Cautious Optimism Leads Area Builders Inside
By: Ronald Roenigk November 28, 2000
Local developers and real estate experts are cautiously optimistic about the future after a banner year, which saw over
5,500 new residential units sold city-wide in 2000.
A standing room only crowd listened intently Thursday as a panel of experts examined the state of the local real estate
market at the 12th annual Real Estate Forum presented by the Lincoln Park Builders Club of Chicago at Germainia Place,
108 W. Germania Pl.
The panel was generally optimistic and felt that the city’s economy was quite healthy, and that as long as job growth
remained strong, demand for housing will as well. The news for those locals looking to rent property, though, wasn’t as
rosy as dramatic rent increases on Chicago’s north side may be in the offing.
The panel, moderated by Mark B. Weiss, included Robert J. Buford, president of Planned Realty Group; Charles
Huzenis, president of Jameson Realty Group; Keith Edward Lord, president of The Lord Companies, L.L.L.; Mary B.
Richardson-Lowry, commissioner, Chicago Department of Buildings; Faye Pantazelos, president of New Century Bank;
and Ronald Shipka, president of The Enterprise Group.
STOP THE PRESSES: In his introduction Weiss noted that “not a day goes by when Chicago real estate is not in the
news,” pointing to reports in that’s day’s newspaper regarding the conversion to condos of the Palmolive Building on
North Michigan Ave., and to a recent front page report on the Sunday New York Times about Chicago’s real estate
Some industry professionals are concerned that there may be over an over-supply in the residential market now which,
should the economy slow, would have trouble being absorbed. “The wild card is that we don’t know where the hell the
economy is going,” said Huzens. “We will probable have the same amount of supply hitting the market this year as last
and if we’re still in a boom then demand will remain good; if we’re in a slowdown then we’re headed for an-oversupply.”
TOO MUCH SPECULATION: One of the wild cards is the amount of speculation which is in play now in the residential
market. Of the wild cards is the amount of speculation which is in play now in the residential market. Of the 5,500 new
units put on the market last year, some 1,300 were bought by speculators and investment groups who are now re-selling
the units in hopes of turning a profit from the pre-construction prices that most bought them for.
This relatively new industry of residential investor-speculators has raised the eyebrows pf bankers who share concerns
over projects which may have larger numbers of investor speculators than buyers actually interested in inhabiting their
properties. “If anything has changed in the last year in lending it’s that we’re looking for greater guarantees,” said
Pantazelos, herself a home-grown star in local banking. “we’re concerned with over-building in high-rise construction and
some investors may now be having trouble finding buyers who will pay higher prices.”
“Some banks are now asking developers to limit investor groups to insure the viability of a project,” she said. “Banks are
getting more conservative and not giving as much credit. They are looking for more sophistication and that may further
dampen the market a bit and slow the pace of price escalation. This should also help the market absorb some of the new
product and level prices … that’s good news for us.”
RENTS ON THE RISE: With regards to rental properties, Robert Buford is expecting rents on Chicago’s North Side to
rise dramatically in the next two to four years. “Real estate taxes are the greatest and most volatile factor. We’ve seen
tax assessments rise 25 to 80 percent during this last round of re-assessments and fuel and heating costs are up nearly
100 percent. These are the biggest risk factors and it will drive rents up dramatically,” he said.
“The demand for rental property is growing in the city and suburbs, but in the city the demand is the greatest I’ve ever
seen,” said Buford. “I expect over the next couple years demand will stay high as long as there is good job growth.”
Buford did say that if there is an economic downturn next year, some of the downtown condo projects will be converted
to rentals as there won’t be customers there to absorb them. “Vacancy rates in some North Side communities are now
below one percent and this is not healthy … they should be closer to three percent,” he said. “This is a function of price
and it appears that the rental rates now are too low. There are a number of factors shrinking the good opportunities that
we saw during the last five years,” he said.
SELL THE STORE: Keith Edward Lord explained that 80 percent of the projects being built ion arterial streets are
mixed use projects with commercial first floors topped by condos. “Retail components are now becoming the profit
centers of projects,” he said. “If you want quality retail tenants you had better design your project to their very specific
needs to accommodate their own risk factors and design requirements.”
“Unfortunately may projects’ designs are driven by the residential component and in the process you destroy what makes
your project desirable for a retail tenant,” says Lord. Pantazelos also added that many banks will not finance retail
projects now without a signed lease for the retail space, and Lord suggests that the developers get a retail consultant on
board early with any mixed-use project.
“Chicago now has the highest grossing Target store, Home Depot and Starbuck on their respective chains,” says Lord.
“It’s very difficult to backfill retail and retail is now coming back big in the city. Many retailers are now scrambling to get
into Rogers Park and Uptown before the prices get too high,” he said.
Ron Shipka pointed to one of his projects a School St. and Ashland Ave. where a Service Merchandise store vacated a
poorly designed retail space leaving him with 65,000 sq. ft. of space which sat vacant for 15 months before it started
providing cash flow again. “Those were very painful checks to writ every month.”
BETTER BE BETTER: Shipka also called for his colleagues to always be looking for ways to improve their business.
“We have a saying: ‘It better be better.’ If you haven’t changed the way you do business in the last 12 months then you’
re probably less profitable now. We’ve change the entire way we do business… for instance, we’re no longer building
townhouses as the cost are now upward of $400,000 a unit. Who’s going to buy them?” he asked.
“I watch our projects on a day-to-day basis and visit one of them every week,” said Shipka. “Don’t be afraid of change
and don’t look back, someone may be catching up on you. But Chicago is till one heck of a place to do business.”
DOT COM CRUMBLE: Responding to deflation of the high tech industries this year, Lord said there is a significant
change in the market now. “There is over 800,000 sq. ft. of commercial space for dot com companies which were to be
occupied by Jan. of 2001 which have fallen apart. But Chicago is well positioned to ride out the storm due to all the great
college in the region which keep producing a steady stream of 21-year old high tech workers,” he said.
I PREDICT: Each year the panel is asked to predict the next hot new neighborhood.
Mary Richardson-Lowry says it seems that every neighborhood is hot but that “those close to the Loop will run strongest
due to its location near the business center. As far as residential convergence, the 32nd Ward now has the most activity.”
Charles Huzenis feels that the Fulton District, River East, University Village and Maxwell St are “great opportunities,
again due to their location near big employers.”
Robert Buford warns buyers to “look for areas which will suffer the least in an economic downturn, stable area where the
downside is lessened and desirability would remain strong” like Near South Side, Lincoln Park and Lakeview.
Keith Edward Lord sees the Loop, Sate St., Wabash Ave. and financial districts and the properties which ring them as
strong “if you need to be there within walking distance.”