May
15

Yawn

Tracy Cross & Associates, Inc.

1st Quarter 2018

 

 

New home sales in the production sector of the ten-county Chicago area totaled 1,069 during the 1st Quarter 2018 marking a decline of 17.3 percent from the same period a year ago when builders signed 1,293 contracts.  At a seasonally adjusted annual rate (SAAR), this year’s first quarter volume equaled 3,791 units sold representing an activity level that has now run under the 5,000-unit mark for 37 consecutive quarters.

 

Sales recorded during the current quarter were distributed between 644 in the single family sector of the market and 425 in the form of duplexes, townhomes, and condominiums reflecting respective declines of 18.2 percent and 16.0 percent year-over-year.  In the city of Chicago, new home sales during the January-March 2018 period totaled just 107 representing a year-over-year drop of 17.7 percent while suburban activity of 962 equated to a similar year-over-year downward slide of 17.3 percent.

 

On a per project basis, single family programs active in the city during the January-March 2018 period averaged 0.81 monthly when seasonally adjusted while those in the suburban area were selling at an average monthly pace of 1.06.  On a comparative basis, and over the last 20 years, single family detached program volumes in the city have not moved past the 1.25 monthly mark largely a result of the small sale of most projects.  In the suburbs, the 1st Quarter 2018’s monthly pace of single family project sales was quite similar to the average monthly rate recorded in 2017 and the 1.01 monthly average witnessed over the five years prior.  Compared to the 1999-2006 period, however, when suburban single family developments averaged 2.57 sales monthly, current quarter community volumes represent a downturn of 58.8 percent.

 

In the city’s attached sector, 1st Quarter 2018 per project rates averaged 0.82 monthly when seasonally adjusted representing a decline of 24.8 percent from the 1.09 monthly pace set in 2017 and a drop of 67.8 percent from the 2.55 monthly per project pace set during the 2013-2016 timeframe.  Per project attached sales in the suburban area, in turn, averaged 1.17 on a monthly, seasonally adjusted basis during the January-March 2018 period.  This rate represents a modest 12.5 percent increase from the suburban market’s 2013-2017 pace of 1.04 monthly per development.

 

In Chicago proper, the 107 contracts signed during the first 90 days of the year were generally isolated to condominium activity in the four Central District community areas of the Near North Side, the Near West Side, Lincoln Park, and the Loop where attached sales totaled 80 units or a multifamily capture rate of 81.6 percent.  Sales leaders in these neighborhoods included The Hamptons (Lincoln Park), Vista (Loop), Ritz-Carlton Residences (Near North), and Renelle on the River (Near North), each with seven or more contract signings.

 

New homes sold in the production sector of the suburban market during the current quarter were heavily concentrated in three of the area’s 16 submarkets.  These included Southwestern DuPage County/Aurora/Kendall County, the adjoining Southwestern Corridor, and the Northern Fox Valley portion of Kane County.  In aggregate, these submarkets recorded 637 sales during the three-month period representing close to two-thirds of all activity outside of the city.

 

Single family sales leaders in the suburban area during the current quarter included four developments with 15 or more sales.  Ryan’s Grande Reserve community led the market with 30 sales followed by three D.R. Horton/Cambridge Homes neighborhoods in Pingree Grove—Cambridge Lakes-Horizon, Carillon at Cambridge Lakes, and Cambridge Lakes-Meadow/Prairie.  Sales in these Cambridge Lakes communities ranged from 15 to 17 during the quarter.

 

Two attached neighborhoods in Pingree Grove by D.R. Horton/Cambridge Homes also had 15 or more net contract signings during the first 90 days of this year along with K. Hovnanian’s Tramore community in Naperville.  The D.R. Horton/Cambridge developments included Cambridge Lakes-Seaboard, a courtyard series that had 30 sales and Carillon at Cambridge Lakes-Bayside where the company recorded 15 net.  Rounding out the top sellers, K. Hovnanian’s newly opened Tramore community posted 19 sales with three duplex plan offerings priced from the $360s.

 

Pingree Grove, Naperville and Yorkville represented the leading areas of new home sales in the region during the January-March 2016 period with respective volumes of 105, 91, and 52.  These three municipalities were followed by Joliet, Lockport, New Lenox, and Plainfield, four Will County communities that are part of the Southwestern Corridor submarket.

 

Five individual home building companies registered 70 or more sales during the quarter.  D.R. Horton/Cambridge Homes reported the highest volume at 221 followed by M/I Homes and CalAtlantic (now Lennar) with 131 and 124 contracts, respectively.  Rounding out the top five were the PulteGroup (116 sales) and K. Hovnanian (72).

