Market Conditions: 3 Condo/Apartment Towers Proposed for Uptown in a “Once in a Lifetime” Opportunity
A few months ago I said it would be at least a decade before another condo high rise was built downtown but apparently building them outside of downtown is a different matter.
According to Crain’s, a Chicago developer is proposing a massive $350 million project just north of Montrose in Uptown.
Sedgwick Properties Development Corp., led by Marty Paris, hopes to break ground this year on the first phase of a three-tower project near Montrose Harbor that would have about 850 residences including senior housing, a full-line grocery store and fitness center and a 200-room hotel. The three condo and apartment towers, to be built over five years, would stand 20 to 45 stories tall.
The plan is apparently called “Lake View Station” (yes, even though it’s in Uptown). The developer has previously built a high rise in the South Loop and Park View East at 828 W. Grace in Lakeview.
The developer, who founded the firm in the mid-’90s converting Lincoln Park apartments into condos, is seeking a zoning change and a $40-million to $50-million tax-increment financing subsidy from the city while also working to win over neighbors who are wary of such deals and concerned about parking and traffic in the already congested area.
“It’s going to happen. But it’s not going to be easy to get done,” says Mr. Paris, 41. “It’s one of very few parcels left available on the lakefront in the best of the North Side neighborhoods. To us, it was a once-in-a-lifetime opportunity.”
Developer Marty Paris plans huge residential, retail center on Uptown lakefront [Crain’s Chicago Business, Eddie Baeb, Jan 25, 2010] (Be sure to check out the comments to the article.)
I can see the sales pitch already. “Pre-construction pricing with limited availability goes on sales July 2010. Contact our sales office for special pricing and leasing opportunities. This is a once in a lifetime deal. Reserve now or be priced out forever!”
Here we have an illustration of everything that has gone wrong with our housing market, and economy.
The first thing I wanted to know was who in the hell is going to finance another large condo development when the city is stuffed with foreclosures and delinquencies and unsold inventory.
I didn’t have to read very far to find that ” a $40-million to $50-million tax-increment financing subsidy from the city “.
We’re paying trillions in various forms of subsidies for the housing industry, to build the stuff, to guarantee the loans, to help home borrowers who can’t manage the payments on their oversized loans, already. We’re paying the government to lend more money to more marginal borrowers to buy more overpriced stuff that is not selling already, and now we of Chicago will pay some developer $50 million to build 850 redundant condos while hundreds of units languish unsold in Edgewater, Uptown, Rogers Park and the South Loop.
I would like to see just ONE TIF district in this city defeated because of public outrage. Chicago is now a quilt of TIF districts as it is- which means that every tax hike increment in most places in this city is being shoveled into the back pockets of a private developer at the expense of our necessary services, and at the expense of property owners who’ve struggled for years to buy their property and pay for it, and have to give it up because they can’t pay the taxes.
November Case-Shiller just came out and Chicago is at 129.29, a decline of 1.1% from October, which itself was a decline of 1% from September.
Yeah, I’m sticking to my story. We’re 7.2% below trendline and still well above the low of April.
This man is literally insane.
Hmmm… Let’s see what that developer could possible be thinking. Buy cheap land close to the lake and create housing in a neighborhood that has had relatively few new contruction buildings. The developer hopes to deliver the project 3 years from after our economic reovery has begun. What is he thinking?
LOL!
Steve, what the developer is thinking is that he is going to get a $50M subsidy from the taxpayers of Uptown.
It’s a no-risk deal for the developer. The people who are taking the risk are the taxpayers whose taxes will be subsidizing this instead of the services we need.
I note that the property tax bills are out now, think about this when you pay your property taxes.
Even with the TIF, he still needs to come up with another $300MM and I doubt he has enough equity to get (approx max of 50%) construction financing for this product…. No worries, unless he changes the project to be all low-income housing and senior living, it will die.
A few years ago Beitler announced that he was building the tallest building in the world, Shelbourne took over the Spire project and guaranteed it would be on schedule, Trump announced that everything was fine, and now another developer has grand plans for a project in Uptown.
I’m going to hold a press conference tomorrow to announce that I plan to build a 90 story luxury hotel/ and 500 unit high end residential project on a “great” piece of property in Stickney. Then I’m going to brag about all the jobs it will create and get the city to give me a TIF district.
