Sunday, January 18, 2009

Developing the 53rd St. TIF: It's Hard and We're Not Quite Sure How to Do It

Results of the Third and Final 53rd St. Visioning Workshop

posted by chicago pop


Rendering of a break-even development concept at McMobil Site,
53rd and Kenwood

Over the last year or so, a variety of municipal agencies, community groups, and the office of 4th Ward Alderman Toni Preckwinkle have sponsored a series of three neighborhood workshops dealing with development within the 53rd Street TIF district.

The first two were designed to educate neighborhood attendees about the basic concepts and parameters affecting real estate development in the corridor, and to help illustrate positive correlations between such factors as density of households and the viability of urban retail districts.

Overall, the workshops were well received, drew input from a wider demographic spectrum of Hyde Parkers than the typical and impressionistic "community meeting", and demonstrated a broad consensus on the demand for improvements in the neighborhood's retail offerings liveliness.

The workshops also gave grounds for a cautious optimism regarding public acceptance of the need for higher residential density as a prerequisite for the commercial revitalization of Hyde Park.

People aren't necessarily opposed to getting dense, if it's done right and the economic necessity of doing so is made clear by running the numbers on possible projects. This is exactly what the third and final visioning workshop set out to do: illustrate the limits within which any urban development project is economically feasible by highlighting the economies of scale that come with density.

Reviewing the various development concepts from the November 15th workshop, it's clear that the facilitators tapped a rich well of creativity in the participants. Most of the concept proposals -- for the McMobil lot, the Dorchester Commons strip mall, and Harper Court -- are interesting, and some are attractive.

Aerial Map of Possible Development Sites Within Hyde Park's 53rd Street TIF District

Unfortunately, none of them is economically feasible. It seems that while Hyde Parkers may be growing accustomed to the idea of density, none of the workshop proposals was dense enough to offer the kind of return that would attract a real-world developer.

Even with up to $6.2 million in subsidies from the 53rd Street TIF fund.

Workshop participants used blocks and a map to mock up a development proposal which they then gave to some real estate people who crunched the numbers then and there.

The chart below lists the development concepts that were graded as feasible, i.e., not money-losing. Of the 8 concepts that made this cut, only 4 of them would have generated any profit for a developer, and none of those came close to the threshold of 15% return on investment that was used as the no-go line beneath which few developers would risk their money.



Economic Profiles of Workshop Site Proposals




Model and Rendering of Site Concept for Harper Court

Three factors seem to pose the biggest hurdles to these projects: 1) 4th Ward Alderman Toni Preckwinkle's firm and praiseworthy commitment to a minimum of 15% affordable housing in any residential project; 2) an opaque and mysterious local market in real estate that may inflate the cost of land acquisition; and 3) a public hesitation to go even denser.

The affordable housing requirement for TIF districts is a Chicago ordinance, and Alderman Preckwinkle is firmly committed to it. It's laudable, but in order to make it attractive for the kinds of projects Hyde Park needs, we need bigger subsidies from somewhere, or a tolerance for still greater density to offset revenue from the sale of below-market rate units.

The market value of land in Hyde Park is a vaguely mysterious subject, as there is so little of it, traded so infrequently, with so much owned by the University of Chicago, that it is hard to know if the going rate is really $75/sq. ft as the workshop proforma assumed.

A perusal of values for a standard-size, 3,100 sq. ft. vacant lot in the areas immediately west and south of Hyde Park puts them around or below $35/ft.sq. The few lots in Oakland/North Kenwood are in the $55-60/sq.ft. range.

Dorchester Commons Concept

But in order to find comparable $75/sq. ft. prices, I had to venture north to Bucktown and Edgewater, where this number represents the lower end of the range. Is this really what the McMobile lot or Dorchester Commons are worth?

One relationship that's not too clear from the document is the relationship between retail and residential space in any of the projects, and how tipping this balance either way works for or against it. For example, the most ambitious concept for Harper Court (pictured above) actually has more retail than housing units (115 to 114); this concept also resulted in the highest (7.8%) rate of return.

Likewise, two of three concepts for the McMobile site had roughly equal retail to housing numbers, and neither of them did more than break even. The question I have for our real estate folks is why McMobile #1, with 44 residential units and 10 retail, did no better or worse than McMobile #3, with 16 residential units and 17 retail.

What are we to take away from these numbers? Do we need more retail at these sites, or more density? If a 1:1 ratio works OK at Harper Court, why not at McMobile, and which way should it go at that site, or at Dorchester Commons?

And how in the world could Hyde Park support 115 new shops as proposed in Harper Court #2?

Whatever the answers to these questions, it's clear that the 53rd St. Visioning Workshops have elevated the discussion of development in the TIF District, and in Hyde Park overall.

No longer will it suffice for a few people to sign a petition and make vague protestations about what they consider acceptable or not at this or that place, based on this or that arbitrary standard.

Now we have a much better set of tools for figuring out what will realistically work at some of these sites, as challenging as it may be. We just need to figure out how make that happen.