 

By Dennis Rodkin

Crain’s Chicago Business

April 25, 2018

Photo by Little Realty This new house on Thomas Court in Wheaton sold for just less than $600,000 in March.

Sales of newly built homes in the Chicago area dropped in the first quarter, according to an industry consultant’s data.

In the first three months of 2018, builders sold 1,069 new homes locally, down more than 17 percent from the first quarter of 2017, according to the report from Tracy Cross & Associates.

The first quarter of 2017 was the last of four quarters when builders made big gains in sales. In most quarters since, Cross’ report has shown double-digit drops from the year before. The exception is the fourth quarter of 2017, when sales were essentially flat.

The latest data is more of the same for this “yawn of a homebuilding market,” said the Schaumburg firm’s principal, Tracy Cross. “Chicago simply isn’t recovering as other markets in the country are.”

On a seasonally adjusted basis, the quarter’s sales figure suggests builders would finish 2018 with about 3,790 home sales for the 10th year in a row. From 2000 through 2006, year-end totals ran above 20,000, and in the two peak years above 30,000.

Cross’ data captures only homes sold in developments of 10 or more, and covers both detached houses and attached condominiums and townhouses. Homes built on individual lots do not get counted.

In Chicago, the report shows 107 sales in the first quarter, down almost 18 percent from a year earlier. The suburbs had 962 sales, down more than 17 percent.

Among the reasons sales have stayed low: Prices on existing homes are growing slowly enough that buyers aren’t forced to look at lower-priced new construction, and the Chicago area’s population shrinkage over the past three years has reduced demand.

Those and other factors make builders reluctant to start new subdivisions, which usually require a multiyear buildout. This year 281 suburban subdivisions are underway, about one-fourth as many as in 2006, Cross said.

 

By Dennis Rodkin

Crain’s Chicago Business

February 01, 2018

Photo by Thinkstock

Photo by Thinkstock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The upside of being one of the nation’s slowest-recovering housing markets might just be that it makes Chicago look good to Amazon, the online retail giant that plans to plant a second headquarters somewhere that isn’t as overcooked as Seattle.

It’s not only low prices, although Chicago has those. Large swaths of the region are ready for the makeover they didn’t get during a decadelong lukewarm real estate market, meaning they’re ready to help absorb what would be tens of thousands of future Amazon households with new or rehabbed homes.

Amazon’s search committee “may find Chicago refreshing, coming from the West Coast, where Seattle and Silicon Valley are infamous for housing crunches, steep housing cost appreciation and excruciatingly long commutes,” said MarySue Barrett, president of the Metropolitan Planning Council, a Chicago nonprofit that focuses on equitable development of the region.

Chicago, one of 20 finalists for “HQ2,” has weaknesses that could ding its chance to win. Among them are cold weather, taxes and a political deadlock that undermines the state’s financial future.

At the same time, Chicago has considerable strength in the realm of housing and lifestyle: an extensive rail network that fans out to desirable neighborhoods and suburbs both close in and far out, a plentiful stock of homes for all tastes from historical to contemporary, and other key components of home life—good schools, parks and cultural attractions—sprinkled all over the map.

“Chicago’s well-positioned to compete with the other (19) on housing,” said Geoff Smith, executive director of the Institute for Housing Studies at DePaul University.

More:

Chicago’s surprising strengths in the Amazon HQ2 race

Rauner and Emanuel, bury the hatchet and get to work for HQ2

Google eyes Chicago for up to 5,000-job office

Several of the finalists have housing markets that look nearly as intimidating as Seattle’s, where the median price of a house was more than $718,000 last year. In finalists Boston and Washington, D.C., the median was over $540,000, and in Los Angeles it was over $650,000, according to online real estate marketplace Zillow.

In Chicago, the 2017 median price was $221,000, putting it in the bottom half of the locations on Amazon’s list. Of course many of Amazon’s employees would be able to spend much more than the median on housing, but the low figure for Chicago indicates that they’d get more home for their dollar, or their millions of dollars, than they would in more than half the other contenders.

Renting tricked-out luxury apartments is cheaper here, too. “The Amazon techies who are making $100,000 a year while they’re still single are going to find the new downtown apartments affordable,” said Tracy Cross, a homebuilding industry analyst who heads Schaumburg-based Tracy Cross & Associates. “They’re going to pay $3, $3.25 a square foot in Chicago, versus $5.50 a foot in Boston and $8 in New York.”

Beyond price, there’s the question of where to put as many as 50,000 new households. Simple math says that Chicago, the nation’s third-largest metro area, is better equipped to swallow that number than contenders like Pittsburgh, Indianapolis and Columbus, Ohio, each of which is less than one-third the size of Chicago. The nation’s two biggest metros, New York and Los Angeles, would be even more capable, but housing is more expensive and their sprawl more extensive than Chicago’s.

