Market Conditions: Plans For New Apartments Heat Up But Is It Too Much?
At the height of the condo boom in Chicago, there were developers building buildings of all shapes and sizes who only several years before were in a completely different profession and who has little experience in the real estate industry.
Is speculation ramping up again?
Crain’s reports on the surge of plans for new apartment buildings in the GreenZone:
Two more developers are joining in the fun, one who wants to build a 15-story, 198-unit apartment building in the West Loop and another who plans a 16-story, 240-unit project in River West and a 51-unit building in River North. They are getting in on a development boom that’s expected to add about 4,700 apartments to the downtown market by the end of 2014, and possibly many more after that.
The question is whether construction lenders will let the party get out of control — like they did during the condominium boom — or whether they’ll take away the taps at the right time. Many apartment developers and investors continue to express faith in the ability of lenders to stay disciplined, financing only the most worthy projects and preventing a potential glut.
“Even if we’re not concerned, the lenders are concerned,” said Jay Javors, president of Midwest Property Group Ltd., a Chicago developer.
But there are some new players on the scene who have little to no history of building apartment or condo buildings in the city.
Dan Moceri, co-founder and CEO of Convergint Technologies LLC, a Schaumburg-based firm that specializes in security and fire systems integration and was ranked 37th on the Crain’s 2012 list of the 50 fastest-growing Chicago-area companies.
Last fall, KRG Capital Partners, a Denver-based private-equity firm, invested an undisclosed sum in Convergint, presumably freeing up money for Mr. Moceri to plow into other investments.
A venture led by Mr. Moceri agreed to buy a property at 601 W. Jackson Blvd. in the West Loop, with plans to build a 198-unit apartment building there, according to a source familiar with his plans. Mr. Moceri was traveling Tuesday and not available for comment.
Developers of some apartment buildings also seem willing to convert them into condos if the condo market were to heat up more than it has.
Developers have flocked to apartments as rising rents, occupancies and property values offer the potential for tantalizing investment returns relative to other assets. But the condo market is coming back, too, and Mr. Breheny has designed his projects with the option of converting them to condos if that makes sense, either before or after they are finished.
“Everything we’re building, we’re building with that in mind,” he said. “It could go either way.”
Is the apartment building frenzy sending up red flags?
Building bash: More developers plan downtown apartments [Crain’s Chicago Business, Alby Gallun, February 6, 2013]
fixed it for you.
“there were developers building buildings of all shapes and sizes who only several years before were in a completely different profession and who has little experience in the real estate industry, but they quickly learned how to cut corners and short change buyers with ticking time bomb construction issues in no time.”
How does having a mixed use (rental/condo) building affect mortgage underwriting? I personally would never want to buy in a place that rented a bunch of units. I wonder how long until rents in high rises in 2nd tier areas free fall.
I would love a 12 story building at 707 n wells… that space has been vacant for a while. (See helmet, its starting to boom there!) Hopefully while they are at it they buy out that horrible Howard Johnson hotel on the corner and build over that too. That thing is sooo nasty, all the hobos from the catholic charities a block over seem to use it as their garbage dump or bathroom
It has been throwing red flags up for me for awhile. Everyone wants to build apartment buildings everywhere, but where are all these renters coming from and how will they afford the rents asked?
I wonder what the long term consequences of gentrifying the middle class out of the loop and near north/south/west sides will be.
I don’t believe the middle class ever lived in the loop/nearnorth sides
south loop, yes, but I’d say it has improved drastically over the crime ridden shithole it used to be, same with the near west as well, you can now walk all the way to the loop from the United Center without fear of getting mugged or shot. I’d say that is a drastic improvement.
“I don’t believe the middle class ever lived in the loop/nearnorth sides”
What do you mean? Lakeview and North Center were completely middle class until the turn of the century. Lakeview in the 1980s was a dump. Totally working and/or middle class. North center was a bunch of crappy bungalows. It’s only in the last 10 years that they started building $2 million homes in these neighborhoods.
“What do you mean? Lakeview and North Center”
In what way are LV and NC the “near north side”? Doesn’t the NNS stop at North Ave?
“It has been throwing red flags up for me for awhile. Everyone wants to build apartment buildings everywhere, but where are all these renters coming from and how will they afford the rents asked?”
There aren’t enough people to pay these rents without rents coming down for all these unbuilt buildings. I usually question the information coming from ARC about vacancy rates and rents, because they are on the developers side.
yeah I was referring to the actual near northside neighborhood, which does stop at North Avenue and aside from housing projects, IIRC never has been ‘middle class’ and was always upper class to ‘rich’
and yeah, I don’t count what it was like before the frickin Chicago fire or World war 2
“actual near northside neighborhood, which does stop at North Avenue and aside from housing projects, IIRC never has been ‘middle class’ and was always upper class to ‘rich’”
There’s the middle class of the near north side, just like there’s groove middle class contingent on living in teh city. Groove, what does it take to be MC in NNS?
It’s not like there’s a huge group of people ready to move to Chicago so most likely these rents will have to come down. I never was a fan of high-rise living but even those who like to live in them will find that there are many choice. River North will probably not come down as much… but definitely River West, South Lp, and West Lp.
river north was sketchy for a long while. maybe it jumped from skid row to fancy pants but it definitely wasnt always nice/expensive.
in the late 80s a girlfriend told me it was the soho of chicago and people were going to call it rono.
“It’s not like there’s a huge group of people ready to move to Chicago so most likely these rents will have to come down”
what about current people who live in Chicago and don’t want to pay the same luxury prices for ‘vintage 80’s’ quality apartments
When I was an art student in the 80s who sometimes visited the galleries of River North, some people were starting to call it Suhu (for Superior/Huron).