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by Kate Hawley
Chicago has always had luxurious homes – after all, moguls and CEOs need to live somewhere. But recently the high-end for new homes in the city has shifted significantly higher in a surprisingly short amount of time. Developers have introduced a new crop of buildings with hot downtown locations, stunning views and price points that even a few years ago would have seemed off the charts for this Midwestern city.
Real estate types call this niche “ultra-luxury,” and these days it’s defined by prices ranging from $700 to $1,000 or more per square foot (some might include properties starting as “low” as $600 per square foot, but experts seem to agree that the threshold has passed that level). The higher prices per square foot usually translate into whole-dollar prices into the millions.
Chicago properties like these were rare just a few years ago, when the bulk of high-end homes downtown was concentrated in the $500- to $600-per-square-foot range, according to Gail Lissner, of Appraisal Research Counselors, a firm that tracks Chicago’s new-construction condo market. Now, wealthy buyers have their pick of developments with prices literally twice as high as that earlier gold standard.
In fall 2007, New Homes counted 18 ultra-luxury developments marketing condominiums downtown. Grazing the low end of the high end, 30 W. Erie, a boutique River North building with two units per floor, has condos priced just over $600 a square foot (whole-dollar prices range from $1.15 to $1.6 million). On the high end are projects like The Ritz-Carlton Residences and Trump International Hotel & Tower, where prices start at about $1,000 per square foot.
And in September, Shelbourne Development Ltd. released preliminary pricing for the proposed Chicago Spire, the spiraling 150-story tower planned to be the world’s tallest exclusively residential building. The penthouse unit will sell for a cool $40 million – nearly $4,000 per square foot – a staggering, unprecedented price tag for Chicago condos.
Market woes
These record-setting prices coincide with a sagging housing market, as the gradual downturn that began in 2006 has by some accounts turned into a landslide this year. Headlines in 2007 have been laden with news of sinking property values, the crisis in sub-prime lending and the tightening of credit.
The picture isn’t as bleak in Chicago as in Miami or Las Vegas, markets dominated by rampant speculation, but it isn’t exactly rosy. Sales of new-construction condos downtown, where most luxury properties are located, were down 35 percent during the first half of 2007 compared to the same period a year earlier, according to the “Downtown Chicago Residential Benchmark Report,” issued quarterly by Appraisal Research Counselors.
The news isn’t all dire – sales were up slightly in the second quarter of 2007 from the first quarter of the year, the report found. And developers rolled out fewer condo projects, responding to the slowdown. During the first half of 2007, 14 new projects with a total of 1,700 units started marketing programs downtown, a far slower pace than the year earlier. In 2006, 34 new projects with more than 6,600 units started marketing, a record number.
However, there also were a daunting number of new units in various stages of planning. Some of them might never make it to market, but the number of new condos in the pipeline rose to 13,488 units, an increase of 20 percent.
Given the slowdown, how quickly the current batch of ultra-luxury homes will be absorbed is an open question. “We’ve always had ultra-luxury product, it’s just right now, we have a much larger number under development or being proposed than we’ve seen in the past,” Lissner says. “There’s a tremendous amount of inventory targeting this market.”
Downtown on the rise
There was almost no inventory of downtown condos – let alone multi-million dollar ones – just two decades ago. The residential building boom of the 1990s was not yet a glimmer in builders’ eyes back then, and the Loop, the city’s historic core, was still functioning primarily as a nine-to-five center of business for workers from outlying city neighborhoods and suburbs.
That began to shift with the first adaptive reuse projects in the early ’90s. Old commercial buildings began converting into apartments and condos, and once those projects met with some success, developers began proposing new-construction projects.
As the new residential trend took hold in central areas like the South Loop and West Loop and on the Near North Side, Mayor Richard M. Daley’s administration was working to reinvigorate downtown by pumping public money into new infrastructure, improved streetscaping, a new theater district with imported Broadway shows and cultural attractions ranging from a unified museum campus to Navy Pier. Perhaps the crown jewel of this effort, and a surprisingly strong catalyst for development, was Millennium Park, the modernist playground anchored by a Frank Gehry-designed bandshell that opened in 2004.
These improvements helped spur even more residential development, and prices for the new condos climbed. “People who had ridden the market had some stronger appreciation in what they were selling,” Lissner says. “People were really looking at buying real estate downtown as portfolio diversification.”
