By Alison Rice. The buildings cast their shadows still. But the fear of this Chicago neighborhood has faded, just like the colored Cabrini-Green sign with its missing letters.

Long infamous for poverty and violence, Cabrini-Green's red and tan brick public housing high-rises now overlook new townhomes and condos, a grocery store, and even a Starbucks. Sales trailers advertise coming developments, bulldozers move earth, and cars crowd the newly improved roads. People aren't afraid to cross under the 'el' tracks, the former boundary between Near North affluence and the projects.

The transformation of this corner of Chicago has been more than a decade in the making, the work of public officials and private developers. Still in progress, the redevelopment of the Frances Cabrini and William Green Homes and the surrounding area, a neighborhood known as Cabrini-Green, has been a high-stakes gamble from the start, as the city attempted to integrate public housing into a new, mixed-income neighborhood, and builders took their chances on whether market-rate buyers would really move into a neighborhood of such notoriety.

"People thought it was risky," remembers Daniel McLean, president of Chicago-based MCL Cos., which built the area's first new housing and shopping in years. "No one believed it could work."

The developer

Except perhaps McLean. The developer/builder started buying land around Cabrini in the early 1990s, purchasing a parcel here, a parcel there, until he amassed roughly 17 acres in the rough urban neighborhood. For 20 years, McLean says, "people, including myself, had thought that area would be ready for development one day. Lincoln Park, the Gold Coast--all those areas were expanding. But nobody other than us had decided the time was right."

At MCL Cos.' Old Town Square, 20 percent of the units are reserved for public housing tenants.

Mohawk North, MCL's first venture in the neighborhood, opened in 1996. Built on land previously owned by the city, the 92-unit development included single-family homes, townhomes, and condos, and, in a harbinger of things to come in the neighborhood, public housing. Eighty percent of the homes were for-sale at market rates; 20 percent were reserved for Chicago Housing Authority (CHA) residents--a move that MCL believes won it the right to purchase the city-owned property. "Our bid to the city was unique, because the city at the time did not require a percentage of CHA units that it does now," says McLean, who offered to make 20 percent of the mix public housing. "It won us the bid for the land." After finding success with Mohawk North, MCL formed a small coalition to go after another nearby city-owned parcel. It was a small piece of land, just three acres, and McLean soon realized that a piecemeal approach would never work for such an untested neighborhood. "We couldn't look at developing three or five acres," he says. "Nobody would believe it until there was a master plan for the whole neighborhood."

So MCL created one, submitting the document with its proposal. The bid was ultimately unsuccessful--but its concept wasn't. As the city of Chicago rejected everyone's proposals, it introduced its own master plan for Cabrini-Green and the surrounding land: The Near North Redevelopment Initiative. It involved adding three new schools and expanding two others; an enlarged public park; a blend of townhouse, walk-up, and mid-rise housing with an average density of 40 units per acre; and a product mix of 50 percent market-rate, 30 percent CHA, and 20 percent affordable.

While the city created its vision for Cabrini, MCL worked on its own plans. It built a shopping center at the corner of Clybourn and Division streets, luring a new supermarket to a neighborhood that had been economically isolated for years. "This was the first opportunity Dominick's ever been given to have a modern 60,000-square-foot grocery store downtown, so they were willing to take the risk," says McLean. "They took the leap the first time someone gave them enough land to have a parking lot."

A few blocks away, on the former site of an Oscar Meyer plant, the company pursued rezoning for what would become Old Town Square, a 133-unit collection of condos, townhouses, and single-family homes. "Old Town Square was where I fell in love with development," says Karen Tobin, development director for MCL. "It was the involvement with the community, the awareness that you're not just here to sell homes, you're here to incorporate the entire community."

MCL tried to address the natural concerns for security of buyers at Old Town Square without creating a barricaded island of affluence. The community isn't gated--"The city didn't want that, and neither did we," Tobin says--although an electronic gate does control access to the garages. Security systems are standard in all homes, a feature that MCL offers in all of its city developments. Just like Mohawk North, 20 percent of the units are reserved as apartments for public housing tenants--but they aren't owned by the Chicago Housing Authority. Instead, MCL owns and manages the rentals, which are leased to the CHA on a long-term basis (40 years.) Retaining ownership allows MCL to select the public housing residents at Old Town Square. "We want to be in charge of tenant selection," McLean says. "Over the years, the CHA hasn't been a very good manager."

Old Town Square opened in 1997, quickly attracting market-rate buyers more than willing to take a chance on the new Cabrini. "The proof was how fast they sold," McLean says. "We priced them at 50 percent of [comparable units]--$275,000 to $300,000 for single-family houses. Within 12 months, they were selling for $550,000 to $600,000."

That appreciation is reflected in the prices for MCL's newest development, Old Town Village, which sits between the shopping center and Old Town Square. At Old Town Village, townhomes start at $650,000 and single-family homes at $850,000.

