In a slower market, new highrises continue to test the water
If you build it, they will come. Probably. Of course, if you only say you’re going to build it, they still might come, and if they don’t, well, you’ve saved yourself a lot of time and money.
This may be a cynical take on residential highrise construction, but it’s also the reality in downtown Chicago. Even in the best of times, developers of new highrises announce and advertise their projects as if they’re done deals, leaving out some important contingencies.
Virtually every new highrise has to sell a certain number of condos (its “presale requirement,” in the jargon) before lenders will give it the green light, and many developers begin marketing units before they even have financing or city approval fully in place.
And these aren’t the best of times.
They’re not the worst of times either. In fact, real estate has proved remarkably resilient during the current recession. But the market for new construction has slowed, and some observers wonder whether there will be enough buyers to go around for the number of new highrises that have yet to break ground, in addition to the many that already are underway and still have units for sale.
A quick perusal by New Homes counts more than two-dozen new highrises totaling around 5,800 units with at least some of their condos on the market. Some of these buildings are far along, with sales of more than 70 percent, but some are brand new and have yet to sign a single contract.
Even if half of these units already are spoken for and don’t return to the market (something that’s becoming more and more common), that leaves nearly 3,000 units for sale in new downtown highrises. That doesn’t include all of the mid-rises, smaller condo buildings, conversions and townhouses being built throughout the city. And it doesn’t include buildings that have not yet made announcements.
Some of the newest buildings to enter the fray include 390 N. Canal, a 34-story highrise with 218 units planned by the Habitat Company, and Two River Place, a 17-story tower by Enterprise Development planned for 167 units. In Central Station, Enterprise is starting to market a second Museum Park tower, with 170 condos, and Bejco Development has announced Prairie Tower, a 23-story highrise with 156 units. Rezmar has begun pre-selling Hudson Tower’s 228 units in River North.
Estimates are that the city absorbed more than 4,000 new units in major projects last year, but experts predict that pace will drop by up to 50 percent in 2002. While that would still make this a healthy year after the boom of 2001, some newer highrise projects may find it hard to build momentum, and others may be postponed or scrapped altogether.
Deposits are refundable if a development fails, but that may be small consolation to buyers who waste months because they’ve settled on a building that will never exist.
The good news, from a supply standpoint, is that many projects already have been shelved or postponed. That leaves buyers with a wide variety of existing (or nearly existing) new highrises to choose from, and it will allow developers to sell off current product, some of which was returned to the market by investors whose optimism proved deeper than their pockets.
Financing for new highrises already has tightened up. Lenders who imposed presale requirements of 25 to 30 percent last year are now asking builders to sell 40 to 50 percent of units before they can start construction.
The projects that are far along, and even some that aren’t, report the start of what looks like a strong spring season. The Heritage at Millennium Park, a 356-unit tower with a beveled glass façade planned for a site directly behind the Chicago Cultural Center, is 60 percent sold, according to Herb Emmerman, of Equity Marketing Services.
LR Development is far along at its Residences on Lake Shore Park, a group of three highrises on former Northwester University land, at Lake Shore and Pearson. The Pearson, a 180-unit tower, was nearly 90 percent sold at press time, and the 26-story highrise at 840 N. Lake Shore was 70 percent sold, according to Ted Weldon, senior vice president of LR Development. LR began marketing the Belvedere in December and has sold 17 of the 42 units under construction in the boutique building, where prices start in the $500s.
“We had a fantastic January, and we’re seeing the market come back,” Weldon says. “As with everyone in the city, we did see a considerable slowdown post Sept. 11, and it was the weakest fall we’ve had in several years, but buyers who came in were serious, so there was less window shopping. Traffic went up in January, and we’re seeing serious buyers.” Walsh Investors and Development Management Group have only about 20 condos left at 55 E. Erie, according to Mary O’Connor, co-sales manager at Urban Search, which is marketing the 56-story highrise.