Luxury ventures South
Museum Park, a cluster of high-rises within the massive Central Station development, in the South Loop, rode this wave, according to developer Ron Shipka, Jr., a principal in The Enterprise Companies.
Planning for Museum Park began in earnest in 1999. Then, he says, “The location wasn’t what it is today.” Downtown had fewer attractions, and the South Loop was just emerging as a residential neighborhood. Enterprise priced the first high-rise condos at Museum Park between $275 and $300 per square foot. “We’ve built from that platform gradually upwards,” he says. “Baby steps.”
One Museum Park, at 1215 S. Prairie Private Ave., was the Museum Park community’s seventh high-rise. A second One Museum Park tower, just to the west, at 1201 S. Prairie Private Ave., followed soon after. In mid-October the east tower, priced from $558 to $820 per square foot, was 93 percent sold, and the west tower, priced from $425 to $700 per square foot, was 60 percent sold. With its top units at One Museum Park, Enterprise tested a new high for condo prices in the neighborhood, and as sales figures show, was successful.
The South Loop, like the southern stretch of Streeterville, the New East Side and slices of River North, is a new frontier for ultra-luxury development. Shipka says views coupled with the growing desirability of the neighborhood commanded the higher price points. “All of a sudden it becomes discovered. It becomes a sexy place to live, and you build on that,” he says. “The thought always was that we would get to this price point, but it took awhile to get there.”
That meant attracting a different kind of buyer. “The early buildings were very much dominated by city buyers,” he says. “The buildings today are dominated by suburban buyers and out-of-state buyers coming in and wanting to have an in-town residence.”
Boomer buyers
Developers and sales agents marketing ultra-luxury developments largely agree that the key demographic group for such projects is affluent baby boomers, many of them seeking second homes. “They’ve all made a lot of money, and they want to spend it,” says Steve Mandell, director of acquisitions and operations for Jameson Development, the company behind 50 East Chestnut. In mid-October, 13 of 34 units, priced from $2.75 to $3.4 million, remained for sale at the building, designed by Solomon Cordwell Buenz.
But questions linger about whether there are enough boomer buyers to go around. About 1,500 new condos are being marketed to upper-income baby boomers downtown, Lissner says, and about 55 percent of them are under contract. “We are seeing absorption,” she says, but as in all segments of the current market, ultra-luxury developments are “certainly seeing slower sales.”
Other analysts say the proliferation of higher-priced projects has less to do with demand and more to do with developers defraying costs. “The same stuff is selling at $100 a foot more than it did three years ago, due to price of land and construction cost,” says Tracy Cross, of Schaumburg-based Tracy Cross & Associates.
Developers wanted to charge more without raising the “chunk price,” or whole-dollar amount of condos, Cross says – that’s the number that really counts when it comes to buyers’ wallets. The solution? Build smaller units and charge more per square foot: “All the builder community did was adjust square footage down to protect the chunk price.”
Developers justified the price increase by adding amenities and services, he says. “You may have different levels of features, or Canyon Ranch carrying the flag of hot stones with them,” he says, referring to the extensive spa services at Canyon Ranch Living – Chicago, Related Midwest’s 67-story tower planned for 680 N. Rush St. “But it is in fact more of a price adjustment and cost adjustment than market adjustment. Incomes haven’t risen at the rate that comparable price per square foot has been generated.”
Adding services is a less expensive way for developers to imbue their projects with originality, since homeowners frequently foot the costs of amenities and services on a pay-as-you-go basis, he says.
Perks aplenty
Adding such perks also is a way to stand out in a crowded market. Ultra-luxury buildings aim to edge ahead of the pack with a range of fancy services and amenities, from gourmet room service to ritzy spas.
Some projects reap the benefits of their affiliations with hotels. The Ritz-Carlton Residences, which in October was planning to break ground within several weeks at 664 N. Michigan Ave., will offer access to the Ritz-Carlton Hotel’s international concierge. “You could send flowers for someone’s birthday in London, or line up opera tickets in Milan,” says Jane Shawkey of Rubloff Residential Properties, which is marketing the 40-story tower.
The Residences at 900, 47 condos being converted from office space on the 21st through the 28th floors of 900 N. Michigan Ave., has an unofficial relationship with the Four Seasons Hotel Chicago, which has guest rooms on the 30th through 46th floors.