SPACE, INFRASTRUCTURE

More than just numbers, Chicago has the space, the housing and the transportation infrastructure to grow by 50,000 households.

In the South Loop alone, a pair of mega-developments covering a combined 76 acres along the South Branch of the Chicago River offer the promise of several thousand homes, and farther afield is the 430-acre former U.S. Steel South Works site on the lakefront around 87th Street, which first one and now another owner have tried to turn residential. Any of these and others could get the spark they need from an Amazon influx.

The point here is not that Amazon should come to Chicago in order to give these projects a boost, but that “there’s room to put a lot of new housing that isn’t out in the cornfields,” Cross said.

It’s far too soon to know where in Chicago an Amazon HQ2 would land if the city emerges as the chosen destination later this year, but the general consensus among observers in Chicago and elsewhere is that an urban-core location is likely, given the modern trend in downtown headquartering.

CTA, METRA

That looks good for Chicago because “we have the benefit of a legacy infrastructure system,” also known as the CTA and Metra, said Jonathan Burch, principal planner at the Chicago Metropolitan Agency for Planning. “Our downtown core has a lot of density built around that asset,” but one of its unheralded strengths is how far out into Illinois, Wisconsin and Indiana it reaches. A recent turn away from car-centric living has led to “a lot of these places reinventing themselves around the train stations,” Barrett said. Among them are Arlington Heights, Orland Park and Skokie.

It may not be the Amazon workers who rediscover these locations, but the extant Chicagoans who are inevitably priced out of the hot zones by the arrival of Amazon money.

“There’s going to be gentrification no matter what city Amazon goes to,” Smith said. It happened in Seattle. Chicago has already been dealing with gentrification issues, but “you’ll see existing patterns accelerate” if Amazon arrives, he said. “What you saw happen in Logan Square in 10 years, you’d see happen to other places much faster.”

Increased heat in places like Logan Square would inevitably ripple outward. Change could gradually roll into areas that have resisted gentrification, such as the West Side.

More: Call an Amazon truce, top economists tell cities vying for HQ2

A lot would depend on which transit lines HQ2 landed near. “We have several transit lines that are already at or near capacity at rush hour,” said Liz Schuh, principal policy analyst at CMAP. An influx of new riders on the CTA’s Red Line might prove crippling, but Schuh said a location near the Green Line would be “useful.” Together, the new Morgan Street station that opened in 2012 and a Damen Avenue station that CTA hopes to complete by 2020 prime that line to become a portal into the West Side for West Loop workers.

If so, block after block of deteriorating greystones and empty lots might quickly redevelop into whole new areas of hotness, and not far from the downtown core.

By Dennis Rodkin

Crain’s Chicago Business

January 31, 2018

Photo by Little Realty This house in Naperville sold in May for $570,000. It's one of 14 homes in a subdivision built by M/I Homes.

Photo by Little Realty This house in Naperville sold in May for $570,000. It’s one of 14 homes in a subdivision built by M/I Homes.

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of new homes fell last year in the Chicago area, the third down year out of the past four.

Developers sold 3,911 new houses, condos and townhouses in the 10-county Chicago area last year, down 4.4 percent from 2016, according to Tracy Cross & Associates, a Schaumburg-based real estate consulting firm that tracks new-home sales.

“It was another yawn of a year,” said Tracy Cross, head of the firm.

2018.01.31 New home sales fall in 2017-pic 2

The prior year’s increase of 9.4 percent came after two years in a row when the total was down.

Cross tracks sales at offerings of 10 homes or more. Builders in the city and many inner-ring suburbs often build on single lots or a small number of lots; those projects do not show up in the Cross study.

In the city, Cross shows a decline of nearly 15 percent, to 464 units. That’s largely because of a 2016 sales bulge created by a pack of early buyers in the Vista Residences, the condo portion of the 93-story Vista Tower under construction in Lakeshore East. No other development of Vista’s size came online in 2017 to carry the ball for the year, Cross said.

Suburban sales were down 2.9 percent last year, to 3,447 homes. Of those, more than 2,000 were sold by four large national builders (CalAtlantic, DR Horton/Cambridge, M/I Homes and Pulte Group), each with at least 400 sales during the year.

For those companies, all based outside Chicago, “400 or 500 sales is a number they’re going to be pleased with,” Cross said.

The post-recession high-water mark for local new-home sales remains 2013, with 4,415. Builders have sold fewer than 5,000 new Chicago-area homes in each of the past nine years. In the first seven years of the 21st century, builders sold more than 20,000 new homes each year and sometimes more than 30,000.