Did this idiot not see that the city could not even get a guarantee from developers to develop the olympic housing area in a much better location?
Pass the pipe!
This project will not be built. Lots of talk, no action. Builders build, that’s what they do. Even when they’re not building, they’re talking about building and planning for building. However, in this economy, they will not be building.
An Shiller will make it all Section 8 anyway!!
And Schiller will ram another TIF through, whether it results in “development” or not.
@Laura: Not so. She is not developer friendly. In fact, she’s one of the toughest aldermen a developer would have to work with. She held up the Wilson Yards project for years to ensure it would include affordable housing and she was tough as nails in working with her constituents to downsize a residential tower Invsco wanted to build in front of the New York condo. With the economic downturn and housing glut, it looks like that one will never be built. The sunset provision of the planned development ordinance is 6 years. I think that leaves 2 years for it to be built.
I cannot fathom how the city could justify subsidizing a project of that nature given current supply – unless the project was virtually 100% low income and senior housing. Even so, with most of the foreign banks out of the Chicago market, I can only think of two national lenders with the capacity to do a loan of that size.
I agree with PDubbs – max loan of 50% of cost. Assuming they could come-up with the difference with equity and TIFF, who is going to guarantee a loan that size? He must have large pension fund backing . . . or he’s absolutely nuts.
“The people who are taking the risk are the taxpayers whose taxes will be subsidizing this instead of the services we need”
We taxpayers are not taking any risk because we have no say in the matter. The corrupt elitist politicians steal our money, waste it on garbage like this, and then have “no other option” than to increase our taxes. Meanwhile the connected developers, unions, aldermen, etc make out like bandits.
Not going anywhere, at least not as proposed. 200 room hotel in Uptown? Funny stuff… If anything this will just turn into a severely downscaled section 8 project.
FYI- the TIF subsidy will be from the new taxes generated by the PINs for the site. say the taxes right now are 10,000 a year (for simplicity) and once the development is done the taxes are 50,000 a year, the developer is asking that the City give him a portion of the additional tax revenue for the 23 year period when the TIF district is in place. The taxing bodies still share the 10,000 that the site is generating presently. Once the 23 years are over, all that additional revenue (the 50,000 a year plus inflation) will be distributed to the taxing bodies. If the project doesn’t generate the taxes, the developer does not get paid….
MJ, you mean to say that we taxpayers are taking ALL the risk while the developer and his protector politicians will get all the benefits, while being insured by us against the risk.
I was talking with a client about this project just an hour ago. This man is an Edgewater condo owner who is an “old timer” who’s had his hands in a number of developments around the city and elsewhere over the past 45 years. He says that there is no chance this project will get built at the proposed site because the land there won’t support three large buildings. He also said many major developers have walked away from this site.
Given everything I’m hearing from him and others, I believe another TIF- subsidized “moderate income” development is setting up. It most likely won’t be in this location.
As if northern Lakeview/Uptown wasn’t already showing the early signs of Section 8 blight. This should drive a few more nails into the coffin of the area’s future. Pretty soon living north of Grace will be a non-option.
“Yeah, I’m sticking to my story. We’re 7.2% below trendline and still well above the low of April.”
Way to keep up that Siren’s song, Gary.
Don’t you mostly sell condos? The 11/09 seasonally adjusted condo index for Chicago declined 1.6% from 10/09 and has set a new bottom for this ongoing correction at 134.46 (0.6% below 4/09.) The non-seasonally adjusted condo index declined 1.8% from 10/09 and is now only 1.2% over the 4/09 bottom.
The tiered indices also illustrate that the low tier (less than ~ 190K) has risen off the bottom at around twice the rate of the mid and high tiers.
Case Schiller for Chicago will fall even further when the tax credit expires in a few months. It’s just the falling knife syndrome at this point. Buy now and you have to catch the knife and avoid cutting cut up. It’s almost like buying a car. Once you get the keys, it’s already worth less than you paid for it…especially in this neighborhood. The mid and high tiers in Chicago will continue to see pricing pressure. Eventually, more people will be forced to sell, and the lack of move-up buyers will be devastating to prices in condos over $500K.
“The tiered indices also illustrate that the low tier (less than ~ 190K) has risen off the bottom at around twice the rate of the mid and high tiers.”
Tiered indices for SFHs or Condos?
