'You Need To Be Tracking Those Yesterday': Planning More Critical Than Ever For New Chicago Projects

Time flies when you’re having fun — and it flies even faster when you’re not.

Up against projections that just 3 in 10 announced Chicago projects will go forward in the next two years, developers need to get their ducks in a row and keep them waddling along to succeed amid a tough mix of rising interest rates, declining access to capital, slow permitting and a new city government still feeling its way.

That starts with figuring out where the money is going to come from. But it extends through planning and permitting, and keeping even closer tabs than usual on timelines, panelists said at Bisnow’s Chicago Major Projects Update event, held last month at the Hyatt Centric Chicago Magnificent Mile.

“The development pipeline that's currently in the works, the announced projects, I've heard that probably only 30% of [them] will go forward in the next two years and that's because of several factors that lead to the headwinds, primarily interest rates,” Structured Development founding principal J. Michael Drew said at the event. “Our cost of funds are three times today what they were a year or two, two and a half years ago.”

Lenders are still lending, said Regina Stilp, founding principal of Farpoint Development, which is leading the $4B Bronzeville Lakefront megadevelopment and building a new Chicago Transit Authority control and training center in Garfield Park. But they are being more discriminating and demanding more equity, especially when it comes to Chicago, where borrowers need to tell a story and sell “basis, basis, basis” and “location, location, location.”

Stilp said the new Brandon Johnson administration understands the importance of helping tell that story to get cranes in the sky and dollars flowing to restaurants, small businesses and workers. But against a backdrop of more buildings going back to banks and crashing values, it is a challenge.

“These are huge corrections that are not a 10 or 15% haircuts, these are 75%. These are significant haircuts,” she said. ”But I think that Chicago has so much to offer and it always has a great story. It's a comeback story.”

Right now, even projects with millions in inherent equity, like Woodlawn Central, an $895M mixed-use project spanning 8 acres in Chicago’s Woodlawn neighborhood, are staring down challenges and enlisting consultants to cast a wide net for investor interest in what lead developer J. Byron Brazier called “a grassroots process.” The project will be anchored by the Apostolic Church of God, where Dr. Byron T. Brazier, Brazier's father, serves as pastor.

The project has attracted public and private funding, but some banks and investors have been wary about plunking down capital in a neighborhood without a long track record of self-sustainability, he said. 

“Even with all the equity that you have, all the grants that you have, all the millions of dollars that you've stacked, they're really still not interested to give you more than maybe a couple million dollars, which really doesn't go far. I mean, that's your [architecture and engineering] team right there,” Brazier said, adding the project also needs funds for public relations, neighborhood engagement and other pre-development costs. 

“If you can't get a bank, or if you can't get a private investor, to at least start the conversation there, then it becomes even more difficult to actually make all of those things happen in the same timeline that you want it to happen,” he said. “So this 10-year project now turns into a 20-year project, and nobody wants to do a 20-year project.”

One thing Woodlawn Central does have going for it in a major way is community buy-in, Brazier said, calling it a project of “faith over function.” Poised to be a catalyst for urban regeneration in Woodlawn, the project calls for 870 homes ranging from affordable workforce options to market-rate, luxury and senior housing, a 154-room hotel, a black box theater, a vertical greenhouse and a microgrid energy facility.

“Our approach to this is yes, we want to build pretty buildings and we're gonna build pretty buildings,” he said. “But we also want to build people as well.”

Amid all the other headwinds developers are facing, the last one they need to battle is community opposition, Stilp said. It’s important to remember the city is a collection of nearly 80 neighborhoods and be prepared to adjust bold visions — the approach Farpoint took in Bronzeville.

Dealing with infrastructure — roads, transit, bridges, utilities and the like — early in project planning is also key to keeping projects on track in a harsher development environment, F.H. Paschen Senior Vice President Dave Alexander said. Infrastructure lead times are extremely long, especially when Metra is involved, as is the case at three megadevelopments, Lincoln Yards, One Central and The 78. Agreements alone can take several years and design procurement can double that.

And costs are rising. 

“The state of Illinois is in the middle of a six-year $45B infrastructure spend because our federal government has put a trillion dollar infrastructure bill out there,” Alexander said. “Now there's a lot of money being put into infrastructure, and there's a limited group of contractors, architects and engineers that design and build it. And so, with supply and demand, those are costs I would not expect to come down anytime soon.”

Budgeting time for permits is another slog, according to McCormick Compliance Consulting founder and CEO Casey McCormick, who said the typical project requires 50 approvals.

“You need to be tracking those probably yesterday, and in every case,” he said.

That has become trickier than in the past due to a multiyear effort to modernize Chicago’s construction code, according to Great Cities Institute Director Teresa Cordova, who worries smaller firms that are unable to hire consultants could struggle to keep up. She is advocating for a matrix or template to help guide small developers through the process more seamlessly and keep projects on track.

Knickpoint Ventures Creative Director Sheilah Carroll said it took 11 months for The Fields, the city’s first purpose-built and largest film production complex, to get all of its approvals and permitting in order. Structured Development’s Wendelin Heights, a 27-story mixed-use tower on the Near North Side, faced similar challenges on the way to what Drew called his “eight-year overnight success.”

“Time is money. And I'm not exaggerating,” he said. “We've been on that project for eight years, much of it, the pre-approval, the submission, going through planning, going through the Department of Housing, going through neighborhood groups.”

In an email to Bisnow, Chicago Department of Buildings Commissioner Matthew Beaudet said The Fields three building permits took between 82 and 140 days from application to permit issuance. For Wendelin Park, that time frame was between 64 and 98 days, he said.

MAP Strategies founder and CEO Heather Morrison said Chicago needs an ombudsman to oversee departments involved in the permitting process and act as a sort of concierge service for project managers, especially given the revenue they generate for the city.

“Whether it's affordable housing, whether it's large developments, we in the private sector need to speak up and be partners with our city friends,” Morrison said. “They are very talented people and they just don't have the resources, they're working on a shoestring to make all this happen. Innovation and communication and engagement with our partners at the city is what we need to be doing.”

Panelists were hopeful those are the kinds of ideas Johnson will embrace as his administration takes shape. So far, the consensus is the Johnson administration has been saying all the right things, though it has been slow to name commissioners and some high-level proposals still lack specifics the real estate community needs to plan for the future.

“The challenge is getting the communication out to the market,” Drew said. “You know, it's only been six months that the new administration has been in, but there's still a lot of uncertainty, because while they're getting their footing, there's uncertainty in the marketplace. And when I say that uncertainty, with institutional money. It's capital markets. They don't know what the message is.” 

UPDATE, AUG. 3, 3:32 P.M. CT: This story has been updated to include information provided by Chicago Department of Buildings Commissioner Matthew Beaudet.