“It’s clear that nothing spectacular has been happening for builders in this market,” Cross said.

One clear reason for the slowdown is that jobs have been shifting back toward the city. McDonald’s, Kraft-Heinz, Beam Suntory and Archer Daniels Midland are among the corporations that have recently opened or are about to open new downtown headquarters.

“Building homes 30 miles out isn’t going to work when the jobs centers in the suburbs aren’t growing the way they were” in previous decades, Cross said.

While builders have been rushing to provide new homes in and near the city, they are unlikely to find land parcels big enough to sell at the scale of those halcyon years of the early 2000s, except when building high-rise residential buildings.

By Dennis Rodkin

Crain’s Chicago Business

October 24, 2017

2017.10.24 Crains-New-home sales plunge in third quarter-PICTUREPhoto by Pulte Homes and Del Webb Communities of Illinois This newly built house on Silverleaf Street in Naperville sold in August for about $474,000.

A sharp drop in new-home sales in the third quarter puts the Chicago area on pace to finish the year down 5.5 percent, according to a report.

Builders sold 756 new homes in the 10-county area in the third quarter, according to a report from Tracy Cross & Associates, which tracks sales in developments of 12 units or more. That’s about 26 percent below the sales volume in the third quarter last year and the lowest number of third-quarter sales since 2011, according to the report.

Builders are on track to sell 3,849 new homes in the region this year, said Tracy Cross, principal of the Schaumburg firm. They sold 4,075 last year.

“The main problem is supply,” Cross said.

During the third quarter of 2005, he said, there were 1,199 active developments selling homes in the region, while there were 313 at the same time this year, and the typical project is considerably smaller now.

Sales fell in both the city and suburbs in the third quarter. There were 679 suburban sales, off more than 25 percent from a year earlier. There were 77 in the city, down 33 percent.

Cross’ reports do not capture homes that builders put up singly or in groups of fewer than 12 on infill lots, such as replacements for teardowns in the city and suburbs.

Chicago-area new home sales also declined in the second quarter from the year-earlier period after four consecutive quarters that showed increases.

New-home sales also have been down nationwide recently. August sales were down 1.2 percent from a year earlier, the U.S. Census Bureau and the Department of Housing and Urban Development reported last month. September data will be released tomorrow.

 

By Dennis Rodkin

Crain’s Chicago Business

August 17, 2017

2017.08.17 Chicago lags in homebuilding rebound-PICTUREChicago lags behind most major US cities on construction of new housing, and a key culprit may be the region’s population loss.

In the Chicago area, building permits for all types of housing, for sale and for rent, will end the year 20 percent below the region’s historical average, according to a report released Wednesday by Trulia, an online real estate resource. Only three of the nation’s 20 largest metro areas will end the year farther below their averages: San Diego (29.2 percent off), St. Louis (33 percent) and Cleveland (35 percent).

Although Chicago is doing fairly well on three key factors that drive growth in homebuilding—employment, income and home prices—”we see an important problem in Chicago,” said Ralph McLaughlin, Trulia’s chief economist. “Chicago is losing population. That’s not a good prospect for people who are building homes.”

In the simplest sense, the two-year net loss of 30,894 people adds thousands of existing residential units to the supply, dampening demand for new units.

“With the outmigration, you’re seeing the demand for new homes diminish,” said Tracy Cross, head of the Schaumburg-based firm Tracy Cross & Associates, which tracks homebuilding in the region. He was not involved in Trulia’s study.

Trulia calculated a historical average for each metropolitan area using census data on building permits each year from 1980 through 2016 (a stretch that contains both boom and bust years), as well as its own projected total for this year. The Chicago area’s longterm average was about 20,600 permits, and Trulia forecasts builders taking out about 16,480 permits by the end of this year.

While Chicago is 20 percent below its average this year, Trulia expects three cities to take out at least 60 percent more permits than the longterm average. They are Philadelphia (62.3 percent) and Boston and Dallas (both 61 percent).

Because the Trulia analysis looks at construction of all types of housing, it masks the extreme weakness in construction of new houses in the Chicago area. While permits for that type of housing are off the historical average by more than 60 percent, he noted, because of the downtown apartment-building boom, permits for multifamily housing are up by a similar amount.

The net is a decrease in permits overall, but McLaughlin called the big increase in multifamily construction “the silver lining for Chicago.” It’s a response to increased demand for high-rise rentals, a sign of a thriving job market for younger adults, he said. San Francisco, New York and Austin have also seen large increases in the construction of multifamily units near the city center, he said. Builders “have followed the demand downtown,” Cross said.

