posted by chicago pop
One of the biggest positive transformations in Hyde Park has been happening mostly under the radar for about 6 years now.
It hasn't involved the construction of new buildings. It hasn't involved Federal grants, City tax breaks, bailouts from the University of Chicago, or neighborhood activists laying down the law.
Most of the improvements we're talking about have been behind locked doors, in the form of new kitchens, modernized wiring, newly lit stairwells, central air, and restored historical and architectural details.
Since acquiring its first rental property in Hyde Park, MAC Property Management has sunk a whopping $200,000,000 in construction costs to renovate, restore, and add to the inventory of rental units to the neighborhood. This is all apart from the two projects slated by Antheus Capital, the private equity firm and parent company of MAC, at the Solstice location and at Village Center.
In Hyde Park, the result has been a net addition of 400 rental units since 2002, ranging from one bedrooms at $900/month to 2 bedrooms at $1,400/month, depending on the size and location. On average, this represents a rent increase of $300-500/month at a range of properties, many of which had deteriorated for decades under the former ownership of K&G Building Management.
MAC Director of Community Development Peter Cassel, who took us on a walking tour of MAC's walk-up and high-rise properties, emphasized that when MAC acquired rental properties along Cottage Grove, Drexel, or the historical art deco Blackwood tower on East 52nd Street, many of the units were uninhabitable.
In the long-forlorn northwest corner of Hyde Park, where MAC's current activity is conspicuous, a few examples stand out. At the Drexel Grand (5220 S. Drexel) only 30 of the 64 units were occupied when MAC acquired the property. The gas had been disconnected to the entire building, and the previous owner had distributed microwaves to all the tenants as a substitute for gas stoves.
Shortly after MAC acquired The Blackwood (5220 S. Blackstone) the 15 story deco tower completed in 1930, the company was contacted by the FBI and informed that 59 of the building's residents were suspected of involvement in the drug trade.
Primarily for this reason, according to Cassel, the building was half-empty. Similar dynamics are playing out on Ingleside, Drexel, and Maryland, where MAC is renovating historic buildings in an area that for decades had been viewed as a lost cause by both the University and the Chicago Police.
On Cottage Grove, MAC is is building on the favorable geography of West Hyde Park. A cluster of 3-story walk-ups face Washington Park, offer secure parking, and direct access to CTA Cottage Grove and Garfield Lines for workers commuting to the South Loop or downtown. For medical technicians and others employed at the U of C Medical Center -- a major target for the new rental units -- work is just steps away.
Since the Second World War and the subsequent 60 year boom in suburban development, the market in residential real estate has operated on short time horizons. Malls, residential subdevelopments, and the familiar landscapes of suburbia were investments expected to generate returns within a 5 to 10 year period. For this reason, they were built quickly and cheaply. Decades later, it shows.
It wasn't always this way. Many of the greatest achievements of American urban building date to the pre-WWII period, when real estate was a long-term asset class, something expected to garner value over a period of several decades.
In many ways, MAC -- a private equity firm that is also investing heavily in other historic, inner city neighborhoods (such as another Hyde Park, in Kansas City, Missouri) -- represents a return to this older model of real estate investing.
One of the up sides of this model is that, relieved of the pressure to report quarterly earnings growth to anxious Wall Street investors, a company like MAC can take its time to realize a return.
In MAC's case, that horizon is about 15 or 20 years down the road. Until then, MAC's financial bets are tied in part to the success of its rental portfolio, the market for which has already responded favorably throughout the neighborhood. MAC won't be flipping these properties anytime soon.
The down side is that this activity may add to the pressure for low-rent, off campus student accommodation as much as the boom for condo conversion did. K&G answered that need for many years, and it's not clear that it was good for the neighborhood as a whole.
The University and Divisions may need to take the higher rents into account when they formulate admissions and funding packages for graduate students, the biggest segment of student renters. And MAC, which has clearly gotten very big, very fast, needs to stay on top of its work orders and customer service, both of which have generated many complaints from student renters.
For the University, spending more for housing allowances to float fewer students through graduate school may ultimately be a better deal than paying for a police force to protect them in the slum conditions that have historically housed them.
Until then, MAC is rounding out the housing market for working professionals, and we're starting to see the results.