Sunday, December 18, 2011

The 'Academics of Real Estate': Harper Court in the Wall Street Journal

posted by chicago pop

[You may have noticed that I've been on a little bit of a hiatus from blogging lately, but  a number of kind readers have encouraged me to quit loafing and get into my sweatpants (as one is clothed when blogging, by definition). Yes, there is still stuff going on in this fine neighborhood, a lot of it promising, such as what follows. And if you really think something should be up on this space, let me know: sending me stuff is the best way to get an issue broadcast. Because I'm lazy.]

Old news, yes, but worth excerpting: this good summary of Harper Court from the Wall Street Journal (paywall), which highlights the fact that this $134 million project is exceptional for being a major counter-cyclical investment. In the midst of a continued global recession and tight credit in real estate lending nationwide, there is nothing comparable to it on the South Side, and little else in Chicago or equivalent neighborhoods in other metro areas. How is this possible according to the laws of economics?

Why, it's the Chicago School, of course.
In a new bid to revitalize an area just north of its campus, the University of Chicago is subsidizing the mixed-use project, known as Harper Court, through various forms of assistance.
The university is selling land to the developer for $1 million that it bought for about $9 million; it is guaranteeing the $22 million construction loan on the 130-room hotel; and it is leasing the full 150,000 square feet of office space. Further, the city of Chicago is putting in about $20 million in a subsidy that comes from forgone future taxes on the site.
The moves provided the spark for a development that wouldn't have occurred otherwise, in a neighborhood long eschewed by investors. A formal groundbreaking occurred earlier this month at the site in Hyde Park, a neighborhood filled with students, university staff and faculty. By and large, poorer neighborhoods surround it, and large new private developments have been few and far between.
The university has a history in Chicago of steadily expanding its campus with new dorms, labs and classrooms. But that isn't what's behind this foray into the real-estate investment arena. Rather, it is being fueled by a desire to make the area around its campus more attractive to its students and faculty.
"We're not trying to flip these properties for profit," says David Green, executive vice president at the University of Chicago. "We're trying to really help invest in a way to spur development in the area."
Taking the role of both master planner and pioneer investor, universities in economically struggling urban areas have increasingly taken the lead on commercial developments to improve the livability of their neighborhoods.
The Journal points out, as we have on the blog, that other institutions like Penn have pursued similarly aggressive development agendas when it seemed that the market was unwilling to make major bets on the neighborhood. Of course, this entails a risk, but so does the choice to run a top-tier research university in a neighborhood that often only minimally meets basic standards of service and amenities expected by its staff and students.

53rd Street is singled out, to no great surprise, as full of potential but wanting over the last few years.
Harper Court, on 53rd Street, is a historic retail strip, dotted with a hodgepodge of retail outlets, from banks to a mattress store. Its Valois Cafeteria, a classic neighborhood eatery, has occasionally been visited by President Obama upon his returns to Chicago.

But the university has higher aspirations. "It hasn't been a great neighborhood street, or a real destination where there's an interesting mix of shops and services," says Mr. Green.
Elsewhere on 53rd Street, the efforts of the school are aimed at renovating older buildings. Earlier this year, it began renovating an old movie theater, and it leased a storefront it owns to a 24-hour diner.

"You have a real healthy combination of interesting development opportunities and good buildings with interesting space," says Josh Sirefman, a consultant for the university on the revitalization and a former New York City economic development official.
Based on the tall cranes and fencing around the Harper Court lot, and the spiffed up Herald Building now home to Five Guys, so far things look like a good bet. The kind of bet that probably should have been made a long time ago. 

1 comment:

jw said...

God, that's ugly.