He’s not surprised that the new construction in Chicago tilts heavily toward rentals. Savvy millennials, he said, “aren’t going to buy yet, because they need their mobility. They may have to move again,” and slow price growth in the Chicago area’s for-sale housing market could limit their ability to sell the property in a few years without taking a loss.

 

 

By John Handley

Chicago Tribune

August 2, 2017

2017.08.02 In Wheeling-pic 1

 

 

 

 

 

 

 

 

 

 

 

The Wheeling town center’s 100,000-square-foot retail area, seen in this rendering, will be anchored by a 10-screen CMX movie theater with reclining seats and dining and cocktail options. City Works Eatery and Pour House will be located across from the theater, and other restaurants and shops will be a short walk from the apartments. (The Lynmark Group)

This northern suburb has long lured diners to its popular 3-mile-long Restaurant Row along Milwaukee Avenue. But despite its gastronomic prominence, the village of Wheeling has no real downtown, even though it was founded in 1894.

That is about to change.

After years of planning and overcoming obstacles, the construction of a downtown is finally underway in the village 30 miles northwest of Chicago.

What does a new downtown cost? The tab here is $110 million.

A town center will rise on a 16.2-acre vacant site created by the demolition of the bankrupt Wickes Furniture property on Dundee Road at Northgate Parkway. The site is surounded by existing structures that set the stage for a downtown area, such as the village hall, police and fire stations, park district recreational building, aquatic center, ball fields, a lake and a commuter rail station on Metra’s North Central Service line.

Presently, crews are laying foundations for the town center. Here’s what to expect at the opening, slated for late 2018: A five-story, 300-unit apartment building will wrap around a 25,000-square-foot plaza with a pool, putting green, bocce court, fire pit, barbecue grills and a gazebo. The courtyard will serve as a central gathering place for residents and the surrounding community.

Nearby, the center’s 100,000-square-foot retail area will be anchored by a 10-screen CMX movie theater with reclining seats and dining and cocktail options. City Works Eatery and Pour House — of the Chicago-based Bottleneck Management restaurant group — will be across from the theater, and other restaurants and shops will be a short walk from the apartments.

The town center is expected to provide a considerable boost to Wheeling’s population, which now stands at more than 38,000.

“The town center will revitalize the community and become a destination for the area,” said Patrick Horcher, Wheeling village president. He said it is the most upscale development in town.

“It has been a long time in coming,” he said, alluding to the project’sups and downs. “After the village bought the Wickes property in 2008, it was a challenge to find a developer to do the town center. The site stood vacant for a while and was costing the village in lost property tax revenue.”

The long planning process required the village to reach agreements with many stakeholders in the complex public and private project. These included the U.S Postal Service, a fuel pipeline company, Metra, the Wheeling park district and an existing Burger King near the entrance to the town center that was concerned about access and signage, according to John Melaniphy III, Wheeling’s director of economic development.

Once the project was designed, some residents were concerned about whether the space would attract enough tenants, both residential and commercial. But after the groundbreaking in late July, Horcher concluded: “We’re now on target for the town center we wanted years ago.”

“I can’t wait for the opening. It will be a huge new focal point in the village,” said Neal Katz, a 30-year resident of Wheeling. He believes that ” People will be moving back.”

“The town center will enhance property values and be a catalyst for future development,” Melaniphy said. “It will change Wheeling’s image, which has previously been known as blue collar because of our industry.”

He suggested that the town center will benefit existing retail and restaurants rather than rankle them as a source of competition. “Because (the town center) is projected to be a regional attraction, it will draw out-of-town customers to the village’s other retail and restaurants,” he said.

Melaniphy estimated the town center could generate $1 million a year in sales tax revenue.

“The town center will keep more shopping dollars here and will add a more cosmopolitan character to the village,” commented Neena Pottoore, executive director of the Wheeling/Prospect Heights Chamber of Commerce.

 

2017.08.02 In Wheeling-pic 2

 

 

 

 

 

 

 

 

 

 

 

A five-story, 300-unit apartment building will wrap around a 25,000-square-foot plaza with a pool, putting green, bocce court, fire pit, barbecue grills and a gazebo. This rendering depicts the courtyard pool. (The Lynmark Group)

That citylike feel is expected to woo renters — Melaniphy said most of the apartments will be one- and two-bedrooms targeted at young professionals and empty nesters. Residents will have 500 parking spaces, while 800 slots will be dedicated to retail and dine-in movie theater consumers.

Along with shopping and cinema, a smattering of other entertainment options are in the works.

“The town center will host community events like fairs, festivals, art shows and farmer’s markets,” said Bradley Friedman, director of Midwest operations for the Lynmark Group of Suffern, N.Y., the project’s developer.

New town centers are riding a national trend, according to Ed McMahon, an authority on sustainable development at the Urban Land Institute in Washington, D.C.

