By Dennis Rodkin

Crain’s Chicago Business

October 10, 2016

 

Naperville once seemed a rich opportunity for homebuilders eager to sell a four-bedroom, quarter-acre slice of the American Dream for $700,000 and up. Then, in 2006, the bottom fell out, and Ashwood Park—only one-third built—ground to a near-halt. Ten years after the crash, it’s still a monument to the limits of suburban sprawl.

In the summer of 2006, there were few, if any, clouds hanging over the plan to build Ashwood Park on about 210 acres west of 248th Street in Naperville.

The western suburb was in the midst of a growth spurt that was forecast to bring more than 83,000 new jobs to the town by 2030, generating demand for homes. The Ashwood Park site lay in the southwesterly path of growth in Naperville, which since the middle of the 20th century had been expanding, seemingly inexorably, one subdivision at a time. And Money magazine had recently dubbed Naperville the third-best place to live in America.

“Naperville was bulletproof,” Steve Dano recalls. Dano heads sales at Crestview Builders, which was poised to develop the northern half of Ashwood Park while Macom did the southern half, for a total of 504 homes with prices that were expected to start in the $700,000s and go past $1.5 million. The two companies had decades-long track records building homes and neighborhoods in Naperville through good times and recessions.

Then, starting in September 2006, the housing crash hit.

A decade later, at least 150 of the lots at Ashwood Park are empty, homes built since the crash come in at price points as much as 40 percent below those built in the heady days of 2006, and the handsome $7 million Ashwood Park clubhouse, built to provide recreational facilities to the occupants of several hundred high-end homes, is staffed only eight hours a week.

“Naperville was bulletproof,” recalls Steve Dano of Crestview Builders, developer of the northern half of Ashwood Park.

“I never would have expected this in 2006,” Dano says. He’s not the only one. What first appeared to be a nationwide tap on the brakes after a few years of dizzying growth in home prices turned out to be a steep downslope that took with it the home equity of millions of homeowners, and the sunny futures of many homebuilding companies.

The Chicago area has been one of the slowest regions nationwide to recover from the downturn, and 10 years after prices peaked in September 2006, the S&P Case-Shiller Index reports that across the region, single-family home prices here were about 18 percent below the peak as of July, the latest data available. And since the downturn, the region has struggled with one of the nation’s heftiest foreclosure burdens—at the depth of the crisis, in 2010, nearly 139,000 Chicago-area homes were in some stage of foreclosure.

Around that time, Ashwood Park looked like a modern ghost town, with one-third of its planned 500 homes built and vast stretches of weedy empty lots lining most of its paved streets. “It was sad to see,” says Terri Christian, a Coldwell Banker agent in Naperville. Ashwood Park “was supposed to be a stunning place, but it was deserted.”

The recovery here was impeded by the Chicago area’s high general unemployment rate during the down years and the low rate of job creation since, as well as its slow processing of the wave of foreclosures because Illinois requires a judge’s involvement in resolving them. Rising property taxes and a huge public pension debt have also played roles in holding back demand. The fastest-recovering cities have largely been tech hubs and warm-weather places—or both.

The Chicago area’s recovery has accelerated a bit this year, but the gap between where the market was at its pre-crash high and where it stands now yawns like a chasm. “The fall that came after that peak changed the landscape for housing and what we expect from it,” says Geoff Smith, executive director of DePaul University’s Institute for Housing Studies.

The players whose expectations have gone through perhaps the most painful adjustment are those who bought homes at the peak and have to sell at well below that level.

That’s been a decade-long story all over the region, and Ashwood Park is not exempt. A home on Corktree Road that sold for slightly over $1 million during the peak-price month, September 2006, sold last May at 32 percent off.

The crash changed the prospects for Ashwood Park, and for the firms building it.

The south-half partner, Macom, is gone, collapsed under a series of foreclosures of its projects in Oswego, Naperville and elsewhere. Macom had been in business since 1949 (although under that name only since 1960) and built more than 30 Naperville subdivisions before closing down sometime around 2010, according to Bill Novack, director of transportation, engineering and development for the city.

Much of Macom’s share of Ashwood Park is now in the hands of Ryan Homes, with prices starting at under $510,000—about 30 percent below the starting price Macom announced for the site in late 2005.