“Available units include condos with two bedrooms, two bedrooms plus dens, some combination units, a full-floor 56th-story penthouse and one three-level ‘Skyhouse,'” O’Connor says. Base prices on remaining units range from $638,000 to $4.35 million.
One reason sales haven’t slowed further despite the recession and job losses is a function of demographics. As the baby boomers retire, empty nesters, who tend to be less affected by the vicissitudes of the economy, have become a major part of the highrise market. Some projects, including the Heritage, report that these older home buyers account for up to half of all sales.
“Empty nesters have a large amount of equity in suburban homes and their number is growing exponentially, so there is really more than enough market to fill existing opportunities,” Emmerman says. “Sure, if we had a major recession, that would throw monkey wrench in. But we’ve had a blip, and we’re recovering and most projects are selling well.”
Every highrise developer argues that his or her project is unique and can withstand a slowdown, but many in the current crop make good arguments. Harmon Development Group is taking deposits on units planned for 1000 S. Michigan, a residential complex envisioned as three highrises, a 36-story tower on Michigan Avenue and a pair of 32-story buildings on Wabash, for a total of 585 condos.
The development has not gotten final city approval yet largely because it is in a new landmark district and must pass the Chicago Landmarks Commission as well as the usual process, according to Andrew Zajac, vice president of sales and marketing for Harmon. Zajac says that in addition to the quality of the planned units and building, the cachet of a Michigan Avenue address will see the project through.
“I feel extremely confident because of the location,” Zajac says. “This isn’t State or Wells; we’re talking about Michigan Avenue, Grant Park, permanent lake views and probably one of the last large, developable parcels.”
Plans for the building include luxuries such as a 24-hour concierge, an indoor dog run, a golf simulator and an 80,000-square-foot health club with an indoor pool. Zajac says financing for the development is in place but at press time, would not say who Harmon’s lender was.
The Heritage at Millennium Park may not have a Michigan Avenue address, but it has perhaps the next best thing, a site with nothing between it and Boul Mich but the short and permanent Chicago Cultural Center.
The Cultural Center will protect the highrise’s lake and park views, and the building’s curved glass face and modular design, by architects Soloman Cordwell Buenz & Associates, will be clearly visible from Michigan Avenue.
Architecture, as well as a convenient West Loop location on the Kennedy Expressway, may be the main attraction for Skybridge, a 38-story tower at 724 W. Washington. Ralph Johnson, of Perkins & Will, designed the building with a series of glass-enclosed walkways that connect what look like two distinct towers. The glass “skybridge” is open to view on both sides and as they gaze up the length of its 39 floors, passersby will be able to see residents walking from one part of the building to the other.Rezmar says it is banking on the oldest inducement in real estate to sell out Hudson Tower, planned for a site at 800 N. Hudson – competitive pricing. One-bedroom condos in the 24-story highrise start at $201,000. At press time, the project had sold 64 of its 228 units and hoped to break ground within two or three months, according to Sales Manager Margo Alexander.
Legacy Development also is priced competitively with its new highrise, the Tower Residences of Prairie District Homes, 1802 S. Prairie. Condos in the planned 23-story South Loop highrise start in the $180s.LR Development is at the opposite end of the spectrum with the Belvedere and 840 N. Lake Shore. Units at the Belvedere range from the $490s to $3.5 million, and condos at 840 N. Lake Shore will cost you anywhere from $1.4 million to nearly $9 million.
“We’re on Lake Michigan and a park with unobstructed views of both, a block from the Magnificent Mile,” Weldon says. “And we’re very unique in the way we deliver the product. We offer a process where customers can very personally customize their homes to fulfill whatever their dream is. We basically do a luxury single-family home within a highrise.”
Because LR’s three new highrises constitute a single project, the developer was able to meet its presale requirement with sales in the earlier phases and to begin construction on the Belvedere immediately. Most new projects can expect a longer wait before they begin construction in a field that’s looking a little crowded.
“I do think there’s a fair number on the market,” Weldon says. “For the planned highrises that haven’t started, I think not all of those actually will be built. I like to see developments going forward, but people are always testing the water.”