“Downtowns are the heart and soul of any community, and the future belongs to town centers. New suburban town centers are replacing failed regional malls in many parts of the country,” he said.

“Wheeling’s new town center will create a new place for housing, shopping, playing, eating and hanging out. The demand today is for town centers that are gathering places that attract young people as well as retirees.”

Real estate experts certainly see the appeal.

“We’re finally going to get a downtown. It will definitely be a big plus,” said Gary Aver, broker and owner of Re/Max United in Wheeling. “It will make house values more stable and could increase them in the long run.”

According to Tracy Cross, president of Schaumburg real estate consulting and market research firm Tracy Cross & Associates, the town center “should do well despite its relatively small size compared to other town center projects, such as the Glen in Glenview.” The 1,121-acre Glen, built on the site of the former Glenview Naval Air Station, opened in 2003.

Cross said the Wheeling town center may create a real estate ripple effect if renters at the new apartment building later decide to buy a house in the suburb. He added that one impact of the town center could be to establish a premium in housing values.

Construction projects this large sometimes generate complaints from nearby residents. However, that is not a factor here because the town center is not in a residential neighborhood. It is bounded on the west by railroad tracks, on the east by village buildings, on the south by an 85-acre park and on the north by vacant land.

The town center was designed by the Chicago office of CallisonRTKL and will be built by William A. Randolph of Gurnee.

 

 

By Dennis Rodkin

Crain’s Chicago Business

July 17, 2017

2017.07.17 Crains-picture

 

 

 

 

 

 

 

 

Photo by David Weekley Homes
This new house on Ironwood Court in Glenview sold for almost $742,000 in May.

Sales of new homes in the Chicago area dropped sharply in the second quarter after increasing in four consecutive quarters, according to a new report.

Builders sold 983 new homes in the 10-county metropolitan area in the second quarter, according to a report from Tracy Cross & Associates, which tracks city and suburban sales in developments of 10 units or more. That’s a decline of more than 19 percent from 1,216 sales in the second quarter of 2016.

The figures do not include sales of homes built and sold singly, such as houses replacing older homes on city lots. Sales of single new houses in the city have been strong, but “there’s not enough of that type of building to make up for the lost volume overall,” said Erik Doersching, executive vice president of Schaumburg-based Tracy Cross.

The sales figure was the lowest for the second quarter since 2012, when builders sold 969 new homes.

For the first half of this year, sales were up slightly, to 2,280 from 2,254 sales in first-half 2016, with the increase all due to a strong first quarter. In the first three months of the year homebuilders made 20 percent more Chicago-area sales than they did in the same period in 2016. That was the biggest increase in almost four years.

The first quarter was fourth straight that showed improvement over the corresponding period in the previous year. “It looked like there was some momentum,” Doersching said, “but then there was this quarter.”

Tracy Cross forecasts that total 2017 sales in the region “will be flat or down from last year,” Doersching said. Builders ended last year with 4,075 local sales.

Three factors were key in the second-quarter decline, Doersching said. One common to the city and suburbs is the economic climate in Illinois. Although employment is up, he noted, “there are more reasons to leave the state,” including a big income tax increase approved in Springfield earlier this month. Outmigration decreases the demand for homes.

In December, census figures showed that Illinois lost more residents in the previous 12 months than any other state in the U.S.

Two other factors are specific to one or the other: city or suburbs.

In the city, large-volume builders have increasingly focused on the upper price range, resulting in fewer but higher-priced sales.

In the suburbs, no large-scale master-planned developments are being unveiled to replace the ones on pre-bust land that are selling out.

“Nobody’s replacing them, and that’s where we’d get a lot of sales volume,” Doersching said. Building activity has been slow in what he called “the value corridor” in the northwest suburbs around Pingree Grove or Huntley.

Together, the three factors “are holding us back,” Doersching said.

In the modern heyday of suburban homebuilding, the years 1994 through 2007, second-quarter sales were always above 4,000, according to Cross’ historical data. This year’s second-quarter figure is less than one-quarter of that.

By Michelle Jarboe

The Plain Dealer

June 10, 2017

CLEVELAND, Ohio – After years of behind-the-scenes planning, Playhouse Square Foundation is getting ready to stage its biggest real estate act: Building a 34-story apartment tower at the edge of downtown Cleveland’s theater district.

The nonprofit organization will own the project, a $135 million investment comprised of a 319-unit rental building and an adjacent, 550-space parking garage at East 17th Street and Euclid Avenue. Hines, a global real estate firm, will serve as the development manager, shepherding the project without holding a stake in it.

