If you’re active in the RE business in Chicago, by now you’ve heard about an ordinance that was passed last week and went into effect this week providing NW side tenants of rental housing the right of first refusal to purchase the building they live in (among other measures).

Link to NW Side Ordinance (ROFR language starts on page 5)

There have been several great op-ed’s, articles, and podcast interviews discussing how our business feels to be blindsided by this seemingly unconstitutional measure. Please see links at the bottom of the article.

Many alderpersons took the position of aldermanic privilege…”not in my ward, not my problem”. This is not a simple zoning change…it has citywide ramifications.

The goal of this article is to educate the folks outside real estate and local politicians about what this will mean for the city…not just us in the real estate business.

I’ve shared this with the alderpersons in the wards where my wife and I own our little mom and pop investments. I would encourage you to spread the word in order to get this amended. Some of my thoughts below…

1. This is going to paralyze sales in this area (over 6 square miles, btw), which will result in significantly less transfer tax revenue…I don’t think we have tax revenue to spare.
2. In order to sell properties under conventional timeframes and conditions, many owners are talking about vacating their buildings prior to putting them on the market. Reducing the supply of apartments on-line will have an adverse effect on rent levels.
3. Reducing values of buildings and making them illiquid will disincentivize building improvements and cause the housing stock to deteriorate.
4. On 5+ unit buildings, there are typically five year fixed periods for mortgages with balloons. Given the inability to control the timing of a sale, and especially in a market with higher interest rates, this will cause owners to default. Foreclosures and distressed buildings bring down streets and blocks quickly.
5. I am not an attorney, but this sure feels like an unconstitutional taking of property rights.
6. Sharing building information with tenants will be very disruptive. We have circumstances where a tenant (i.e. an older resident who has lived in the building for a long time) has a lower rent. We feel pressure now to make everyone’s rent more uniform to avoid an uproar if this expands. Also, what if a tenant receives a housing voucher or other subsidy? Shouldn’t they have a right to privacy about that?
7. Aside from the content of the ordinance, I am disheartened by the lack of transparency and collaboration around this. In a city where it takes months/years to get permits and zoning approvals, this was approved and instated in a week?!

We have great residents in our buildings and take pride in our relationships with them, as do most housing providers in the city. This will be divisive and toxic and do far more harm than good.

I am hopeful that the city council goes back to the drawing board on this one.

Join the conversation on this ordinance on LinkedIn.

Additional Resources on this Topic:

Chicago Tribune Op-Ed “Northwest Side Housing Preservation Ordinance is a Terrible Idea”

Crains “Anti-gentrification ordinance gives rare power to tenants over building sales”

Straight Up Chicago Investor Podcast: “Logan & Humboldt Property Owners’ Rights Taken by the New NW Preservation Ordinance with Luke Blahnik”

Joe Smazal is a Senior Managing Partner at Interra Realty where he works alongside Director Mark Dykstra. Joe has personally sold over 200 properties, comprised of over 5,000 units, for a total consideration of over $875,000,000 and received industry recognition and awards from Illinois Real Estate Journals and ConnectCRE. Joe graduated from the University of Iowa and is a licensed real estate broker in the State of Illinois.