Ground up construction prices are still making many larger multifamily developments (125+ units) hard to pencil. Interest Rates, construction costs, Chicago policies, and tight construction lending are factors that have hindered new development. The higher interest rates have worked both ways with renters renting longer and pushing off buying homes with the higher borrowing costs. This coupled with lack of new supply has contributed to multi-family rental growth in Chicago in comparison to other major metros. There is light at the end of the tunnel in terms of new supply coming online with some middle market projects (50-100 units) being announced and dirt starting to move on projects previously stalled in the pipeline. Also some Developers have pivoted to rehabbing older buildings into apartments. Much of this adaptive reuse has occurred in the older outdated office product. The supply of older office is concentrated in the downtown urban core. This should help breathe life into these new buildings and areas where many of these offices have remained at low occupancy for years.

Some of the adaptive reuse of office to apartment conversions have stemmed from the Lasalle Street Reimagined Initiative started in 2022 which offers TIF and other incentives to developers that convert empty, outdated office on and near Lasalle Street into apartments. Lasalle Street Reimagined requires at least 30% of the projects to be set aside for affordable housing. The first project under this initiative at 79 W Monroe had their ribbon cutting ceremony last Thursday with the project underway which will be 117 Units with 35% of those set aside for affordable.  There are 4 other proposals that have come from this initiative which could create more than 1,400+ apartments with a substantial amount of affordable (30%+) of the total. This will help revitalize this stretch of the Loop.

Another new proposal by the Department of Planning and Development for the Northside-Edgewater/Uptown submarket has also been encouraging for new development. The City is recommending a rezoning of part of Broadway to spur new housing and development. They have proposed upzoning a stretch of Broadway from Devon Ave to Montrose to B3-5 or C1-5 zoning which would allow for taller buildings between 5-7 stories. The area is currently a mix of several different zonings but a complete rezoning of this stretch would hatch a wave of new multifamily development. This re-zoning would still be subject to the Affordable Requirements Ordinance which requires certain development to have at least 20 percent of apartments be affordable. Keep an eye out for developments of this proposal as it moves through the city departments in hopes of coming to life and becoming approved.

New apartment supply will not come back overnight as projects take time. We should continue to see more development continue to be proposed as rents continue to climb, as there is demand for new housing with Chicago being undersupplied. Some easing of interest rates, construction costs and new initiatives should make more development deals start to pencil.

Chicago is a great place to live, work, and play and will come out stronger as the demand generators far outpace these speedbumps.

“Eventually, I think Chicago will be the most beautiful great City left in the world.” -Frank Lloyd Wright

Colin O’Malley is a Director at Interra Realty and graduated from the University of Wisconin-Madison and is a licensed real estate broker in the State of Illinois.