Playhouse Square’s decision to push forward on a long-held development dream comes during a rental renaissance for Cleveland, which is seeing proposals for new construction pick up as the supply of potential conversion projects – older buildings primed for residential makeovers – thins.

An apartment tower called One University Circle is being built on the city’s east side, and a high-rise called the Beacon is earmarked to rise above a parking garage at 515 Euclid Ave. A handful of developers are trying to stretch Cleveland’s skyline, while others are tying up neighborhood sites for smaller rental deals.

Yet economists across the country are asking how long the rental boom will last. Some markets are showing signs of slowing. And lenders are tempering their approach to apartments, making financing tougher to find.

Playhouse Square executives aren’t worried. They aim to start construction on their tower by the end of the year and open the building by early 2020.

“We have vetted this pretty well,” said Art Falco, chief executive officer for the performing arts district, which owns more than 1 million square feet of real estate and manages a comparable amount of space for other property owners.

“We have a database of about 800,000 people that come to Playhouse Square,” Falco said. “So we have great comfort that a small percentage of those will want to live here.”

Plans for the building show a slim, glassy tower at the southwest corner of East 17th and Euclid, with a parking garage just to the west, next to the Hanna Building.

The site, slightly over an acre, is a parking lot. Playhouse Square has owned most of the property since 1999 and acquired the last piece in 2015.

The nonprofit is putting that land into the apartment deal as equity, along with a little more than $10 million — a gift from the Richard J. Fasenmyer Foundation to Playhouse Square’s ongoing $100 million capital campaign. The district also received $1 million from the last state capital budget to help with construction of a garage.

The garage, with two floors underground and four levels above, will replace 140 surface parking spaces. An amenity deck, with a pool, heated gathering areas and a dog run for the apartment residents, will span the garage roof.

At 378 feet tall, including mechanical floors, the apartment building will be comparable in height to the Hilton Cleveland Downtown. The average apartment will be 880 square feet, though the units will range from one to three bedrooms.

Falco won’t discuss potential rents, though they’re likely to be among the loftiest in the market. Early this year, the average monthly rent in the downtown area was $1,400, according to Reis, Inc., a research firm that tracks market-rate, multifamily properties of at least 40 units. Vacancy was a mere 3.1 percent.

Due to modest job growth and a fairly stagnant number of people living in the region, rents in Cleveland aren’t high enough to make new construction an easy sell. That’s why Playhouse Square is shouldering its tower project in-house, rather than selling it to a developer.

Two local developers – the NRP Group, first, and then Hemingway Development – seriously considered the deal but ultimately passed when they couldn’t make the numbers work.

Hines, which entered the talks late last year, reached a similar conclusion: The project wouldn’t generate enough cash to satisfy an owner-developer. But it still could make sense for Playhouse Square, which views the buildings as a working endowment and will accept more moderate returns.

“For a developer who has a certain cost of capital, it just wasn’t penciling out,” said Brad Soderwall, a managing director at Hines. “But we felt strongly that the product itself would be very well received in Cleveland and could compete well and capture the highest possible rents that could be achieved in Cleveland.”

Playhouse Square derives a third of its revenues from real estate and the rest from theater operations.

“We have the benefit of having a long-term perspective, a very different perspective than most investors,” said Allen Wiant of Playhouse Square Real Estate Services. “We also have a perspective of having a broader portfolio where we can evaluate this return as raising the bar on the rest of our portfolio.”

The nonprofit’s holdings, other than the theaters, generate property taxes.

But the foundation does plan to seek property-tax breaks on the apartment tower and garage. Other major downtown developments have tapped a city residential tax- abatement program and have used tax-increment financing, which shifts part of the new tax revenues created by development to paying off project debt.

HollyAnn Eageny, a Chicago-area consultant who worked on a market study for Playhouse Square, acknowledged that it’s getting harder to finance and build apartments in some cities. And she noted that there are thousands of new units on the drawing board in Cleveland – though not all of them will get built, and the ones that do won’t all open at once.

Her firm, Tracy Cross & Associates, Inc., estimates that this metropolitan area can accommodate at least 500 new apartments each year for the next five years, without pushing the overall vacancy rate above 5 percent.

And, she added, there’s a diverse group of renters, ranging from Millennials to slightly older professionals to downsizing suburbanites, who want to live in a new, efficiently designed building with lots of amenities and easy access to dining and entertainment on foot, by bicycle or via public transportation.

Those are the people that Playhouse Square plans to court.

“Everything in apartments is cyclical,” Eageny said, “and there will come a period of accelerated construction followed by a lull. That’s just the way it has always been. You have not overbuilt and, in fact, you’re kind of catching up because there’s been so little construction for so many years.”