At the height of the building boom, Novack estimates, there were 88 homebuilders working in Naperville. “Everyone was building homes then,” he says. “It was the best business to be in.” The bust took that figure down to “maybe a dozen,” Novack says, though in recent years it’s grown back to around 30. Homebuilding has been in a trough throughout the region, not only in Naperville. Builders sold 25,105 new homes in the Chicago area in 2006, according to Schaumburg-based industry tracker Tracy Cross & Associates, and in 2015 sold less than 15 percent of that.

Ashwood Park’s north-half partner, Crestview, in 2006 expected to be done with the project by 2011 or so. It’s now about 90 percent finished, says Dano, Crestview’s sales chief. “We should be out of there in the next two years,” he says. That would mean what was once slated to be a five-year project wraps up in 12 years.

“You would have expected those guys to be sold out in a few years,” Novack says. “That’s how it had been for a long time in Naperville. You’d build something, sell it out easily, and go build something else.”

Crestview dialed back its expectations for Ashwood Park in at least two other ways: It sold off half the 251 lots it owned in the development, Dano says, and is selling what it builds at prices well below the original goals. A decade ago, Crestview’s homes in the neighborhood were mostly selling for more than $800,000 and up past $1.2 million, he says, “but now the norm is between $600,000 and the $800,000s.” Crestview advertises that it can sell homebuyers a lot and the house on it “in the upper $400,000s.”

Several builders bought lots from Crestview and are now building homes there, though the price points are lower than what was envisioned 10 years ago.

Early-years buyers at Ashwood Park took a hit when it came time to sell. Among the biggest: the sellers of an 11,000-square-foot house on Teak Circle. They bought it in 2007 for $2.46 million and sold it five years later for less than half that, $1.05 million. The home sold again this summer for just under $1.2 million. Another Ashwood Park home from 2007, a 4,600-square-footer on Chinaberry Lane that went for $924,000 that year, resold in July for $750,000.

The Chinaberry sellers “were very disappointed,” says Rosemary West, the Re/Max Professionals Select agent who represented them. (They decline to comment.) “We did everything but stand on our heads to sell at a better price, but it’s not happening at Ashwood Park.”

There were 61 homes for sale in Ashwood Park at the start of October, 11 of them existing homes and the rest either under construction or proposed. The existing homes were priced from the $800,000s to over $1 million, while the new and proposed houses were mostly from the low $500,000s to the $800,000s.

West says the latter-years shift toward less expensive homes in the neighborhood “definitely makes it feel like a different place than people were buying in” when Ashwood Park opened in 2006. “The exclusivity isn’t there.”

Of course, buyers benefit from the lower prices. Christian, the Coldwell Banker agent, last year represented buyers who got a newly built five-bedroom, 4,300-square-foot home on Shumard Lane in Ashwood Park for $638,500.

“Ten years ago, that would have been a million-dollar home,” Christian says. “It’s still hard to believe they got all that home for that kind of money.”

By James F. McClister

Chicago Agent Magazine

August 22, 2016

 

Home starts are up; residential construction in the Chicagoland market has seen a massive cash injection this year; and Chicagoland new home construction is at its highest level in seven years, according to Metrostudy. But while starts are on the rise, new construction sales are down. In the 12-month period ending with Q2 2016, sales fell 4.1 percent, and quarterly sales were down 14.1 percent year over year.

Chicagoland has a lot shortage – so to speak. Builders are finding it difficult to find skilled labor, affordable materials and financing. Faced with regulatory and demand problems, replenishing affordable housing stock has become a challenge. So how do builders overcome those obstacles and thrive in a changing economy? Why are some homebuilders able to adapt while others struggle to evolve?

Not a lot of lots

“Lot supply is constraining Chicago’s ability to move upward,” says Tracy Cross, president and chief executive of real estate research firm Tracy Cross and Associates, Inc.

Lot supply in Chicago peaked about five years ago in the third quarter of 2011, when the vacant developed lot inventory was more than 250-months supply. Now it’s closer to 86 months of supply.

In terms of sheer numbers, an 86-month lot inventory is technically an oversupply. The “shortage” comes in preferred lots – otherwise known as “A” lots. It’s a problem Belgravia Group President and CEO Alan Lev says Chicagoland builders have always faced.

“Lot supply is a problem, but that’s not a new thing,” he says. “I like to think it is, but I look back to my younger years in this business: it’s always been hard to find good sites at the right price. You can always find stuff, and you can over pay for it, but the key is finding something at a number that actually works.”

