With downtown rents now at all-time highs, the apartment development drought is over. Loans are flowing again with investors and construction lenders eager to finance new projects again and cranes are going up all over the Chicago area.
An article in Crain's Chicago Business states that in the Fulton Market District, workers are preparing a site at the corner of Randolph and Peoria Streets for a 43 story apartment tower.
Work is also underway about four blocks west on a 224-unit rental building after the developer was able to get a $60 million loan for the project in August. In the South Loop, a ground breaking was held on the Reed, a 41 story riverside tower with 224 apartments and 216 condominiums.
With downtown rents at all-time highs and investors and lenders ready to finance new projects, apartment developments are on their way up.
Darren Sloniger, president and Chief investment officer of Marquette Companies recently scored a construction loan for a 210 unit project at 140 N. Ashland Ave., just west of Fulton Market.
"There are a lot of money chasing deals now so you have more options. Loan terms are exponentially better today than they were in July 2020. I didn't have much negotiating leverage with construction lenders back then."
President & Chief Investment Officer of Marquette Cos. | Darren Sloniger
Downtown Chicago has been transformed since the construction comeback marked a resumption of an apartment boom that began at the end of the Great Recession. Developers have built nearly 27,000 apartments in the downtown area of Chicago in the past decade according to Integra Realty Resources. No other sector - office, hotels or condominiums - was busier downtown over that time span.
According to Dodge Data & Analytics, multifamily projects suffered in 2020 as the value of Chicago-area construction starts fell 25%. Residential starts, which include apartments, fell 34%.
Even though the local construction industry is still shrinking, the residential market is doing well. Local construction starts fell 17% through August from the first eight months of 2020, to $7.3 billion, but residential starts rose 31% to $3.5 billion.
Things are really picking up in the city. Developers have drawn up plans for almost 17,000 apartments in the greater downtown area according to Integra Realty Resources.
Many projects are still in the planning phase and waiting for approvals from the city. Some are years away from construction and some may never get off the ground. To get a project to the groundbreaking stage, it needs financing: equity from an investor and debt from a construction lender.
A random survey of proposed apartment buildings in downtown Chicago have turned up at least nine with more than 2,700 units that have entered the construction phase in recent months or are really close to securing their financing.
"Getting a loan last year was just really challenging. Today, nothing is overheated. It's just a good balance in the market, and there is actual competition for construction loans."
Senior Managing Director of Walker & Dunlop Chicago | Dave Hendrickson
Developers are especially busy in Fulton Market which used to be known for food wholesalers and trendy restaurants that has exploded with new office buildings, hotels and residential projects. Chicago developer Fulton Street Companies, is close to signing a joint venture agreement for the Foundry, a 32 story, 433 unit apartment tower located at 1201-1215 W. Fulton Street. It was approved by the City Council in August.
The firms co-founder, Alex Najem, expects to close for the $195 million project in mid-November. This will allow them to acquire the site and clear it for development. He states that he is not ready to disclose his joint venture partner and is still in talks with two lenders for a construction loan.
Lenders are offering better terms than last year and interest rates on construction loans have dropped from 1.25 to 1.50 percentage points. Lenders are also willing to provide a loan equal to 65% of a project's cost.
Najem states that competition among lenders is very strong and he recently received an offer from one that would finance 75% of the project's cost at a 4.5% interest rate. With the loan amount being lowered, he can borrow at a rate in the mid-3% range.
Related Midwest is already moving forward with foundation work on 900 W. Randolph. This is a 43 story high-rise that will include 300 apartments and cost about $200 million. The firm isn't ready to discuss the development's financing package yet.
Obtaining financing is still harder than it was before the COVID pandemic and rising construction costs have become a financing obstacle for some projects.
Structured Development has found financing for a 450 unit residential development on the Near North Side, near the intersection of North and Clybourn Avenues. J. Michael Drew of Structured expects to open a construction loan and break ground in early to mid-November but has declined to discuss the specifics.
The pandemic really slowed construction last year and as a result, downtown Chicago will add just 1,600 apartments in 2022. But, those numbers should start rising again in 2023.
As construction picks up again, those numbers should start rising. Given the length of time it takes for a high-rise to be built, many projects that start in the coming months probably will not be ready until 2024. Until then, downtown could be a landlord's market which is high demand and low supply. This will allow developers to fill up their new buildings at high rents.
DataBid is currently reporting on these projects:
900 West Randolph/170 North Peoria Residential Tower Fulton Market - Chicago (0047042016)
1201-1215 W. Fulton Apartment Tower Fulton Market - Chicago (0070032221)
Big Deahl Residential Development Clybourn Lincoln Park - Chicago (0007101220)
140 N. Ashland Residential Development Union Park - Chicago (0046022421)