Jim Hughes, co-owner of Wheaton, Ill.–based Wiseman-Hughes Enterprises, used to meet his friend, Buz Hoffman, president of Lakewood Homes, for lunch two or three times a year. But lately, they've had time to get together more frequently, because Chicagoland's usually unflappable housing market has been much less active than normal.
“We've been hanging in there, but unfortunately we continue to see business erode,” said Hughes in early October. In the second quarter of 2007, standing and speculative inventories in Chicago's seven counties rose by 122 percent and 33.8 percent, respectively, to 5,498 and 14,275 units, according to Hanley Wood Market Intelligence. Unsold speculative inventory in August alone jumped 166 percent over the same month in 2006, to 16,671.
“Chicago weathered the first 12 months of the downturn better than most places,” notes Jonathan Dienhart, Hanley Wood's director of published research. “It wasn't like the ‘light switch' effect we saw in Phoenix and Vegas.” Still, Chicago's home sales are expected to be down at least 10 percent this year, to 31,665 homes, and the number of permits pulled is expected to be off 25 percent, to 31,299.
Hoffman observes that it took Chicago longer to feel the effects of less buyer demand, and builders were slower to reduce prices. But with so many public builders in the market now, price discounting was inevitable. As a result, “customers aren't buying homes, they're buying deals,” says Hughes.
Strangely enough, some projects in Chicago are selling okay. An infill community Wiseman-Hughes opened in November 2006 in suburban Aurora, Ill., called Plaza on New York, sold 75 townhouses, priced between $250,000 and $300,000, in nine months. “And that was without incentives or marketing,” adds Hughes. The condos there went on sale in the third week of October 2007, and Hughes expects to sell between 45 and 50, priced from $190,000 to the low $300,000s, by year's end.
Another successful project is Chicago-based Magellan Development's ambitious $4 billion, 28-acre Lakeshore East, a “village” in the heart of Chicago, between the Chicago River and Michigan Avenue. Upon its scheduled completion in 2015, the project will house 15,000 owners and renters in 4,950 high-rise and townhouse residences, in addition to 2.2 million square feet of commercial space, 770,000 square feet of retail space, and a charter elementary school. Forty percent of this neighborhood will remain open space for parks.
Since opening its first building, the 29-story, 209-unit Lancaster, in 2004, Magellan Development has all but sold out or has full occupancy in four other high-rises. It recently opened the first phase of its 24-unit townhouse grouping called The Parkhomes. Joel Carlins, Magellan's co-CEO, tells BUILDER that The Lancaster took 18 months to sell out because the park within the complex hadn't been completed. “But once the park was done, we had an 800-name waiting list for Regatta,” a 44-story, 325-condo building completed in August 2006. (More than 20 percent of that list signed contracts.) Since then, Magellan hasn't had trouble finding buyers or renters for subsequent buildings, including Aqua, an 81-story, $475 million high-rise with 264 condos, 474 rental apartments, and 210 hotel rooms. As of early October, 91 percent of Aqua was reserved for occupancy in 2009.
Renters at Lakeshore East can put aside 25 percent of their rent to build equity, up to 2.5 percent, for the purchase of one of the complex's for-sale units.
New Hope?
A congressional committee votes to renew HOPE VI.
Lawmakers have given initial reauthorization to HOPE VI, the federal government's major funding source for rebuilding dilapidated public housing. The House Financial Services Committee recently voted to renew funding for the program, which was scheduled to expire in September. The bill increased funding from the current level of $100 million to $800 million annually from 2008 to 2015.
In 1992 Congress created HOPE VI to revitalize public housing and improve troubled neighborhoods. The Bush administration advocates letting the program expire, saying it has fulfilled its mission of addressing the needs of the 100,000 most distressed units of substandard housing. Housing advocates dispute that position.
“We've taken out some of the most dangerous, egregious examples of public housing,” says Henry Cisneros, who was Secretary of Housing and Urban Development (HUD) in the first years after HOPE VI was authorized and now heads CityView, an affordable housing development company. “Unfortunately, there is more that needs to be done. We used to fund about 12 to 15 communities a year at the $35 to $50 million level. They can't do anything like that anymore and that's what the need is.”
The bill requires projects to replace units within 12 months of demolition, to build one new housing unit for every one demolished, and to use green building standards.
The one-to-one replacement requirement is a valuable tool, as long as the units don't all have to be on the site of the ones that are demolished, Cisneros says.
“There's always been the critique that the flaw in HOPE VI was that in reducing density on site, we came out with fewer units,” he says. “This is a workable approach. It's challenging because it's very hard to build units in other areas because of objections, but it's not impossible. Insisting that the units be replaced on site defeats the purpose of redevelopment.” - Pat Curry
Learn more about markets featured in this article: Chicago, IL, Los Angeles, CA.
