Downtown Chicago’s Future Hinges On Adaptive Reuse, But Developers Say City Is Moving Too Slowly

The present and future of Chicago's downtown office buildings is adaptive reuse — that is, if developers are able to overcome the infrastructure and political challenges throwing a wrench in conversion plans. 

If done right, office-to-residential conversions are a potential solution to address the oversupply of downtown office space and the need for more housing in the city, panelists said at Bisnow's Chicago State of the Market event Thursday.

But some on the stage at One East Wacker were frustrated with the financial and logistical complexities that come with these ambitious reuse efforts, as well as the city's slow pace in helping fund the projects.

"What if you had cancer? You had cancer that could be curable ... and then you were told, 'OK, we're going to start three years from now to fix it,'" Vanderbilt Office Properties CEO Casey Wold said. "How would that feel? That's what's happening."

Chicago has the fourth-most planned office-to-apartment conversions in the U.S. this year, behind only Washington, D.C., New York City and Dallas, according to a RentCafe report from February. Chicago developers are set to bring 2,822 new apartments to the market via adaptive reuse of old office space.

To help that along, Mayor Brandon Johnson in April pledged just over $151M in city tax increment financing to aid developers planning to transform four struggling office buildings into apartments as part of the LaSalle Street Reimagined program. The initiative, which former Mayor Lori Lightfoot launched in September 2022, would convert four aging office buildings into 1,000 housing units.

The proposed conversions on LaSalle Street are: 

• 111 W. Monroe St., a $203M project that would deliver 345 apartments developed by The Prime Group and Capri Investment Group.
• 79 W. Monroe St., a $64.2M project that would create 117 units developed by Campari Group.
• 30 N. LaSalle St., a $130.2M project that would deliver 349 units developed by Golub & Co.
• 208 S. LaSalle St., a $203M project that would create 226 units developed by The Prime Group.

"The theme downtown for the next five to 10 years is going to be adaptive reuse," said John Russell, regional president at W.E. O'Neil. 

But Johnson's aid plan is less than the $260M Lightfoot had proposed allocating to five projects. And the pace of disbursement isn't what developers had hoped for.

Wold called the proposed conversions "phenomenal," particularly because of the city's shortage of affordable housing. At the same time, he said, government officials are moving "painfully slowly" to help finance the developments. 

That hurts, since underwriting rents for residential buildings in the Loop looks very different than in other submarkets like Fulton Market and Streeterville, Golub & Co. Managing Principal Lee Golub said.

Typically, when the company is building a new apartment building, it's able to underwrite the highest rents, he said. 

Golub can't underwrite those kinds of rents when doing conversions in the Loop. As a result, making a deal work financially is hard because even though the cost of conversion isn't equal to the cost of new construction, it's still high, he said.

"Trying to make these deals pencil is very, very difficult," Golub said. "Besides the architecture, the layout, the financial part of it makes it very, very difficult."

The best buildings to convert are older buildings built around the turn of the century, said Susan Tjarksen, managing director at Cushman & Wakefield. The reason: Most are rectangular with setbacks from the street, meaning developers are able to more efficiently convert the floor plates for a new use, she said.

Floor plates over 25K SF, particularly if they are square, are hard to convert, Tjarksen said.

"It's a misnomer to say that you can adaptively reuse, in general, most office buildings to be residential," she said. "That's not the case."