Mark Gianopulos of Metrostudy claimed Chicagoland builders will look to supplement with infill locations. Cross says we need to expand, but that “it won’t happen over the next year.”

Why? Cross points to disorganization among the developer community, namely interests that come more from corporate dictums than collective agreements. “There are companies saying that builders can only go in and develop 100 lots because they don’t want to hold lot inventories,” he says. “That’s a corporate strategy.”

The hurdles Lev sees are more systemic. “I don’t know if it’s any harder to find lots in the city today than it used to be. It’s the same situation Chicago has always had,” he explains. “Every alderman has all the power in the ward, and you have to get his or her blessing to develop a lot, and the alderman won’t generally bless it unless it has the backing of all the right community groups.”

Assuming a builder can overcome corporate interests and satisfy the right community leaders to eventually land an “A” lot at a worthwhile price, there remain considerable restraints.

Labor

For one, Chicagoland is facing a shortage of skilled labor.

“Labor availability is an issue,” says Lev. “Our subs and general contractors are extremely busy, and their prices have gone up quite a bit. That’s a concern and an issue.”

A report from the Cushman & Wakefield outlined the labor loss in Chicagoland: the construction workforce in the Chicago metro area plunged from 29,600 people in 2008 to 18,100 in 2011, and while it has been slowly building back up, fewer than 22,000 people were working in the industry last year, or about 74 percent of the pre-recession level, according to data compiled by.

Materials

Lev also cites materials costs as a concern. “Pretty much the same building that we built three years ago for $140 per square foot is now $170 per square foot,” he says. “That’s partly due to materials costs.”

And it’s partly due to a building code Lev calls “antiquated.” He says: “It’s not at all in step with the model codes that are used in most other places. And that adds to the cost quite a bit.”

In Chicago, builders are held to standards that keep them operating behind norms. For instance, the city’s building code requires copper and other types of piping over CPVC, which is less prone to corrosion and costs considerably less. “The city is adding costs for things that are unique to Chicago – things you won’t find in codes elsewhere,” Lev says.

Regulations

Complaints against the city’s building code are only part of a much wider set of grievances builders have against how the city and its suburbs continue to shape the new construction market.

“In the suburbs, builders face 297 municipalities and political jurisdictions from which to get approval,” Cross says, explaining the difficulty of adhering to or even understanding the hodgepodge of regulations suburban builders have to follow. “I live in Schaumburg – if I go 1,500 yards, I’m going through three different villages. And none of those villages have the same rules.”

Chicagoland builders juggle regulations on what buildings can go on what lots, how those properties must be built, what materials they can use. Those are necessary to ensure a baseline for quality, but many builders argue the current rules and regulations are excessive. It is an opinion that extends to the national market, according to National Association of Home Builders senior economist Michael Neal.

“In a blog, we recently illustrated the regulatory burden federal, state and local governments are putting on builders,” he says, “and it puts significant upward pressure on the prices that buyers ultimately face.”

One particular Chicago regulation that Lev believes harms buyers is the city’s affordable requirements ordinance, or ARO, which our own Peter Thomas Ricci covers here.

The affordability dilemma

Currently, Chicago is a relatively affordable U.S. city. In this year’s second quarter, 60.5 percent of Chicagoland housing stock was considered affordable by the NAHB’s Housing Opportunity Index – a 100-point scale to compare local incomes against housing costs.

“Our HOI has a dividing line. If you’re above 50, you’re considered affordable, and if you’re below 50, you’re less affordable,” says Neal. “Nationwide, we’re around 50.”

The latest S&P/Case-Shiller Home Price Index reported that May home prices in Chicago increased more than any other major city in the country. And during the first quarter of this year, the supply of starter homes dropped 47.3 percent compared to 2012, according to Trulia.

Do builders have an obligation to provide affordable homes?

Lev says yes, but it’s a shared responsibility.

“I think the responsibility should land on everybody. Frankly, if you think about it, affordable housing is important for everyone,” Lev says. “It’s very hard to build affordable housing, because of land prices, because of construction cost, because of the building code, because of union labor, and because of the affordable requirements ordinance. All these things add up and make it very difficult to building anything you would think of as affordable, especially in areas closer to the city.”

