Monday, November 1, 2010

Chicago and the Opium of the Developers

posted by chicago pop

Fantasy Real Estate: Chicago's Latest Virtual Reality Game.
Beautiful Renderings Cost Nothing and Keep Stakeholders In a Trance -- But For How Long?

To read the news about all the great development projects the Chicago city council is approving, you wouldn't think that home foreclosures and unemployment continue to be a record highs, that state and local government are running enormous deficits, and that the numbers on all of these might shoot up to even greater heights if, as it very well might, the economy tumbles into a "double-dip" recession.

If you are a bureaucrat in the City Department of Planning, or a city council member in a city that has no money, and you therefore have nothing to do, but are still getting paid (somehow) to show up, it can't hurt to approve grandiose projects that will get Blair Kamin and the Tribune all excited, even if there's no realistic way some of these things will happen in less than 10 year's time -- 20 year's time if we're pessimistic. That's the kind of hole we're in. It's about this big:

Glory Days Gone Past, or, Chicago's Real Estate Crater
[source: Curbed Chicago]

Other cases abound. Remember the exotic 90 floor Shangri La Hotel on Wacker and Clark, the one that is now an empty 26 story shell that will most likely be the first Loop building to be demolished in almost half a century? "Solstice in the Park," the cutting edge green building that was supposed to go up on the corner of Cornell and 56th, doesn't even have a hole in the ground, though it is probably demolished in concept. Optimists will note that it is apparently still listing 8 units for sale, with construction to start "in 2012".

The new blog Curbed Chicago gives a sense of the split personality that still pervades Chicago's real estate world, with posts detailing the ever bigger graveyard of pre-crash projects like the New City "mixed-use development [that] was to have 490 residential units and 370,000 square feet of retail" at North and Clyborn, alongside euphoric posts and splashy renderings of what we supposedly can still expect "as soon as the market turns around," as if the Great Recession is just another downturn and we just need to wait for consumers to start spending again.

The above monster, together with three others, adds "more than 2.5 million square feet of commercial space" to the market in Chicago, suggesting just how far some of the local real estate moguls still have to fall to get to post-crash reality. Loathe to sacrifice the model that has driven its success since the reign of the first Mayor Daley and his famous commitment to the downtown business elite, for these guys it is still onward and upward. Witness the Tribune Blair Kamin in a review of a recently approved "plan" for the vast (bigger than the Loop) abandoned US Steel Yard:

Plans for the old US Steel Yards: $98 million in pre-project infrastructure approved by City Council (from what pot of gold?); $4 billion final cost
Imagine: Sleek residential high-rises lining a vast industrial slip where ore boats delivered the raw materials for steel-making. A new park built over the foundations of a massive open hearth. A broad extension of South Shore Drive that would be an urban boulevard. Parks and alleys that would channel stormwater into Lake Michigan instead of the city’s sewers.

I am imagining it, and that's likely all I will be able to do as far as this project is concerned for about another 25 years. Reality check, anyone?

So when I see glossy renderings for more local projects, like the Vermilion Development Inc plans for Harper Court (12-story, 150,000-square-foot office building, about 100,000 square feet for retailers and parking for 435), or even the more humble "Shops and Lofts" at 47th and Cottage Grove, which will supposedly host an Aldi and 140 units of affordable and CHA rental housing, I have to wonder.

The truth is, and it hurts to say this, as much as the University of Chicago wants to build out the neighborhood at Harper Court and 53rd, they may have missed their chance. That chance was a 20-year window of opportunity that, for some reason or another, was squandered in the likes of Doctors Hospital type fiascoes in which a major institutional power got its arse whooped in the valleys of the local neighborhood Afghanistan. We are likely to live with things as they now stand until our kids move away to college, we move out of the neighborhood for other jobs, or we are dead.

Such gaps in the geological record of American real estate are not unheard of. Around 50th and Cornell, near the popular Istria cafe, there are a cluster of high-rise buildings built in the 1920s. They are gorgeous and speak to the confidence of the age that built them, loaded with the kinds of finishes and craftsmanship that you don't find in residential buildings today. Most of these towers only have windows on two or three sides, because the developers expected neighboring towers of equal ambition and height to go up beside them.

Those other towers never materialized, and the window-less building faces are now mute brick walls to the rest of the neighborhood. The next buildings to appear were built roughly a quarter century later, in the 1950s.

We may be looking at something comparable this time around, and it's not clear that Antheus or the University of Chicago or anybody else will be able to convince enough Sam Zell-type testosterone jockeys, shell-shocked banks or private equity high-rollers to put money into projects that will add hundreds of condos or offices that, right now, no one wants. The suburban empty nesters that were once selling their split-level homes to buy condos in the South Loop probably aren't going to make any moves for a while.

So, by all means, make no small plans, as is only right in the city of Daniel Burnham. But someone should do us the favor of explaining how all of this stuff will get built in an economy that is not going to reset at "2006" anytime soon, if ever.


JDA said...

Thanks for the link, Pop. I may have been the one noting the Solstice listings, but I'd consider the developers and brokers attached to the project far more "optimistic" about it than anyone on my end. The post certainly didn't take any sides on the project's viability.

I'd say your assessment on many of the residential projects mentioned is quite fair. The South Shore project, especially, has quite an uphill climb ahead of it.

Joe Askins

chicago pop said...

Don't know if you'd care to follow up JDA, but wonder if you have a different take on the local commercial and office markets?

JDA said...

Not really -- I singled out residential simply because it's what we pay attention to at Yo. (We usually only write about commercial development in connection with residential development, i.e., mixed-use projects and the like.) I don't really have a feel for the situation at a project like Harper Court, for example.

Anonymous said...

Excellent post. If nothing else, this should drive home the importance of the saying "Make no small plans".

How many mediocre buildings, poorly built cheapo condos and other mediocrities were throw up during the boom years? How many great projects were defeated by self-interested "activists"?

I liked the Spire, even if nobody else did. But everyone waited so long, the window of opportunity is gone.

And that Solstice building is one of the most gorgeous, yet practical residential designs I've ever seen. As it is now, the only unique, interesting, modern architecture being build in Hyde Park is on University property.

And your story here told me something I didn't know: the hotel that was going up at Clark and Wacker is DOA? I used to work in the glass tower on the other side of Clark a few years ago when that was still a parking lot. It's a real shame it could sit there half-finished for years, if not simply demolished.

David Farley said...

It looks like the empty lot at 53rd and Cornell will be the place for E. Hyde Parkers to shop for Christmas trees this year.

Chicago_mom said...

"....We are likely to live with things as they now stand until our kids move away to college, we move out of the neighborhood for other jobs, or we are dead...."

Right on, Chicago Pop. I look at 53rd Street and just shake my head....we *so* lost our chance to get things right around here....

...yet I (foolishly?) cling to hope for that old US Steel site; nothing will happen fast, it's true, but I'm willing to be patient on that one. It sure would be a tremendous project.

edj said...

Wait. There's still the 2020 Olympics to bid for....

Elizabeth Fama said...

I'm pretty sure the Harper Court plans are proceeding well -- at least the first phase of development is. In particular, a few nice national chains have expressed interest in anchoring the retail section, including a Panera and a clothing chain that I'm blanking on right now (Banana Republic?).

Peter said...

Projects such as the one discussed in this article seem to be driving factors in the struggles of chicago commercial property, especially in the most recent data given by ReisReports. The report insists that one of the keys to a rebounding office market will come at the same time that the construction cycle begins to slow down, which certainly is not the case here. At the end of the day, there is still a need for an increase on the demand side, which will allow a project like this to be a success.