By Dennis Rodkin

Crain’s Chicago Business

May 09, 2017

2017.05.09 crains-pic 1

Photo by Dennis Rodkin Townhouses at Weekley’s Easton Station development in Buffalo Grove.

A couple of years after bringing its Texas-sized ambitions to Chicago’s lackluster suburban real estate market, a national homebuilding firm is scaling back its expectations here.

Since mid-2015, Houston-based David Weekley Homes has sold about 46 homes in Buffalo Grove, Naperville and other suburbs. That’s less than one-third the goal of 150 homes that a Weekley sales executive told Crain’s about in mid-2015.

“Chicago has been a hard-to-predict market,” said Rich Bridges, Chicago division sales manager for the publicly owned builder. “We’ve been disappointed.” At least 30 of the sales, or about three-quarters of them, came in late 2016 and early 2017, he said.

Bridges now says he hopes to sell 75 to 100 homes in the next 18 months.

The retrenchment will take another form too: Bridges said Weekley may try more townhouses, which have done well at its Easton Station project in Buffalo Grove but aren’t usually a big part of the builder’s offerings.

The challenges slowing Weekley down aren’t unique to this firm, they’re built into Chicago’s weak suburban homebuilding market, people outside the firm say.

“They came into this market banking on an upturn that never happened,” said Erik Doersching, executive vice president of Tracy Cross, a Schaumburg-based consultancy for the homebuilding industry. “They’re not the only ones who’ve been disappointed that this market didn’t pick up.” Earlier this month, Cross released a report on the first quarter of 2017 showing that even with several consecutive quarters of improvement, suburban new-home sales remained around one fourth the norm that prevailed between 1994 and 2007, when the housing market crashed.

New-home sales in the suburbs have lagged because of a litany of factors, including lopsided job growth that favors the city’s housing market, two years of population declines, and low prices on existing homes that reduce buyers’ demand for new construction.

Those factors “pose a challenge for everybody” in the industry, said Jerry James, president of Edward R. James, a privately owned builder based in Glenview. While declining to comment directly on Weekley’s situation, he said “it’s gotten tougher here” in the period since the Texas firm arrived in the Chicago suburbs. Along with the other factors, James cited the elephant in the room in any discussion of Chicago’s economy: uncertainty about the financial health of the region and state in the next several years.

Publicly traded national homebuilders generally shoot for about 2.5 sales a month in each of their developments, Doersching said. By his firm’s count, Weekley is getting an average of one to 1.5 sales a month in each of its four developments, in Naperville, Barrington, Glenview and Buffalo Grove. That’s about or slightly below the average for Chicago builders, Doersching said.

“If you’re from Chicago, you think we’re moving at a good pace,” said Bridges, who’s been in the homebuilding industry here since 1988. “But if you’re from Houston, you say, ‘my goodness, that is slower than it is down here in Texas.'”

Weekley has a double-barreled sales strategy in Chicago: it builds subdivisions in infill locations but also builds on single lots or small clusters of lots. It’s unclear how many of the latter Weekley has sold. Bridges suggested the total is between eight and a dozen, though he declined to give specifics, and Cross’ tally does not include small sites.

Chicago’s slow housing recovery may be affecting that side of Weekley, too. On Fort Sheridan Avenue in Highland Park, Weekley cut its asking price by about 23 percent, from almost $1.1 million to below $850,000, before a home went under contract in March, according to listings on Redfin. The sale hasn’t closed yet, and listing agent Jodi Taub of Coldwell Banker did not respond to a request for comment.

Buffalo Grove has been a particular bright spot for Weekley’s subdivision sales, Bridges said. At the firm’s Easton Station development of 15 townhomes that broke ground in April 2016, 12 are sold and the first three owners moved in recently, he said.

Easton Station, where townhomes are priced from $450,000 to $490,000, has done well, Bridges said, because of Buffalo Grove’s strong schools, easy access to a Metra station, expressways and a Mariano’s grocery store, and “a scarcity of new home development.” Also turning Buffalo Grove buyers’ attention to new homes: a lack of existing homes to buy. For about two years, Buffalo Grove has had an especially low inventory of existing homes for sale. For most of the past two years, Buffalo Grove has had enough homes for sale to feed about 2.5 months’ of sales, while a balanced market has four to six months.

Bridges said Easton would be a model for Weekley’s plans in the Chicago area. Townhouses, which Weekley builds mostly in subdivisions targeted to seniors, “is something we’ll do more of here” but in all-ages developments, he said.

Tracy Cross & Associates, Inc.

1920 N. Thoreau Drive
Suite 150
Schaumburg, Illinois
60173 - 4174
Phone: 847 - 925 - 5400
Fax: 847 - 925 - 5415
Email: Info@tcrossinc.com

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