But that’s not to say affordable building is not already happening. “Not all builders are building at the high end of the market. Almost 30 percent of all product produced in the new construction sector is priced under $250,000,” Cross says, noting that in the custom home sector, builders have migrated closer to the $1 million-and-up side of the market. He adds: “But that’s only a very small portion of supply chain.”

The current inventory of affordable new construction homes is not enough to satisfy the demand for entry-level homes. But Cross does not believe filling that inventory deficiency is the sole responsibility of builders.

“Is every first-time home buyer entitled to a brand new house?” he asks. “The answer is no.”

Existing in the new market

Prime lot availability is another issue for today’s builders. In 2005, 1,507 building permits were issued for single-family homes in Chicago proper, and in the suburbs the number was more than 32,000. Last year, the number of permits issued dropped to 503 and 5,905, respectively.

“Most of the construction going on in the city is rental,” Lev says. “Builders are still delivering 4,000 units annually – which is down from the high water mark of 6,000-plus units – but most of it is apartments.”

A silver lining Lev sees in the new construction market, which may come to define new construction in Chicagoland over the next decade, is the growing condo market. “What’s selling in the condo market is larger units and high price points – $700,000 and up,” he says. “We’ve been able to tap into that market.”

The reason one-bedroom condos aren’t selling is because there is no demand for them. Millennials are not buying. They’re renting, or living with their parents. As this new generation of homebuyers struggles to find ways to buy new homes, less are being built.

“We’re 75 percent below peak, and we’ve been there since 2008,” Cross says. “Every year we’ve been bouncing along the bottom. So is new construction going to increase in the short term? Yes, it almost has to.”For builders, existing in today’s local and national markets is a matter of waiting for the new generation to reach the means necessary to buy in substantial numbers. And Neal says it’s inevitable.

“The NAHB does a preference survey, and in it, we ask Millennials: do you prefer single-family homes,” he says. “Their preferences are not much different from what previous generations have expressed.”

Sixty-five percent of Millennials prefer a detached single-family home, but because of price, credit availability, student loans, stagnant wages, etc., they haven’t been able to buy. But they will, eventually.

“We’re experiencing a delay, and eventually that pent-up demand is going to be unleashed,” Neal says. “But it will take some time for young buyers to work their way through the rental market and the existing market before they can purchase a new home.”

When that wave of demand finally hits the market (in the mid 2020s), there’s unlikely to be an explosion of new single-family homes in the city proper. Builders are going to have to expand. They are going to have to subvert the lot shortage.

“Builders are going to need to move into the greenfield, so to speak, but not totally into the emerging markets where you can’t see the Chicago skyline anymore,” says Cross, referring to the under-developed areas beyond current suburban limits. “What I mean is that we’re going to see development occurring in areas along the Route 59 corridor in Plainfield, or near the Cape Farm Road Corridor near Joliet.”

Cross expects to see more development in Oswego, Elgin and Gilberts, as well.

That is what builders will have to do to survive.

By Dennis Rodkin

Crain’s Chicago Business

July 21, 2016

 

Local new-home sales rose almost 12 percent in the second quarter from a year earlier, and an industry consultant attributed nearly all the growth to one downtown Chicago condo project.

Builders sold 1,239 new homes in the Chicago area during the quarter, according to data from Schaumburg-based consulting firm Tracy Cross & Associates. That’s up from 1,110 in the same period last year.

The year-over-year difference, 129 sales, “is almost all because of the Vista tower downtown,” said the firm’s principal, Tracy Cross, referring to the 406-unit Vista Residences portion of a 93-story tower that recently broke ground in the Lakeshore East neighborhood.

Without an estimated 98 Vista Residences sales during the quarter, “we’d be flat for the quarter,” Cross said.

For the year to date, including both the first quarter’s 8.2-percent drop and the second quarter’s increase, new home sales totaled 2,271. That’s up 2.8 percent from 2,209 in the first half of 2015, Cross reported.

Of those sales, 352 were in the city, an increase of more than 52 percent from the 231 new homes sold in the city in first-half 2015. There were 1,919 new homes sold in the suburbs in the first six months of the year, a decline of 3 percent from 1,978 sales in the first two quarters of 2015.

Job growth has been stronger in the city than in the suburbs, Cross said, explaining the better results there. His reports do not include single-site and other small builder projects. Sales of city new homes on sites of all sizes have increased sharply in 2016, Crain’s reported in May.

The Chicago-area homebuilding recovery continues to lag behind most other cities, Cross said. Nationally, new-home sales were up between 5 and 23 percent in March, April and May.