Also, G, do you have any good guess why CS excludes Lake County? Was Lake just uncooperative in providing data?
EARLY signs of Section 8 blight? This area was really blighted until the early 90s. Prior to the early 90s, you never lived north of 3800 LSD. All you had to do is walk around the corner as Sheridan Road turned, and you were in a really mangy, dangerous neighborhood. You had a thin strip of good buildings along Marine and the nice enclave-like streets off it, but the rest of the area was very blighted and dangerous.
All the improvements that have taken place in Uptown in the past 18 years are very tenuous, and really happened because things got so inflated that many people had to leave Lakeview for cheaper areas. Uptown already has way more than its fair share of CHA housing, really mangy SRO hotels, and non-profits catering to troublesome populations. This stuff is not going away anytime soon, especially given the policies of the local alderman.
Now that the air is out of the re market, it looks to me like it will be a long time before there is any real improvement in Uptown
anon, the tiered indices are only available for SFH.
Best I can tell, CS just uses the Metropolitan Division, not the entire Chicago CMSA (Consolidated Metropolitan Statistical Area) of Chicago-Naperville-Joliet-Gary, IL-IN-WI.
They could have used the PMSA (Primary Metropolitan Statistical Area) that includes Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will.
Instead they use the Chicago-Naperville-Joliet, IL Metropolitan Division. It excludes the Gary, IN Metropolitan Division consisting of the Indiana Counties of Lake, Porter, Newton & Jasper, and the Lake County-Kenosha County, IL-WI Metropolitan Division.
I always see these different terms applied incorrectly and have the bad habit of trying to determine wtf someone means. I think the CMSA/PMSA/MSA terms are from the census, but the Metro Divisons are used by the BLS.
G:
Unless they’ve changed it in the last few months, CS-Chicago does NOT include Lake County, Illinois. Which seems absurd.
And, sub-190k SFHs? Of course they’ve bounced back better. That’s the wheelhouse for $8k DP (thx Unkie Sam) buyers.
i have said it before (we have discussed it b4 too) not including Lake County, IL in the CS numbers names them less worthwhile. It should probably include lake in IN too. considering the impact of these counties on the Chicago area, they shouldn’t be discounted.
the condo market will soon bifurcate and demonstrate many s/d issue related to that market. Distinct from SFH/2flats which have been depressed for sometime now. I am surprised condos could hold out this long.
anon – don’t buy the bear garbage, the sub 190K market is improving because of fundamentals(cash flow/rent equiv.) more so than 8k, 8K only can fix-up so much with houses in the
“the sub 190K market is improving because of fundamentals(cash flow/rent equiv.)”
Well, that’s thanks to the Fed intervention, too.
Are the sorts of SFHs that sell for under $200k really renting for $1800-2k/mo? I certainly think that it’s probably worth a 10-15% premium to own and have the certainty (if you have kids), but that’s diff from CF and EqR.
How are those fundamentals improving while rents are declining?
The low end consists primarily of first time buyers who are sold on the combo of dough4dumps and low interest rates, and speculators.
“Unless they’ve changed it in the last few months, CS-Chicago does NOT include Lake County, Illinois. Which seems absurd.”
Isn’t that what I said?
Instead they use the Chicago-Naperville-Joliet, IL Metropolitan Division. It excludes the Gary, IN Metropolitan Division consisting of the Indiana Counties of Lake, Porter, Newton & Jasper, and the Lake County-Kenosha County, IL-WI Metropolitan Division.
I agree it is not ideal.
ex, in–guess it makes a difference. Too many words, G, “Dunno. It doesn’t make sense to me either.” would have been easier to read.
whether its private investor (through fed) or fed directly its been this way for awhile. I am not saying this won’t have an impact just not the way your indicating because I feel your undervaluing the counter-cyclical nature of human emotions; true financial floors such as replacement costs, cash flow, and that there are people with tons of money, the uber-rich, whos wealth/share of wealth increase increadabily over the last 2 decades.
I would argue rents are not as elastic as your purporting. They can go down only so much b4 other profitable way to use the space come-up.
* yeah I think a flats/sfh not updated would and could be sustained at 200K, because rents would be between 900-1.2K (these are the places HD rents). for a 2/1-2/2 per floor; bonus money for those with basmt rentals.
(if anything the 8K make up for the ownership premium.)
