Developers Say Stop Kicking The Can
Multifamily demographics and absorption are strong, according to the developer panel at Bisnow’s Chicago Multifamily Summit on Tuesday. But the city and state can’t keep kicking the can of massive debt and pension holes down the road, or this market boom could be benched too soon, they say. (Plus our kids are going to be pretty angry when they're old enough to realize what we did.) Chicago’s proposal to mandate 10% affordable housing in all projects on rezoned or upzoned land is also a concern, panelists said, and it would make many projects on the drawing board not financeable. CohnReznick partner Jason Burian moderated.
Since opening in October, Hubbard Place is 62% leased and 49% occupied, well ahead of projections, says The Habitat Co president and CEO Mark Segal. While current rent-to-income ratios give developers more room to increase rents, there’s a built-in affordability not being considered, he says. With the latest amenity packages and well-located developments, residents can cut expenses like joining a gym or buying a car and reallocate those dollars to housing. Failure to appropriately address the state’s and city’s fiscal issues could chill the market’s development and job growth, he tells us.
There might be doom and gloom on the horizon, but nobody’s going out of business tomorrow, Magellan Properties co-CEO Jim Loewenberg jokes. (Since he made these comments Tuesday and none of us went out of business Wednesday, he's technically right.) Developers will need to adapt to the new paradigm, though, which includes an older renter profile. To innovate and capture new segments of the market with more affordable chunk rents, Magellan has new unit types in the pipeline. It will shrink one-bedrooms and studios (to 600 SF and 450 SF, respectively) and add more high-demand three-bedrooms than the customary few at the top of a project. One $10,000/month unit recently rented in two days after a tenant vacated, Jim says.
After a romantic breakfast Tuesday morning, Fifield Cos’ Steve and Randy Fifield celebrated their 22nd anniversary with the Bisnow family. (It's the copper anniversary so we left some pennies on the ground and hoped they found them.) Rising construction costs have become a major issue for developers, Steve notes, especially in markets like Denver and LA. A positive trend: married couples with a child aren’t jumping to the suburbs as quickly, instead choosing neighborhoods like Lincoln Park and Bucktown thanks to the downtown boom’s tentacles.
Development will likely slow because of real estate tax uncertainty, but Chicago’s image as a global tech-forward city with strong leadership should do great things for jobs and absorption, AMLI CEO Greg Mutz says. Fun fact: AMLI River North just got a new famous renter, Chicago Bull Taj Gibson. (With its 9.5’ ceilings, he’ll probably be everyone’s first pick to change light bulbs.) Ceilings are something AMLI gets paid for, Greg has noticed, and the firm is now shooting for at least 9’ across the country, with a number of new developments going 9.5’, 10’, and higher. AMLI will soon start pre-leasing at AMLI Lofts in the South Loop, where units average 816 SF with 10’ ceilings and $2.50/SF rents. More pics from the event here.
