Vacancy and cap rates in many Midwest markets are coming down, according to regional experts.

They pointed to these and other positive signs to combat the negative impressions about developing in the Midwest at a panel in early November at AHF Live: The 2010 Affordable Housing Developers’ Summit in Chicago. They also noted that there are significant differences across the heartland markets.

Much of the effort is trying to dispel the negative perception people have about the market, said Mark McDaniel, president and CEO of Michigan-based Great Lakes Capital Fund, a low-income housing tax credit (LIHTC) syndicator.

LIHTC prices vary across the region, he said. For example, in Michigan, recent prices have been around the mid-70s while they have been higher in Wisconsin.

“We saw a big tailwind in the last quarter and last 30 days,” said Jeff Kittle, president of Herman & Kittle Properties, Inc., an Indianapolis-based affordable housing developer, noting that recent deals have attracted multiple offers.

He recommended that if developers have deals that pencil out, they should go ahead and close them rather than wait.

Armand Brachman, managing partner at Dominium a Minneapolis-based owner and developer, agreed. “You don’t know what’s going to happen tomorrow,” he said.

Kittle’s portfolio includes a few properties in Michigan, which have solid occupancy rates of about 97 percent and 95 percent. “Not all bad deals are in Michigan,” he said.

Experts also pointed out that most problems stem from poor property management, not the market.

Developers can expect to see greater focus on developer experience and liquidity. “Your portfolio is going to be scrubbed hard,” said Kittle.

Despite some signs of improvement, the Midwest still has its challenges.

One is the level of rehabilitation that may be required. Some deals just won’t work out if the state requirement is $30,000 of rehab work per unit, said Brachman.

Another challenge is that in some rural areas affordable rents are at market levels.

Vacancy rates in several central Midwest markets, including Cleveland, St. Louis, and Indianapolis, declined over the past year, according to Rebecca Arthur, a principal at Novogradac & Co. Detroit has had the highest vacancy rates over the past four years, ranging from 6.2 percent to 8.3 percent.

Cap rates in the Minneapolis region increased slightly, by 10 basis points, over the past year while they dropped by about 110 basis points in Chicago. In Detroit, the cap rate increased from 8.9 percent to 13.4 percent between 2008 and 2010. Cincinnati and Cleveland saw cap rates increase from 2009 to 2010, while Kansas City saw the largest decrease.