Sunday, August 3, 2008

MAC & the Hyde Park Rental Revolution


posted by chicago pop



Lobby of The Blackwood Apartments
5200 S. Blackstone

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.

Detail of Grillwork, Blackwood Lobby

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.

New Kitchen (with IKEA cabinets and granite counters) at MAC property 54th & Maryland

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.

Sidewalk Lighting on MAC building at 54th and Maryland

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.

New Com-Ed Poles, Power Boxes, and Wiring at MAC buildings on 54th and Cottage Grove

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.

Failed Condo Conversion in West Hyde Park
(Not a MAC Property)

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.

West Hyde Park's Front Lawn: Washington Park (Renovated MAC buildings on either side of 54th Street and Cottage Grove)

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.

View from 13th Floor of the Algonquin rental property

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.

A Bull of Khorsabad Guards the Blackwood Lobby

24 comments:

Raymond said...

$200 million? Did I read that right? If that's true, frankly, I'm surprised the company has access to that kind of capital. It's good to have deep pockets (and, I'm assuming, a record of success).

Peter Rossi said...

you won't find this sort of news in the Herald.

they would rather report 3 people meeting in East HP to complain about street cleaning or 5 people saying we don't need the DH because of "congestion"

Eric Allix Rogers said...

Wow, $200,000,000. That's amazing! I'm happy that they're seeing this as a long-term investment. They have definitely improved their response to tenant complaints over the last 8 months, too. So overall, they do seem to be a good thing, now that the kinks are mostly worked out.

EdJ said...

As a resident of west Hyde Park I have to say that our part of the neighborhood is much safer since MAC took over the properties around here. I don't know if the neoighborhood can survive all of this action without endless talk, talk, talk.

Greg said...

I haven't heard many complaints about MAC and Antheus in the Herald's letters to the editor in a while. For a week or two there, people were writing in all kinds of deranged conspiracy theories that MAC was planning on taking over Hyde Park, etc. etc.

Zig and Lou said...

As a MAC retail tenant, it has been our experience that they are a forward thinking organization.

Miles said...

They have invested a lot, thats for sure, but MAC still sucks. They have terrible communication, spotty service(both leasing and maintenance), and have driven the already overpriced rents higher.

They've only started though, and i suspect they will get better, but they have a lot to improve.

Seitu said...

Me and my family recently relocated to a rehabbed Mac property in west Hyde Park from the (soon to be rehabbed) Del Prado. Clearly MAC wants the area to no longer be "the frontier", but better communication would help. When our moving day arrived we found we needed an extra $100 for our 16 year old's building key. Almost a month later our back porch was torn down to be replaced, the laundry room has only two washers and two dryers- (one of those is still disabled) AND it's $1.50 per load. Now after last night's rain storm we have water dripping from several spots in our dining room not to mention the water that gushed underneath the back door and from the top of the door frame. Our neighbors across the hall has it pouring from their light fixtures.
$200,000,000? MAC, could you break off an extra million to make sure these pricier rental rehabs are done correctly and let your potential tenants know that they are moving into "works in progress"? I'm sure it will all be very nice once it's all complete, but do it right the first time and not on the cheap.

Peter said...

Seitu - please call our service line at 773 548-5077 or call me directly 773 347-3451 so we can address the water issues you are describing.

Peter Cassel
MAC Property Management

Famac said...

The $200 million has to include the purchases of properties.

Zig and Lou said...

Article about MAC in the latest Crain's.

chicago pop said...

The $200 million is, according to MAC, construction work on their HP portfolio.

Elizabeth Fama said...

But if they have 2000 units (according to Peter Rossi), that adds up to $100,000 in remodeling per unit on average? That seems high, given the results. Or is that the amount they've promised, and the work just hasn't been finished yet?

chicago pop said...

It would indeed be interesting to see a breakdown of this number, as large as it is.

A number of the high-rise projects have involved major construction and renovation, and pretty much every low-rise apartment that I saw was gutted and rebuilt. There are major less visible costs like putting in central air where there was none, ripping out old risers and replacing them, moving utility banks from one part of a building to another, redoing wiring, redoing roofs, removing asbestos, etc.

I'm sure these all add up. But it would be good to know just how, since this number is now out in public.

Greg said...

The renovation costs of Del Prado must be staggering. I looked at a few apartments there a couple years ago when I was moving out of Mayfair... it was in pretty rough shape. You could see how beautiful it had once been, but over the years the plaster had been repaired cheaply and poorly, the apartment doors had all been replaced with cheap orange laminate doors with big number stickers on them, the elevators were ancient and usually broken, etc.

Evan said...

Thanks for this info, and other posts as well. I'm starting at the University this fall and while I'll commute as a part-time student for a year or two, eventually we'll move in to Hyde Park. I just started reading Hyde Park Progress to get a sense of what's going on in the area, and the information you all provide has been great.

Famac said...

I'm very dubious about that number. Since this isn't a public firm, we'll never really know how much was spent. Considering what a pain Hyde Parkers are about everything, it wouldn't be surprising if MAC was promoting an "investing in the neighborhood" spin far beyond what's happening.