“Chicago is probably the least favorable metro area in the country to be a new-home builder,” Cross said.

By Dennis Rodkin

Crain’s Chicago Business

May 19, 2016

city-new-home-sales-jump-picture

Photo by Dennis Rodkin

Each of these newly built homes on Race Street sold for $870,000 this spring, one (right) in February and the other (left) in March.

When she went house-hunting earlier this year in Ukrainian Village and other nearby neighborhoods, Hilary Cerbin looked at a mix of existing and newly built homes before zeroing in on new construction.

With a newly built house, she said, “I could move in to a clean slate,” while among the existing homes, “I didn’t look at a single home where I wouldn’t have to fix something, change something.”

Cerbin, who ultimately bought a new four-bedroom house on Race Street in Ukrainian Village in mid-February, was among many Chicagoans buying newly built homes this year.

In the first four months of 2016, builders sold 449 new houses, townhouses and condominiums in the city, the records of Midwest Real Estate Data show. That’s an increase of more than 34 percent from the 334 sales in the corresponding period in 2015, and10 times the increase in sales of all types of homes—new and old. By the end of April, city home sales totaled 7,707, according to MRED’s data, or about 3.4 percent ahead of last year’s 7,453.

“New construction is the hottest thing right now,” said Nick Gasic, the Fulton Grace Realty agent who represented Cerbin. “Everybody’s looking for a house with all-new appliances and warranties, and a contemporary style.”

That doesn’t necessarily mean angular or minimalistic contemporary architecture—although the look is popular in new city homes—but “the layout, with the open living and dining room upfront and the family room off the kitchen, that you can’t find in an older house,” Cerbin said.

New construction has filled an inventory gap in the city. With a large proportion of households still underwater on their mortgages, owners of existing homes have been reluctant to put them on the market. The city’s inventory of homes for sale began the year epochally tight and, in the case of single-family homes, has grown ever tighter in the months since.

Meanwhile, many builders are in the opposite position: They bought land at depressed prices during and after the recession “and stockpiled it until the market was ready for them to build,” said Steve Jurgens, managing broker at 312 Estates. Jurgens has represented several new-construction homes that sold this spring, including a pair by Mangan Builders on Hoyne Avenue in North Center. The two five-bedroom homes sold for $1.2 million and $1.21 million in April.

The share of city sales that were new construction rose to 5.8 percent this year, from 4.4 percent last year. It’s a small slice of the total, but that’s new construction’s share of all homes sold all over the city. New houses and condos are densely concentrated in booming North Side neighborhoods like Logan Square, Avondale and West Town; their share of sales in those areas is clearly larger, although difficult to calculate using MRED’s data.

Because some builders don’t list their products on the multiple-listing service or don’t list all of them, the actual number of sales may be larger than the total of 449 homes given above.

CONTRAST TO SUBURBS

The increase is counter to what’s going on in the suburbs, the traditional center of new-home-building. Sales of new homes dropped by more than 12 percent in the first quarter of the year, according to Tracy Cross & Associates.

“There’s much stronger employment growth concentrated in the city than we’re seeing in the suburban marketplace,” said Tracy Cross, principal of the firm. On top of that, “you’re seeing a transitional shift of what we could call the older millennials, who are seeking an urban environment.”

Builders and agents both say land and construction prices have been rising as a result of the boom in sales.

Jurgens said that the asking prices of buildable lots in desirable places like Bucktown and the Southport Corridor have risen by about $200,000 in the past few years.

Mike Skoulsky, a partner at KMS Builders, said that three years ago, wood flooring “cost $4.50 a square foot, for the wood and the install. Now we’re paying up to $7 a square foot.”

KMS has built and sold nine condos and three single-family homes in the city in the past year, including a pair of contemporary twins on Honore Street in Bucktown. One, featured in Crain’s in December, sold for $1.6 million in March, and the other sold at the same price last week.

 

by Peter Thomas Ricci

Chicago Agent Magazine

May 10, 2016

 

See our chart below for the top-selling homebuilders in Chicagoland in Q1 2016 by net contract signings, according to the latest “Regional Executive Summary” report from Tracy Cross & Associates, Inc.

Click here for more perspective on new construction in Chicagoland, and click here to see where contract signings are the highest.