“The Four Seasons Hotel doesn’t have a contractual relationship with the residences, but you can get most services the Four Seasons offers,” according to Katherine Chez, of Coldwell Banker Residential Brokerage, sales and marketing agent for the project. The set-up allows the developers to offer top-notch amenities without having to add the cost of The Four Seasons’ licensing and branding to the units, she says.
Several ultra-luxury developments contain both traditional condos and hotel condominiums, including Trump International Hotel & Tower, Canyon Ranch Living Chicago, The Elysian Hotel and Private Residences and Mandarin Oriental Tower, Chicago. Part of Waterview Tower will be occupied by The Shangri-La Hotel, Chicago.
Hotel condos are a hybrid product still relatively new to Chicago that allows homeowners to place their units in a hotel’s rental pool when they’re not in residence. Owners share in the rental revenue and the cost of running the hotel, and the owners of both hotel condos and conventional condos within these buildings usually can avail themselves of housecleaning, room service and other hotel perks.
Those developing and selling hotel condos are careful not to discuss potential financial performance, which would subject them to the rules governing securities, and Chicago has no real track record for this type of real estate. As a result, hotel condo buyers tend to be focused primarily on lifestyle, developers and agents marketing these properties say.
The high life
And what a lifestyle it is. At The Elysian, under construction at 11 E. Walton St., homeowners will have a choice of two Charlie Trotter’s restaurants on site and access to Charlie Trotter’s room service. Should their waistlines begin to bulge from all that gourmet fare, they can work out with a certified Pilates instructor either in the fitness center or in the privacy of their rooms. In mid-October, the Elysian’s 51 condos were more than 80 percent sold, and the hotel condos were 70 percent sold, according to Sales Director Caryl Dillon.
Trump offers similar glitz, with amenities including a 24-by-24-foot swimming pool and a restaurant with a panoramic view of the Chicago River. Canyon Ranch, to be run by the eponymous Arizona-based company known for its chain of health resorts, has not only a spa but also a “wellness center” staffed by a team of doctors, nurses, behaviorists and nutritionists.
“It’s this notion of customizing a lifestyle that works for you, that allows you to optimize your health and well being,” says Kevin Kelly, Canyon Ranch president.
It’s unclear at this stage whether Chicago buyers are enthusiastic about Canyon Ranch’s brand of healthy living. The project, which began marketing in the spring of 2007, had sold about 20 units by mid-October, according to Kerry Dickson, senior vice president of Related Midwest, the developer.
At Waterview Tower, condo residences have an entirely separate set of amenities from the Shangri-La Hotel, including a 60-foot lap pool, a gym, a full kitchen and a business center, according to Dorrie Freiman, of Waterview, LLC, the developer. The project broke ground in January 2006, and by October, construction had reached the sixth floor, she said.
Privacy and intimacy are priorities at several boutique ultra-luxury buildings. The 39-story 50 East Chestnut is a narrow high-rise with just 34 full-floor homes. The condos at 30 W. Erie come two to a floor, as do the condos at The Elysian.
Rooms with a view
But the real selling points for any downtown Chicago building are location and views, says Lissner, of Appraisal Research Counselors. Central locations in the thick of the entertainment and shopping action generally rate the highest, as do views not obscured by neighboring buildings. The two towers of One Museum Park in the South Loop are a little off the beaten track compared to some ultra-luxury projects, but they boast unobstructed vistas.
Similarly, Lincoln Park 2520, the three-part high-rise designed in the neoclassical style by architect Lucien Lagrange, overlooks Lincoln Park, Lake Shore Drive and the vast blue of Lake Michigan. The building is planned for the site of the former Columbus Hospital, at 2520 N. Lakeview Ave.
The hospital building will soon be torn down to make way for the new project, but Ricker Murphy Development LLC decked out an 11th floor suite with a three-bedroom three-bath model anyway, so that buyers could see the actual views instead of the backlit photo simulations many sales centers use. John Murphy, a principal in the development team, says buyers like that particular view so much that condos on and near the 11th floor have sold the fastest. The project was “almost 40 percent” sold in mid-October after about 100 days on the market, according to Murphy.
Feeling the squeeze?
Murphy is one of a chorus of developers and agents who insist that the market slowdown isn’t hurting them. Mandell, of Jameson Development Group, the company behind 50 East Chestnut, is another. He says buyers who can afford to spend several million dollars on a condo are all but immune to the ups and downs of the market.