200K places, will cash-flow. I could come up with a handful per each 3 month time period, provided inventory refreshes.
thats why the condo market will take longer to recover because they are cash-flow intensive, need a larger operating block, to be profitable as an investment, etc. a block of studio apts would work(50-75K) but then you’d have to negotiate rents with bob.
“I would argue rents are not as elastic as your purporting. They can go down only so much b4 other profitable way to use the space come-up.”
Other uses for apartments? Do tell.
“Other uses for apartments? Do tell.”
Cannabis growing operations?
“a block of studio apts would work(50-75K) but then you’d have to negotiate rents with bob.”
You’ve actually piqued my interest. Yes it is true I am at the low end and drive a hard bargain. But I know I would be even at any segment of the market.
Which leads to the question: would low end or higher end renters drive a harder bargain? I would be inclined to think low end too but then I think of the other people that live in my building and I’m not so sure. Most people in my building are working class younger people who really don’t surf CL to get the best deal.
Whereas someone wanting to rent a luxury house for $3k might try to negotiate down to $2.5k.
No doubt though that being a landlord of the lower segment is likely much more labor intensive than the higher segment (in revenue per renter). As a single renter or couple that can afford a $2,500 rental its my guess is much less likely to beat the place up than people like me and my neighbors in my building who beat the place up.
“yeah I think a flats/sfh not updated would and could be sustained at 200K,”
Oh, so you’re talking about the hypothetical future of fringe-ish but okay-ish northside areas? Sure. I might put it a little higher, assuming structural integrity.
I was asking about the places that are *actually* setting the CS low tier numbers–>which excludes multi-units and is primarily south ‘burban and/or far from metra lines. Are people who live out in those places actually paying rent that provides for 7+% caps on $200k properties?
““It’s one of very few parcels left available on the lakefront in the best of the North Side neighborhoods.””
LOL WHAT!
Marty Paris = crackhead
anon, it happening now ( or close to it) that why I am hesitant to say it will get much worst.
I am not much for far ex-urban, suburban end of the track metra places as these will be the new ghetto. I doubt they will worth more than 150K, doubt they would be worth more unless you get acres of land. But farming/meth operations would push the cap rates back up
since commercial realesate is tied up in its own shenanigans – you will see some residential to commercial conversions when prices get lower and = rental rate for commercial spaces.
Other uses will happen as owner search for better returns, I have mine ready to go.
for each state that legalizes pot, you could get upto 1% of the RE in that state tied up with that industry. commercial,farm, and urban operations.
“Don’t you mostly sell condos? The 11/09 seasonally adjusted condo index for Chicago declined 1.6% from 10/09 and has set a new bottom for this ongoing correction at 134.46 (0.6% below 4/09.) The non-seasonally adjusted condo index declined 1.8% from 10/09 and is now only 1.2% over the 4/09 bottom.”
The term “sell” always makes me uncomfortable. I’m not selling when I work with buyers…but I digress…No, I work with all property types but your point is still well taken because most of Chicago’s housing stock is condos. Unfortunately, there just isn’t the history for condos that there is for SFHs and so you can’t determine a trendline, which I believe is crucial for determining how much downside is left. But you are correct that condos do not seem to have hit a bottom.
Gary, How many of your condo buyers understand that your declarations (on your website, here, Chicago RE Daily, etc) do not actually apply to them?
You continuously herald that the bottom is behind us, according to your “trendline” analysis, yet the applicable data for most of your clients already proves you wrong.
I am glad to see you acknowledge this now, but you failed to mention that distinction before here or in comments elsewhere.
Will we now see your comments everywhere stating that the condo bottom is not in?
If this guy can pull it off, kudos to him. I think it’s a great idea. Uptown needs some commercial development. And not the Wilson Yards kind. This project sounds promising, at least at this point and on paper. You can only work within the system, including Schiller, who is infamous for her anti-development attitude of this neighborhood. I understand her point of view on keeping the area affordable for long-time residents, but Uptown could use a shot of adrenaline.
G,
What you are going to see is further analysis. Stay tuned until I can get my head above water. Very busy right now.
I would be surprised if condos are that far from a bottom but stay tuned.
$/sqft has risen in my building since I purchased, I hope it keeps up
LOL. That dead cat really bounced with well over a trillion dollars of stimulus.
A trillion dollars basically flushed down the toilet to be repaid by us when we are all old.