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4 Threats to the Future of Chicago Development


Chicago construction is in a boom period, with 18 high-rise projects (office and multifamily) in the works, 3,000 apartments being delivered this year and another 5,000 in the pipeline for 2016. But developers see hazards on the horizon that could slash activity


That was the main takeaway from Bisnow’s You’re Going to Build What? 3rd Annual Chicago Construction and Development event yesterday, where 400 joined us at the Trump International Hotel & Tower to see Chicago’s leading construction and development pros discuss the current state of the market and the factors that may slow future development. Here are four issues on the minds of developers and builders.

1. Illinois' Budget Impasse


McShane Cos CEO Jim McShane, snapped with fellow panelist Pepper Construction CEO Ken Egidi, says the standoff in Springfield keeps him awake at night. The General Assembly’s inability to pass a budget and solve the state’s unfunded pension obligations may result in higher property taxes for developers and add to already escalating construction costs.


Belgravia Group CEO Alan Lev is pessimistic about current happenings downstate. He says the only solution is a combination of spending cuts and increasing revenue, which will have an adverse effect on already rising real estate taxes for both homeownership and rental projects moving forward.

2. Global Market Fluctuations


LendLease EVP Jeff Riemer says while the state’s fiscal woes are worth keeping an eye on, global market events such as the Greek economic crisis and the slow downturn in China’s economy have a ripple effect on local development. Jeff says in the past, projects were well-insulated from these events. Today, Chinese investors look at American real estate as a safe haven, but the uncertainty of China’s economy cannot be ignored. Jim McShane says those outliers have an impact on the stock market and the psyche of developers to expand, since market swings (which are happening much more rapidly) affect capital.

3. Escalating Costs and Slow Job Growth


Ardmore Associates president Cherryl Thomas says higher construction costs and fees have developers and subcontractors being more selective with bidding and growing their businesses. She says Ardmore finds it difficult to make hiring decisions when a GC has to slow or scrap a planned project because of cost restrictions. She adds that, although she wants to see growth, there’s no one currently in the union halls when staffing is needed. Ken says Illinois is the second-worst state in population retention and echoes Cherryl’s concerns about staffing. He is encouraged that unions are opening up their apprenticeship programs to attract new workers, but adds the state of labor may become more uncertain when union deals expire in 2017.

4. Chicago's ARO Changes Kick In

JDL Development President Jim Letchinger

JDL Development president Jim Letchinger says Mayor Rahm Emanuel’s changes to Chicago’s Affordable Requirements Ordinance won’t solve the city’s problems with providing affordable housing to residents when it goes into effect in October. Instead, it will force developers to focus on slam-dunk locations for future projects and impact land costs. Jim questions whether projects being rushed into development before the ARO takes effect can sustain rents and sales. Alan says the requirements in the ordinance will result in projects costing more to provide affordable housing than to build it, and affordable housing won’t be built in the neighborhoods that need it most. “It’s a tax, really,” Alan says.


Snapped: Kinema Fitness Partner Josh Love, one of our sponsors for this event, says his company is doing great business designing, managing and consulting on fitness centers for the commercial real estate market. Kinema's was recently hired to manage the fitness center at 1K Fulton.