McLean shrugs off the suggestion that MCL could and should have priced Old Town Square higher. "No, we don't regret it," he says. "What we were trying to do was establish momentum, and the strategy worked."

The city

Meanwhile, the city of Chicago had begun developing its own strategy for Cabrini-Green: Replace the high-rises with mixed-income development, provide 700 units of public housing, and revitalize the area through public and private investment. "It's not just about housing--it's about creating a neighborhood, with parks, schools, police, and fire. You have to have those elements in place first," says Benet Haller, project manager, central district, for the city's department of planning and zoning.

Homes in MCL Cos.' Old Town Square development originally sold for $125,000 to $327,000, depending on size. Today, they go for twice that.

Indeed, the city has upgraded the civic infrastructure around Cabrini. It's expanded roads and built new public structures, such as a library and fire station. It used $60 million in tax increment financing funds to construct new schools, a new police station, an extension of Seward Park, and to support the development of new mixed-income housing in the area. It's also turned to HUD, which has committed $58 million to Cabrini's redevelopment. The major funding source: HOPE VI, which has been tapped to purchase the public housing units from the developers of these mixed-income communities. As an inducement to builders and developers, the city also has essentially agreed to provide the land formerly occupied by the Cabrini-Green projects at no cost to companies who are selected through a lengthy and involved process. In addition, it assists with the development costs, which can be considerable. "In the bulk of these developments, the land value ends up being zero," Haller says. "There are a lot of strings attached and developing CHA units and affordable housing units is a money-losing proposition that has to be made up in some way, so it comes in a write-down in the land value."

Despite all the parameters, the city has seen competition for the Cabrini land, receiving a half-dozen request-for-proposals from different developers when a parcel becomes available. One frequent, although unsuccessful, bidder has been MCL, which built its Old Town Village and Old Town Square communities on land it purchased from private sellers. Despite its market-rate success at Old Town Square, the infill builder has not been able to nab a contract for the city-owned and city-leased parcels of Cabrini-Green land, although it's been a finalist twice. "We hope to get the next one," McLean says.

While the profit margins are lower on these city-involved projects, there are some significant advantages. The city assists with development costs, which can run as high as $175 million when the land cost is included. "It's a true risk share between government and the private sector," says Peter Holsten, president of Holsten Real Estate Development Corp., a Chicago company known for affordable housing development and management.

He should know. His company, in partnership with Kenard Corp., a market-rate builder and developer in Chicago, edged MCL out twice on those city parcels.

The partners

When the city invited developers to apply for the first seven-acre parcel of Cabrini-Green property, Holsten didn't exactly rush into it.

"I wasn't sure whether or not we wanted to respond, so we spent the first 30 days [of the 60 days until the proposal deadline] figuring it out," says Holsten. "We had substantial experience in affordable, but we'd never done market rate."

He turned to Hal Lichterman, president of Kenard Corp., a longtime Chicago developer and builder, who agreed to serve as his consultant and then his partner on the deal. The result was North Town Village, a 261-unit development that mixed for-sale and for-rent homes within the city-directed proportions of 50 percent market-rate, 30 percent CHA, and 20 percent affordable.

Financing such a deal proved just as complicated as one might expect, especially for Holsten's affordable and CHA segment of the project. How complicated? Try four layers of mortgage financing from state, local, and federal authorities, plus tax credit equity.

"You need a developer who is very savvy about financing for affordable housing," says Haller. "You can't have guys who've done nothing but market-rate housing. They have to be talented and mindful of how the process works and the funding cycle."

Kenard's portion of the project carried different risks. No one knew whether market-rate buyers--the financial lifeline for such projects, where the revenue from their homes subsidizes the rest of the development--would be willing to commit to a mixed-income concept in a neighborhood that barely qualified as "emerging."

Others were just as invested in the success of the market-rate aspect of the Cabrini-Green experiment. "We're not just building housing, we're building communities," says Lawrence Grisham, vice president of The Habitat Co., which is the court-appointed development receiver for the CHA. "Homeownership is important."

To appeal to these critical buyers, the North Town Village partners concentrated on architectural details and other features, drawing from the 1920s red brick and stone in surrounding neighborhoods. "We're trying to keep up with the market, because [market-rate buyers] can go anywhere they want," Holsten says. So, depending on the product (townhome, flats, or mid-rises), hard costs ranged from $108 per square foot to $125 per square foot, regardless of the unit's intended resident. "You can't have a public-housing section and a market-rate section," Holsten says. "The market buyers can pay for it--that's OK. But the basic finishes have to be the same."

Like MCL, Holsten and Kenard priced the for-sale units below the surrounding neighborhoods, selling them for 20 percent to 25 percent less than comparable homes. They disclosed the fact that buyers would be living in a mixed- income development. They highlighted the resources Holsten had agreed to provide: jobs for public housing residents, a transition program that would help former CHA tenants learn to live independently, and social activities designed to bring owners and renters together. "We sold value. We sold the fact that our partner was a strong manager," says Lichterman. And Holsten and Kenard marketed the location, just minutes away from Lake Michigan and downtown.