I'm not contractor, so perhaps Elizabeth can chime in here - but that number sounds close enough to building from scratch that it can't be accurate.

Elizabeth Fama said...

I'm not a contractor, I just play one on TV. But I think it's generally true that remodeling is on average cheaper than new construction. The figures vary, of course, but apparently they're something like $80 - 120 per square foot for remodeling and $100 - 150 per square foot for new construction (depending on a lot of factors). You'd have to pay a huge chunk of money to demolish and haul away a brick apartment building, though -- that might erase the difference. I think you'd at least want to keep the shell. Maybe some of these MAC remodels are true gut jobs.

Eric Allix Rogers said...

Yes, they really are gutting the buildings and redoing the interiors from scratch. They're working on 16 of the apartments in my building just south of 47th right now. I can see in the windows that the walls and ceilings have all been busted down inside.

Seitu said...

I would like to thank Peter Cassel for the reply to my comments and the response (to some of the issues I raised) after talking to him the following day. The gentlemen who came to repair our dining room ceiling and seal our back door and window have been efficient, courteous, polite and prompt.
After speaking with other building tenants it seems more people suffered water damage/problems from last week's rain than I realized. Much of this was caused by some window frames and many back doors not being properly sealed or sealed at all. The work on the other three buildings in my block (between Cottage Grove and Maryland on 54th street) is continuing at a brisk pace. The feeling I get is MAC is eager to rehab these buildings and get them rented before the fall rental season is over. That's fine, but make sure building "A" is done correctly before jumping on to building "B". The very first problem I had moving to this place was being unable to transfer my ATT phone service. It seems during the gutting of the building(s) the phone terminal was ripped out and the phone lines cut. ATT told me the building owner would have to pay to get those items reinstalled. In the mean time I had to switch to Comcast for phone and internet access.
I suppose the contractor has to wear the goat horns for these oversights in the rehab process. Maybe they over-promised MAC what they could get done in the time frame they were given. Maybe things like getting constuction permits (like in the case of our now almost completed rebuilt back porch) took longer than expected and put things behind schedule. It's still unfortunate that new tenants to this residence have to discover "the bugs" in this rehab process once they get here.
It's not like MAC is sending out apology letters to tenants affected by this or offering a temporary rent adjustment for the unconvienience of being without a porch for three weeks or having part of your apartment a re-construction zone .

J/tati said...

I lease a commercial space from MAC. Having gone from one of the least professional landlords in the neighborhood to arguably the most (or at least largest) I can say that I prefer the latter, insofar as MAC has an actual staff presence in the neighborhood and accountable employees. The building gets tagged about once a week, and every week -- there's the MAC facilities guy cleaning it up.

That said, I'm really surprised that this post hasn't elicited stronger negative comments. Every time I mention to customers that I rent from MAC they tend to go off, as if it's some kind of evil empire. I don't have any first hand experience with this, but have heard every flavor of horror story from those who had to go through the K&G transition process. But I suspect at least some of these stories are hyperbole.

Eric Allix Rogers said...

I suspect many of MAC's tenants are evaluating them now on their improvement. There's no question that they were horrendously unprepared for the K&G acquisition, and their customer service and maintenance during the period after that were abysmally bad. There was zero employee accountability, and with operations split over numerous offices that weren't talking to each other, I thought they were running some kind of a shell game. But I think they got a healthy public shaming for how they handled that, and they've shaped up a lot. By the time my lease renewal rolled around a couple of months ago, they were making service calls the same day work orders were filed, and I didn't have to threaten lawsuits and code enforcement action.

Eboni said...

I'm a 2 year resident of MAC's Drexel Grand location. During the 2 years I've lived in my apartment, I've had issues with leaks (one was so major that the ceiling came crashing in in the kitchen because it could no longer support the large amount of water that was forming). It seems that there's a leak in the building every week, particularly on the 1st floor. In addition, the heating system leaves much to be desired. I've had to use a space heater in the winter, and it still wasn't sufficient. They promised a new heating system, then new windows, but never delivered. The walls lack insulation, which means I can hear EVERYTHING my upstairs neighbor does. The fire alarm in the hallway would consistently go off in the middle of the night. It got to the point where people stopped evacuating the building because they figured it would be another false alarm. Imagine the horror if there really was a fire, and people didn't evacuate because they thought it was another false alarm. Then, when you'd call the 24 hour emergency line for maintenance, the only on-call person would live far out in the suburbs and be unable to get to the building until an hour or so later.

Basically, it just seems as though the property was quickly renovated, with little regard to quality. If I could've moved after my first lease expired, I would have. Unfortunately, I had personal issues that were a higher priority. The neighborhood is nice, but it just goes to show that all that glitters isn't gold. I definitely don't plan on renewing my lease this time around.

Taz said...

There are 2 class action suits pending against MAC Property MGMNT. Case Numbers - 2008-CH-25551 & 2008-CH-22416 filed in June and July of this year. I have been in touch with one attorney. I have not decided whether or not to join although I have been asked. I would never suggest to anyone that they should rent from MAC. I wish I would have came across this blog before I leased from them.