Not Everyone Agrees Affordable Housing Is The Answer To LaSalle Street's Woes — Even Those Lining Up To Bring It

With LaSalle Street facing an office vacancy rate of more than 25%, the highest in Chicago, developers agree the office-dense neighborhood is in urgent need of a remake.

But whether affordable housing-heavy development is the solution is a matter of some debate, even among the five developers vying to participate in outgoing Mayor Lori Lightfoot's signature LaSalle Street Reimagined initiative that was unveiled last year. 

“I think hotels make more sense than affordable housing by a long shot,” said Mike Reschke, chairman and CEO of The Prime Group. “Hotels bring in a tremendous economic revenue to the city.”

The Prime Group has two projects on the city's shortlist of candidates for millions in potential tax increment financing and other incentives: a new hotel and housing project that would bring about 350 apartment units to 111 West Monroe St. and a 280-unit development at 208 South LaSalle St. that would offer residents access to amenities at two existing hotels in the building.

Both projects would set aside 30% of units as affordable, a key requirement of Lightfoot's plan, which she called the city's "once-in-a-lifetime opportunity to create an economic model based on inclusive growth.”

But while there is a consensus the aging offices need to be repurposed and more housing is needed in the district, especially to serve the 2,500 Google employees that will be moving to the Thompson Center by 2026, some say the city might be better served looking at market-rate apartments and hotel projects. 

“We're not even getting any public subsidy for the hotel component at 111 West Monroe," Reschke said. "Yet the hotel component brings in $5M of tax revenue every year and takes nothing back from the city or state, versus the affordable housing produces a nominal amount of real estate taxes."

Reschke isn't alone. At a Bisnow event late last year, North Wells Capital co-founder and CEO James Fox said the LaSalle Street plan was great in theory but advised allowing the free market to decide how to repurpose the corridor's more than 5M SF of mostly empty office space.

“Let the developers figure out what's best,” he said. “I do think some of those buildings are so functionally obsolete — the giant floor plates, the light corridors, you know, frankly, suck because they're building-to-building. … The smaller [buildings] probably can be adapted to multifamily, hotel or other uses, but the big ones, some of those are in real trouble.”

The city is considering six proposals, down from nine selected in the first round, and will narrow the list to three by the end of March. Those projects will move forward with funding assistance from the city.

When Lightfoot announced her plan, she said the goal of the initiative was to add more than 1,000 residential units to the area by incentivizing developers to repurpose historical buildings along the corridor, with at least 300 of those units set aside as affordable for households earning up to 60% of the area's median income, or $43.8K for one person and $62.6K for a family of four.

Developers were also tasked with including spaces for cultural and entertainment uses and attracting amenities like grocery stores and homegrown restaurants.

“LaSalle Reimagined is seeking to make the heart of the Loop more resilient and dynamic on behalf of the entire city,” Maurice Cox, commissioner of the Chicago Department of Planning and Development, said during a community meeting about the proposals on March 2. “Also more diverse due to the integration of affordable apartments within each proposal.

“There's currently more than 5M SF of vacant space in corridor buildings that could be repurposed for new uses, along with many underutilized bank halls and lobby spaces that make the street so iconic, unique and full of potential.”

Part of the city's rationale for the initiative is a growing desire to live in the city. Although offices in the area are empty, the Loop has become more populous, with the number of residents growing nearly 10% since the 2020 census. The Loop has become the fastest-growing downtown in the country, according to a residential study by the Chicago Loop Alliance.

Ben Creamer, co-founder of Downtown Apartment Co. and a board member of the Chicago Loop Alliance, said the city's bounce back from the dark days of the pandemic when occupancy fell precipitously has been staggering.

“It was incredible how quickly that it rebounded in the Loop, and there's been quite a bit of new residential construction in the Loop as well,” Creamer said. “Particularly in the last five years, there's been a lot of nice new developments that have come up, and then certainly LaSalle Street as well will further add to that.”

But others have different ideas on what is the best way to spend city dollars and bring business back to the struggling downtown.

Reschke said his firm has been investing in and operating in the LaSalle Street corridor for decades, calling it "a treasure trove of historic landmarks" and unlike any other street in the U.S.

“The request of TIF is, in our case, we thought, modest or reasonable,” he said. “In other cases, TIF requests are huge, and so I just think, from a planning standpoint, how important is it to have affordable housing next to the Federal Reserve Bank? I really don't think it's that important. Is it important to have some market-rate units for people that absolutely want to live in a historic building downtown? Yeah. 

“I think affordable housing, at the end of the day, probably people are better served for it to be in the neighborhoods with less expensive units and larger units for families, where there are schools and parks and light.”