11 comments:

Richard Gill said...

"No longer will it suffice for a few people to sign a petition and make vague protestations about what they consider acceptable or not at this or that place, based on this or that arbitrary standard."

Chicago Pop -

I take heart in your statement, above. Perhaps the workshop process really does mean that a handful of people can no longer monopolize, or squash, development projects. Admittedly, I am still skeptical about whether this reform has gained sufficient traction. Nonetheless, I hope you are right.

If your assessment is correct, then there is a real prospect that the gridlock holding back other beneficial projects (think Point, et al) will at last be untangled.

chicago pop said...

Well, I don't mean to suggest that all is solved, just that I think there is a healthier, more realistic understanding of why Hyde Park needs density (and how to do it) than there was a year ago. A large part of that can be attributed to these workshops.

If you go back and look at the petition that was circulated in September, 2007 asking Preckwinkle to enforce a height limitation to any construction at the McMobile site to 4 stories, it's a hell of a lot harder to make that case based on what we know now about what it takes to make a marketable project at that location.

What we heard at the time was:

The 50 foot maximum height allowance under current law will prevent the excessive blocking of sunlight from nearby homes, keep the increase in population density to a manageable level, and will allow the project to blend well with the existing buildings on either side of the lot.

Most of this is just subjective whooey that the petition writer made up and thinks is true.

As I pointed out at the time, this back-porch urban planning, driven mostly be a desire to keep things the way they've always been, paid no sense to a few basic factors: that keeping things low-rise makes them more expensive, especially when you have to bundle in 15-20% affordable housing, and that this coupled with an insistence on easy parking would add even more costs to the project. All to keep the children safe, of course!

We've seen now how challenging it is for any project on any of these sites (though Harper Court is clearly the most promising case) to make the kind of minimum returns a developer shoots for; I should hope that in this light, future petition writers will frame their garden-variety and somewhat wooly objections in more concrete terms.

Richard Gill said...

Neither did I mean to suggest that I think all is solved. In brief, what I meant was that apparently the workshops were disciplined enough that nobody could hijack them.

chicago pop said...

I think that's exactly right -- the workshops were difficult to hi-jack, because they were relatively broad-based, and because they were premised on a set of issues that have been utterly foreign to NIMBY discourse. I think one result of this was the frustration that a few old guard types expressed after the first workshop on December 2007, and the subsequent launch of that whole Harper Court survey and design thing by the HPKCC. That was a direct answer to the success of the first workshop at giving objective content to the voice of "the community", and an attempt to stay relevant as the focus of neighborhood concern shifts away from always saying no, to saying how can this be changed.

Richard Gill said...

If the process doesn't come up with something (building height, et al) that will enable developers to make some money, then it seems there are three choices: (1) doing nothing, resulting in perpetuation of bleak, empty expanses and all their negative implications; (2) bumping up the zoning a notch beyond what emerges from the public process; and (3) starting over.

To me, option (1) is unacceptable.

Option (2) would be controversial, to say the least. However, it does not mean imposing a development where none is desired; it means upzoning a notch from whatever comes out of the process . And mitigating conditions can probably be attached to it. This option would require that the alderman be willing to take some heat.

Option (3) isn't likely to result in anything, except a waste of more time, thus resulting in the same noxious outcome as option (1).

Elizabeth Fama said...

I like it that they're crunching numbers at these meetings. Even if it's not perfectly accurate, the process educates people about some of the financial intricacies of development. In retrospect (and as other people have pointed out before), the University and White Lodging should have had held meetings like this, in which they discussed the numbers surrounding the hotel project. Considering what Bruce White said in his Tribune letter to the editor, a public discussion like this would have more clearly demonstrated the "philanthropic" angle of his project.

I walked by DH today, and it hit me again what a loss it was in this economy for the 39th precinct to have tossed aside that deal.

Richard Gill said...

Yup, there could've been shovels in the ground. What happened at DH is a true misfortune for all.

bornatreese said...

Unfortunately because of the economic climate, the naysayers will have their way a while longer. This means that the time needs to be used to get pieces in place to act when possible. Did anyone notice the latest vacancy on 53rd? No surprise, Hollywood Video closed on 1/19.

Greg said...

I noticed about 3 weeks ago that Blockbuster (53rd and Cornell) had also closed, apparently a while ago.

I wonder if the Hollywood Video parcel will be included in the Harper Court and parking lot redevelopment?

Fleurie said...

The former Blockbuster space is undergoing renovation. Does anyone know who is moving in?

Greg, I do hope the Hollywood Video is part of Harper Court renovation. This thing is so ugly.

edj said...

I think the naysayers are getting pushed aside. Development isn't happening because of the economy right now. I get the feeling that people in Hyde Park are taking them less and less seriously. When the economy picks up, I don't think that they are going to be listened to as much. DH was a last straw. All of the naysayers there lost their credibility when they said it would strengthen the negotiating position when all it did was make a good development go away.