State Revenue Schemes Depressing Development?
Whether it's tax and regulatory issues scaring e-commerce companies away from Illinois or proposed changes to the Affordable Requirements Ordinance (ARO) potentially pumping the brakes on multifamily, recent events have shown that the state’s revenue-raising initiatives can be detrimental to the development scene.
That’s how our development panel felt last week at Bisnow’s 2nd Annual Construction & Development Summit, where more than 250 of you joined us at the Jenner & Block Conference Center. The Missner Group president Barry Missner (left) says we may have the third largest US industrial market with 1.2B SF, but the dirty little secret is we’ve gone a long time without rent growth (or Amazon, for that matter) and value was created through the capital markets. Industrial development in the city is sparse and build-to-suit driven, given the high costs and lack of incentives. Missner just made two land purchases in the Elston corridor, he says, where it’s building the tallest indoor climbing wall (at 60 feet) in North America for First Ascent.
Fifield Cos EVP Alan Schachtman (right), who will be in Telluride for Christmas, says Fifield has 800 units starting in the first four months of next year. The City’s proposed updates to the ARO will surely stall the hot multifamily pipeline, Alan says. Developers need incentives to build successful affordable housing; it won’t happen with high fees that act as disincentives or mandatory inclusionary requirements. Fifield always works with equity partners on projects, he says, and they’re now experimenting with EB5 for a portion of the equity on an upcoming development.
Zeller Development Corp president Jan Goldsmith, an office repositioning expert, says that with the economic status of the city and state no secret, the commercial office market is vulnerable to a significant property tax hit. Jan says Chicago has a terrific pool of ‘80s and ‘90s vintage office product, a fertile area for redevelopment. ZRG has been an active buyer in Chicago, most recently with 311 South Wacker. The firm just expanded its portfolio in Denver and Indianapolis and is actively pursuing other markets, Jan says. Chicago product is being aggressively bid up, she says, making opportunistic plays your best bet.
Jenner & Block partner and head of its real estate group Don Resnick moderated the panel. Chicago’s still far behind cities like Houston, Atlanta and Dallas in terms of its investment climate, and our political and economic struggles are holding us back, Don says. Chicago can’t seem to get past $35/SF office rents, he says, and Jenner’s occupancy costs are two-thirds of rent and growing. The market may look healthier, but Don’s still knee-deep in workouts. “They’re quieter, but still there,” he says.
During the networking hour, we visited with event sponsor McShane Construction. Snapped: Alexa Albom and Josh Crankshaw. The team recently completed a LEED Gold regional HQ and logistics center for Golden State Foods in McCook and is currently underway on Park 205, a 115-unit luxury apartment complex in Park Ridge for High Street Residential, the residential subsidiary of Trammell Crow Co, and JV partner of The Carlyle Group.