddie Mac supporting larger deals and local banks handling transactions under $5 million. This availability of capital has helped keep transaction volumes steady, even as some submarkets face mounting headwinds.
The Stability Factor
Chicago’s relative stability compared to coastal markets has helped it avoid dramatic swings but also limits its potential for rapid growth. The market tends to move steadily rather than experiencing the sharp ups and downs seen in cities like Miami, New York, or Los Angeles.
This consistency reduces the risk of major downturns, but it also means rent increases often trail rising operating costs, especially property taxes. Rocio anticipates modest rent growth in the coming year, likely in the low single digits, and does not expect rents to decline.
New Construction Impact
Thousands of new multifamily units come online in Chicago each year, with most of this construction concentrated in the city’s core and in suburbs such as Highland Park and Niles. While this pipeline hasn’t significantly disrupted the performance of existing rental buildings, it has put clear pressure on the condo market. Newer, state-of-the-art apartment developments are drawing demand away from older condo units, making it harder for those properties to compete.
The overvaluation now seen in Chicago’s south and southwest neighborhoods serves as a warning about the risks of speculative development and delayed property tax reassessments. Rocio’s experience underscores that even well-executed projects can become financial liabilities when tax bills rise sharply while rents remain flat, illustrating the precarious balance between development, taxation, and long-term investment returns in Chicago’s evolving real estate landscape.