“The thought when this project first started was that if the market goes haywire, buyers who can afford these units are not going to be affected much,” he says. “Our buyers aren’t even getting mortgages; they’re paying cash for these units.”
Chez, the Coldwell Banker agent marketing The Residences at 900, said in mid-October that sales had actually picked up – although she declined to give sales figures, citing a policy by developer JMB Realty Corporation. She has seen evidence of an overall slowdown, however.
“In the resale market it’s a killer,” she says. “Everybody’s waiting to see if it’s bottomed out. Sellers are reluctant to take the prices down. People are changing their prices, but sellers do it in these minute amounts.”
Leah Harriett, sales manager at Trump International Hotel & Tower, also concedes that the market is getting tougher. “We are so fortunate to have such a stellar brand as Trump,” Harriett says. “This is what allows us to sell in a challenging market, even though the market is tightening up.”
By Harriett’s account, Trump’s condos in October were 80 percent sold and its hotel condos were 75 percent sold. Still, that means that nearly 200 units remained on the market. The Donald himself highlighted the distance left to go at a Chicago news conference in May 2007, when he acknowledged that sales had begun to slow about a year earlier.
“Because of the housing slump, I think this is now a great time to get in there and buy a unit, and it’s going to change very quickly,” he said. Since that news conference, however, the slump has worsened and many now predict that the slowdown could last into 2009.
Developments with sales and construction well underway are not immune, in the view of housing analyst Cross. “Since builders’ and developers’ profit is very closely aligned with the last 10 percent [of unit sales], there may be some turmoil in the market,” he says.
Forging ahead
Given the overall drop in sales and the large number of ultra-luxury condos on the market, it may seem an odd time to launch a brand new project. But Related Midwest is undeterred. A sales center for The Peshtigo, a 57-story tower planned for 515 N. Peshtigo Court, opened in August. The Streeterville location and an innovative asymmetrical design by renowned architect Ralph Johnson, of Perkins & Will, set the project apart, Dickson says.
“The market now is different than it was two years ago or even eight months ago,” he says. “Buildings like this take a long time to build, and a long time to get to the market. One of our strengths as an organization is to ride the ups and downs of the market. On top of that, we feel the products we bring to the market allow us to differentiate ourselves.”
The Chicago Spire is another ultra-luxury project about to kick off sales. In September, the sales team invited media to preview its sales center, a nearly 20,000-square-foot space on the 18th floor of NBC Tower, at 455 N. Cityfront Plaza Drive.
Studios, or “suites,” start at $750,000. Prices for the swankiest penthouses go up to $40 million, according to Dominic Grace, of London-based Savills PLC, which is handling international sales.
Grace is quick to emphasize that not all prices will be in the multi-million dollar range. “There is a lot of product under $2 million,” he says. “We will have a lot of product that is sub-$1,000 a square foot.” Developer Garrett Kelleher, of Dublin-based Shelbourne Development Ltd., says that “up to 200” units would be priced at $1,000 or less per square foot.
In October, Grace and Michael Golden, of At Properties, which is leading the local sales effort, said that more detailed pricing information and floor plans would be available when the sales center opened to the public in January 2008. The sales center was supposed to open in September, but was postponed due to a delay in regulatory filings required by the federal government, according to Shelbourne.
The delay fueled speculation about whether the twisting tower, designed by Spanish architect Santiago Calatrava, would really get built. Most developers secure construction loans after selling a certain percentage of units, but Kelleher has broken ground at the site, at 420 E. North Water St., without a single pre-sale. He insists that he has the funds to pull it off, but not everyone is convinced.
“While Chicago has generally lost its image as a cow town, it’s not in the ranks of Manhattan,” Cross says. “It seems as though that image is what’s being forwarded at the Spire.”
Kelleher disagrees. “I think Chicagoans should be very, very proud, and they don’t realize the treasure they have here,” he says. “New York is congested; it’s unsafe. The quality of life is way better here.” The Spire’s international marketing campaign, spurred on by the strength of the euro, will draw buyers from around the world to Chicago, he argues.
Still, no matter which way you slice it, launching any sizable development is risky in the current housing market. So why do it? “I think the meter was ticking, and if they didn’t do it now, they wouldn’t be able to come online until spring,” says housing analyst Lissner. “Developers are eternal optimists.”