Top selling homebuilders table-total, sf, mf

by Peter Thomas Ricci

Chicago Agent Magazine

May 5, 2016

 

See our chart below for the top-selling new construction markets in Chicagoland in Q1 2016, according to the latest “Regional Executive Summary” report from Tracy Cross & Associates, Inc. Click here for more perspective on new construction in Chicagoland.

Top selling new construction markets table

 

 

 

by Peter Thomas Ricci

Chicago Agent Magazine

April 29, 2016

 

The “Regional Executive Summary” report from Tracy Cross & Associates, Inc. is among the most detailed analyses of Chicagoland’s new construction market.

Below, we have collected the four more important findings from the report:

1. New Home Sales are Down – Through 2016’s first quarter, new home sales in Chicagoland totaled 1,008, which is an 8.3 percent decline from a year ago. That decline was driven by a marked fall in new single-family sales, which dropped 14.2 percent to 563; new townhome/condo sales, meanwhile, were up 0.5 percent to 445.

2. Still a Suburban World – Although the city of Chicago’s new construction markets performed better than the suburban markets in the first quarter – sales rose 34.4 percent, compared to a 12.2 percent decline in the suburbs – the overall volume of new construction sales are still heavily concentrated in the suburbs. Of the 1,008 sales in the first quarter, 883 (or 87.6 percent) were in suburban areas.

3. Three Markets – Chicagoland’s new home sales were most prevalent in three markets: Northern Fox Valley, where there were 183 sales (down 4.2 percent from last year); Southwest DuPage/Aurora/Kendall, which had 185 sales (down 8.9 percent); and the Southwestern Corridor, which includes Plainfield, Joliet and New Lenox and had 182 sales (down 5.7 percent).

4. A Rising Marketplace – Despite the disappointing performance in the first quarter, Chicagoland’s new construction markets have risen considerably in the last three years. For the whole region, new homes sold for an average price of $344,220 in the first quarter, up 21 percent from Q1 2013; similarly, average square footage is up 6.12 percent to 2,653, and price per square foot is up 14.03 percent.

Although average sales price has risen more aggressively in the city – up 21.06 percent to the suburbs’ 11.49 percent – several suburban areas have still registered considerable increases in price. In the Northern Corridor, for instance, prices are up 26.13 percent to $414,902, while in the Northwest Corridor, they’re up 35.46 percent to $342,806.

By Dennis Rodkin

Crain’s Chicago Business

April 26, 2016

 

1q16 crains pic

Local new-home sales fell in the first quarter as builders continued to face stiff competition on pricing from existing homes, according to an industry consultant.

Builders sold 1,008 new homes in the Chicago area in the first quarter, down 8.2 percent from 1,099 sales in the same period in 2015, according to data from Schaumburg-based consulting firm Tracy Cross & Associates.

Full-year sales fell in 2014 and 2015 and are forecast to drop again. Homebuilders are on pace to sell 3,571 homes this year, 5.4 percent fewer than last year’s total of 3,774.

The 2016 tally is forecast to be the lowest since 2012, which ended with 3,467 sales.

“The competitive nature of the resale market is strong,” said Tracy Cross, principal of the firm.

Homebuilders typically do best when they can provide a lower-cost alternative to existing homes, but the slow recovery of prices on the resale market is “absolutely making that hard to do,” Cross said.

Local single-family prices were 1.8 percent higher in February than a year earlier, compared with an increase of 5.4 percent for a 20-city index, according to the S&P/Case-Shiller Home Price Indices released this morning. In most of the Chicago area, home values are still below where they were a full decade ago.

Ten years ago, when home prices were rising fast, Chicago-area homebuilders sold 8,094 homes in the first quarter of 2006, according to the Cross report—more than eight times the sales in the first few months of this year. The BEST first-quarter performance was 8,951 sales in 2005.

After a post-crash plunge, homebuilders’ local sales notched sizable increases in every quarter during 2012 and 2013, but since early 2015 they’ve been down seven out of nine quarters.

Cross said the two-year rally was marked by builders “putting small subdivisions on infill locations” in close-in suburbs, but “with those programs sold out, they’re not finding more infill land that’s priced where they need to be.”

Cross’ data covers only developments of 40 homes or more, so it does not capture the boom in construction of individual single-family homes in the city, he acknowledged. Nevertheless, his numbers hint at what’s going on in the city, showing an increase of nearly 35 percent in city sales, from 93 in the first quarter of 2015 to 125 in the same period this year.