North Town Village sold out in three weeks.

That type of ferocious sales velocity, experienced both by Holsten-Kenard and MCL, illustrates Cabrini-Green's major plus: location. "The No. 1 consideration for these types of developments is location," Holsten says. "Location is always number one. These types of developments are always more difficult to do and run in tougher neighborhoods."

North Town Village serves market-rate, affordable, and public housing residents with a mix of rental and for-sale product.

That's a concern at other CHA properties scheduled for development, such as Stateway Gardens and the Robert Taylor Homes on the city's south side. "Cabrini-Green certainly has a lot of advantages," says Richard Manocchio, first deputy commissioner of Chicago's department of housing. "It was already an attractive area to market-rate purchasers. Not all CHA buildings are in neighborhoods that have that advantage, and we're finding that challenge now." Mixing it up

By the measure of public housing units replaced, the redevelopment of Cabrini-Green is nearly done, with 620 of the required 700 built, under construction, or under development. "We're getting pretty darn close," Haller says.

But the builders and developers aren't anywhere near finished.

After the success of North Town Village, Holsten and Kenard won a second Cabrini-Green request-for-proposal, nabbing the right to develop North Town Park, a 680-unit community on 18 acres. It was a unanimous decision by the Near North working group. "Holsten's track record at North Town Village was part of it," Haller says. "It had the capacity, the job creation, the social services, and its site plan was pretty interesting, with greenways that connect to Seward Park." Construction is expected to begin in late 2005 or early 2006.

Meanwhile, MCL, which estimates it's invested $200 million in the neighborhood, is hoping the third time is the charm as it waits for the results of yet another Cabrini-Green bidding process. It's not necessarily the profits McLean is after--margins on these projects run about 7 percent compared to 20 percent for typical Chicago infill--but the evolution of a neighborhood. "My motivation is to make the community better and continue what's been done. The more that gets done, the more valuable the remaining land I own," he says, ever the developer. But he also sees value beyond the return on his own investment. "Over a 10- to 15-year period, to see an entire site like Cabrini-Green change into a street-level community is very gratifying."

To McLean and his counterparts, Holsten and Lichterman, that type of transformation is worth the gamble. "In the end, it's like going to Vegas," Holsten says. "You only take the amount you're willing to spend."

Block Party: Cabrini-Green's newest neighbors.

Mohawk North: Opened 1996. Developed by MCL Cos. 92 units. For-sale, with exception of public housing rentals (20 percent), which are leased to Chicago Housing Authority (CHA) on a 40-year lease. Townhomes, condos, and single-family homes, which initially sold for $124,900 to $452,900. Old Town Square: Opened in 1997. Developed by MCL Cos. 133 units. For-sale, with exception of public housing rentals (20 percent), which are leased to CHA on a 40-year lease. Condos, townhouses, and single-family homes, which initially sold for $125,000 to $327,000.

Old Town Village East and West: Opened 2003. Under development by MCL Cos. 273 units. For-sale, with exception of public housing rentals (20 percent), which are leased to CHA on a 40-year lease. Single-family, condos, and townhomes from $265,000 to $850,000.

North Town Village: Opened 1998. Developed by Holsten Real Estate Development Corp. and Kenard Corp. 261 units, both rental and for-sale. 50 percent market-rate, 30 percent CHA, 20 percent affordable. Townhomes, duplexes, and condos from $149,000 to $400,000.

North Town Park: Under development. Scheduled to open in 2005#173;2006. Developers are Holsten Real Estate Development Corp. and Kenard Corp. 680 units, both rental and for-sale. 50 percent market-rate, 30 percent CHA, 20 percent affordable. Condos and townhomes from $200,000 to $300,000.

Segregation to Integration

Chicago attempts to reverse its public-housing history.

The Windy City's troubled past with public housing dates back to the 1950s, when the Chicago Housing Authority (CHA) decided to deal with issues of poverty and race by containing them. The end result: racially segregated, economically destitute islands within the city.

They stayed that way for years, despite a landmark 1969 desegregation case (Gautreaux vs. the Chicago Housing Authority, filed by six public-housing tenants) that found the CHA guilty of racial discrimination. A 1981 consent decree forced the city to develop scattered-site public housing.

That imperative became urgent in the 1990s, after HUD took over the CHA and decided that the only way to reverse Chicago's public-housing legacy was to dismantle and rebuild it. High-rises such as Cabrini-Green and others would be demolished; it would cost more to repair the 53 neglected buildings than it would to replace them. Other properties would be rehabilitated. The cost of the initiative? $1.5 billion, according to the CHA's "Plan for Transformation."

Now in its fourth year, the plan has resulted in more than 14,000 of the 25,000 new and rehabbed public-housing units pledged. As for the Gautreaux case, it still exerts influence on the process. Public-housing residents sit on the local advisory councils that must be included in the working groups that choose developers for Cabrini-Green and other CHA properties.