The Prime Group has been converting historic buildings in the LaSalle corridor since 2007, including the JW Marriott Chicago at 151 West Adams St. and the Residence Inn Chicago/Downtown at 11 South LaSalle St. The Prime Group is also developing the nearby Thompson Center for Google.

Reschke said it isn't a question of whether there needs to be housing in the LaSalle corridor but whether to use city funds to bring it about.

“It sounds like, 'Why did you apply?' But we have such a vested interest in LaSalle Street, if there's any new programs on LaSalle Street, we're going to want to participate, just because we have such a huge investment in the street already today,” he said. “It’s important to us that whatever’s on LaSalle Street — whether it's renovation to office, conversion to housing, conversion to hotels — whatever is done, we just want to make sure it's done with quality.”

Some have expressed skepticism about the feasibility of conversions at a number of LaSalle Street properties.

“I think that's going to be very difficult," Gloria Materre, managing director of EnTrust Realty Advisors, told Bisnow late last year, pointing to the cost and red tape involved in retrofitting and converting old buildings given federal and state regulatory guidelines for developing affordable housing.

The better option might be to just tear down some vacant buildings, according to Peak Properties Managing Partner Mike Zucker.

“The reality is that if people aren't going back to the office, maybe some old office buildings should really just come down," Zucker said.

Reschke, however, is bullish on conversions in general.

"I think many buildings downtown Chicago are well-suited for conversion, especially the older buildings that were built before the advent of air conditioning and therefore have a lot of window line and operable windows," he said.

One such property is 105 West Adams St., where Maven Development Group and a partnership between Celadon Partners and Blackwood Group are competing to develop the building.

“It’s really important the city is looking to take a proactive approach in looking at how to repurpose a lot of these office buildings that have, candidly, gone past their highest and best use and still have really, really great locations and the basic shape of the building is really still relevant, but the use is no longer relevant,” Maven Development Group founder and principal Nick Petersen said.

“It takes a creative person and proactive approach to look at something a little bit differently, and given the fact that Chicago is in need of housing, I'm really excited to have the opportunity to maybe help in that whole venture, in getting different housing and repopulate the city, the Loop."

All of the proposals under consideration meet the city’s 30% affordable housing requirement except Celadon Partners and Blackwood Group’s proposal, which exceeds the requirement at 75% affordable housing.

“I would say, why more of the same? We're coming into this with a different perspective," Blackwood Management Group principal Jose Duarte told Bisnow.

"There's an abundance of need of more affordable housing, and why shouldn't there be that accessibility to affordable housing in the downtown area? No. 2, in this environment and in the foreseeable future, if office spaces are going to be shifting and changing and their demand is going to be reduced because of how people work, you have to find that other market to fill in that empty, vacant space that you see downtown.”

The six proposals total more than $1B in development for LaSalle Street, although the actual amount of TIF funding awarded will depend on which projects are selected, beginning a months-long process until construction would begin.

“The initial requests will be refined through the City's underwriting process, which is expected to take several months," Peter Strazzabosco, deputy commissioner for the Chicago Department of Planning and Development, told Bisnow via email. "Final proposed amounts for TIF will be presented to the Community Development Commission and then City Council."

In addition to TIF money, other incentives and assistance, such as Low-Income Housing Tax Credits, are also on the table.

One question that remains so far unanswered is what might happen to the initiative now that Lightfoot has lost her bid for re-election. Neither former Chicago Public Schools CEO Paul Vallas nor Cook County Commissioner Brandon Johnson, who will face off April 4 in a runoff election, have said whether they would take up the mantle. Bisnow emails to both campaigns seeking comment went unanswered as of publication.

The six proposals under consideration are:

• 30 North LaSalle St.: 432 units, 30% affordable, plus ground-floor retail and green space from Golub & Co. and American General Life Insurance Co. 

• 208 South LaSalle St.: 280 units, 30% affordable, plus a dog run, fitness center, tenant lounge and hotel amenity access from UST Prime III Office Owner LLC, an affiliate of The Prime Group Inc.

• 135 South LaSalle St.: 430 units, 30% affordable, with 80K SF of new lobbies, retail, food and beverage, and event and cultural spaces, plus a potential grocer, from Riverside Investment and Development and AmTrust RE.

• 105 West Adams St.: There are two proposals for this building: 423 units, 30% affordable, with a rooftop amenity deck from Maven Development Group; and 247 units, 75% affordable, with a fitness room, roof deck, public food market and coffee shop from Reimagine Adams LP, an affiliate of Celadon Partners and Blackwood Group.

• 111 West Monroe St.: 349 units, 30% affordable, with a new hotel on the lower floors, plus a spa and fitness center, underground parking, and a rooftop pool and restaurant from 111 West Monroe LLC, an affiliate of Prime/Capri Interests LLC.