Suburban sales were down more than 12 percent in the first quarter, to 883 from 1,006 in first-quarter 2015.

By John T. Slania

Daily Herald
Contributing writer

April 4, 2016

 

 

Luxury apartments were relatively new phenomena in the suburbs in 1969, the year International Village opened separate complexes in Lombard and Schaumburg.

The target tenants were “swinging singles,” young, fun-loving professionals who could rent a one-bedroom apartment for $195 a month.

A newspaper advertisement spelled out the International Village amenities: “dramatic sunken living room, formal dining room, carpeting (even in the kitchen), avocado kitchen appliances … sauna spa and full-equipped health club to keep your formidable form.”

Other apartment developers followed suit, and the 1970s became known as the era of the suburban apartment boom.

But it wasn’t long before the “swinging singles” settled down, got married, had families and bought houses. Suburban apartment development slowed to a crawl.

Now, after decades of dormancy, new luxury suburban apartments are again being built at a furious pace.

Ironically, the rebirth is being led by some of the old “swinging singles” who are now known as “empty nesters.” Their children, the Millennials, are likely interested in renting, as well.

“The two groups driving the demand for apartments are Baby Boomers and Millennials,” said G. Tracy Cross, president of Tracy Cross and Associates Inc., a Schaumburg-based real estate consulting firm.

As a result, new apartment developments are sprouting up across the suburbs.

Schaumburg village officials recently approved construction on the village’s first new apartment complex in 30 years, a 180-unit development near the Motorola Solutions campus.

The Lombard village board is considering three new apartment developments, which, if built, could bring 547 new rental units to the suburb.

Naperville is examining plans for a 39-unit apartment building near its 4th Avenue Metra train station.

Construction recently began on two apartment projects in Libertyville — a combined total of 46 units — the first new rental developments in decades.

And developers in Arlington Heights have completed the conversion of a long-standing high-rise hotel into a 214-unit luxury apartment building.

“Apartment construction in the suburbs has been dormant forever,” Cross said. “Now the construction is there because the demand is there.”

New apartment construction is being driven by a number of social and economic factors, according to Cross, whose firm is often hired by suburbs to conduct a market analysis:

• Baby Boomers are aging and are selling their single-family homes and downsizing into apartments.

• Millennials are deferring the “American dream” of owning a home.

• Homeownership is lower than pre-recession levels: 63.8 percent in 2015 compared with 69 percent in 2005, according to the U.S. Census Bureau.

• There are significant “employment corridors” creating jobs in the suburbs: along I-88 between Oak Brook and Naperville; I-94 near Glenview, Deerfield and Northbrook; and I-90 from Schaumburg to Elgin.

• Developer financing is cheap, and investors are more receptive these days to rental developments than home construction.

These new apartment projects are designed to attract upscale tenants. The wall-to-wall carpeting and avocado refrigerators have been replaced with hardwood floors, stainless steel appliances, granite kitchen countertops and large walk-in closets. The fitness centers and swimming pools remain, but they’ve been supplemented with amenities such as cyber cafes and outdoor sky decks with fire pits.

These are among the selling points at One Arlington, the new 12-story luxury apartment building near Arlington International Racecourse. Besides all the typical upgrades in the studio and one-bedroom apartments, One Arlington features a roof top sky deck that overlooks the racetrack, a music recording studio, a golf simulator, a bicycle storage and repair facility, and a dog wash and grooming room.

“We took an urban solution and put it in a suburban location,” said Rick Cavenaugh, president of Stoneleigh Companies LLC in Barrington, which renovated the old Arlington Sheraton Hotel into the luxury complex.

“What people want today is not what they wanted 20 years ago,” Cavenaugh said. “When you create a new apartment development, it needs to be a luxury product.”

Existing apartment complexes have upgraded to address the luxury trend these days at International Village as well.

For example, the old appliances are now stainless steel, the kitchens feature mahogany cabinets and granite countertops, and residents still recreate in a renovated clubhouse with the latest fitness equipment and free aerobics classes.

Monthly rents at One Arlington range from $1,250 for a studio to $4,000 for a two-bedroom penthouse, Cavenaugh said.

Similar attention to detail is being made by Chicago-based Cedar Creek Companies as it begins work on the 34-unit Manchester Square development in downtown Libertyville.

Manchester Square hopes to attract young professionals because of its luxury amenities and its close proximity to downtown Libertyville’s shopping, restaurants and Metra train station.

“A lot of people are attracted to a downtown — the ability to walk to retail and restaurants. And people are attracted to transit. We think that location offers it all,” said Mark Heffron, a partner with Cedar Street Companies.

When completed later this year, monthly rents at Manchester Square will range from $1,400 for a studio to $3,300 for a three-bedroom unit.

Shodeen Group, a Geneva-based commercial and residential developer, has experienced the complete evolution of the suburban apartment market over the company’s 55-year history, said President David Patzelt.

Shodeen began building and managing apartments in the 1970s, and over the years assembled a portfolio that totaled 900 units, Patzelt said.

Over the past three years, Shodeen has sold off nearly 800 of the older units and is now building luxury apartments, he said.

“When the home building market was hot, it was on fire. People were leaving apartments to buy homes. When the recession hit, there was a big demand for people to go back to apartments,” Patzelt said.

Shodeen now has four luxury apartment projects in Geneva, with monthly rents ranging from $890 for studios to $2,775 for a three-bedroom unit.

Offerings include the cozy Dodson Place in downtown Geneva, located on historic Third Street and within walking distance of the Metra rail station, and the larger Residence of Mill Creek project, located near wetlands, parks and recreational trails.

Shodeen recently launched an expansion of Residence of Mill Creek, with plans to add two 33-unit buildings.

“We believe the trend toward people moving to apartments will continue,” Patzelt said.

“People want an urban lifestyle in a suburban setting.”

By Dennis Rodkin

Crain’s Chicago Business

January 28, 2016

 

New-home sales slipped in the Chicago area slipped last year, even as homebuilders nationally savored a sizable upswing.

Developers sold 3,765 houses, condos and townhouses in the 10-county Chicago metropolitan area last year, down 1 percent from 2014, according to a report from Tracy Cross & Associates, a real estate consulting firm based in Schaumburg. It was the second straight year of falling sales in the Chicago area.

Chicago is a soft spot in the national homebuilding industry, which posted a 14.5 percent jump in new single-family home sales last year, with volume hitting an eight-year high, according to the National Association of Home Builders.

“Look where they’re going all around the country: up, up, up,” said Tracy Cross, the firm’s president. “Meanwhile, here we’re not moving at all.”

The stagnation is yet another sign of the Chicago housing market’s stubborn refusal to perk up along with other cities more than nine years after the housing crash.

Though Chicago-area new home sales rose 3.1 percent in the fourth quarter from the year-earlier period, it wasn’t enough to pull the full-year total into positive territory.

The market is stronger in the city, where sales rose 10 percent in 2015, than it is in the suburbs, where sales fell 2.3 percent, according to the report. But the city accounted for just 450 the region’s 3,765 sales.

Builders in the city have benefited from the dwindling stockpile of boom-era condos and a lack of new construction for several years following the bust, said Alan Lev, president of Belgravia Group, a Chicago-based builder focused on city projects. Demand for new homes has heated up near job centers in downtown neighborhoods like the West Loop and River West, where Belgravia has developments.

“But you can’t find land to build on; it’s been gobbled up,” Lev said.

Cross’ report covers only developments of about 40 units or more, he said. It does not reflect the numerous North Side homes sold during the year by builders who do one or a few at a time.

A few suburban homebuilders reported gains last year. The region’s top seller, Fort Worth, Texas-based D.R. Horton/Cambridge Homes, sold 573 homes at its nine projects scattered from Volo to New Lenox, up 11 percent from 2014.

The primary reason for the Chicago area’s divergence from the nationwide numbers is jobs, Cross said.

“The markets where they’re doing best on sales are the places with job growth of 3 percent or more,” Cross said. They include Orlando, Dallas, Atlanta and San Antonio.

In the Chicago area, jobs grew 1.02 percent in 2015 through December, according to a report from the Regional Economics Applications Laboratory at the University of Illinois at Urbana-Champaign.

“Our employment side of the equation is not moving as fast as the rest of the country,” Cross said. For every household that moves to a job-growth city from the Chicago area, he said, “that’s one more existing house in the supply here, for shrinking demand.” A guiding principle in homebuilding says one new home is needed for every two new jobs.

Earlier this month, an economist from Zillow, an online real estate marketplace, said slow job growth also was the main factor in hampering home price gains in metro Chicago.