What Strategies Are Chicago Real Estate Experts Using To Maintain An Advantage With Tenants?
It is a tenant's market in Chicago's multifamily and retail sectors.
At this stage in what has been a long growth period in Chicago real estate, the competition to land those tenants has developers deploying unique strategies to shore up rent roll and lay the foundation for a banner 2018.
Fifield Cos. Senior Vice President Erin Spears said the competition for renters in Chicago multifamily has resulted in flat rent growth and, as her boss, Steve Fifield, observed in September, declining lease retention rates.
As a developer with a long-term holding strategy, Spears said Fifield is getting creative to stand out in the packed multifamily marketplace and is earmarking more resources to have the best management teams on its sites. Staff salaries and bonuses are higher and Fifield is hosting more team-building exercises and events to build camaraderie and chemistry among its workers. That chemistry carries over to Fifield's tenants and builds loyalty, which is important as more new buildings are being delivered.
Spears said Fifield is returning to its recently opened buildings to upgrade apartment finishes and amenities, sometimes as early as six months after a building opens.
"We call it 'polishing the apple,'" Spears said.
With the ongoing amenities arms race, Spears said it is important that a building remain tenant-friendly and aesthetically pleasing. At Next Apartments in River North, which opened last September, Fifield replaced the carpeting in the building's common areas with hard surface flooring. Spears said the carpet was not wearing well and the new flooring can withstand heavy tenant usage.
At E2 Apartments in Evanston, Fifield commissioned artist Thomas Melvin to paint a mural on the building's south facade titled "Eee-tu (What Redwing called to Drake)" which added some color to the alley the facade faces, and depicts the spirit and energy of downtown Evanston.
Spears said the constant investment ensures that Fifield's buildings are as crisp and new 18 months after opening as they are on day one.
With rent growth flat to nonexistent in River North, Spears said Fifield has found success in outlying neighborhoods. Lease-ups at projects like Luxe on Chicago in West Town are strong, and at rents higher than expected for the submarket and similar to downtown. Spears said renters want the benefits of living in downtown-quality luxury apartments, without having to live in the shadow of skyscrapers, and there is an unmet demand for luxury properties in these submarkets.
Where these developments differ is in their design. Luxe on Chicago and Logan's Crossing (Fifield is partnering with Terraco on that mixed-use redevelopment of the former Logan Square Mega Mall site) are intended to have a more neighborhood feel, and Spears sees plenty of runway in the outer neighborhoods. One possible obstacle to growth is the city's affordable housing pilot program, which mandates 20% affordable housing allotments along the Milwaukee Avenue corridor, River West and West Town. Spears said the city has the right intentions with the program, but it will result in developers moving outside of the program's boundaries to seek opportunities building market-rate housing.
The ongoing bifurcation of retail means prospective tenants have their pick of the litter of storefront space, which is forcing a lot of outside-the-box thinking to land tenants, especially in newly emerging retail corridors on the South and West Sides.
Ascendance Partners co-founder Craig Huffman has his hands full with Phase 2 of Englewood Square. The ambitious retail development launched last year with the opening of a Whole Foods Market at 63rd and Halsted streets. Huffman said he has two anchor tenants for Phase 2. One is Kimbal Musk, brother of Tesla founder Elon Musk. Kimbal Musk is bringing Square Roots, his New York-based urban farm incubator that repurposes shipping containers into urban farms, to Englewood. Square Roots will install these farms on a site at 62nd and Green streets, behind the Whole Foods site, and occupy office space at a vacant firehouse at 6204 South Green.
The rest of the firehouse is being repurposed into a Southern-style barbecue restaurant by Brian Tijan, a partner in Folkart Restaurant Group.
Huffman said that for Englewood Square to succeed, he needs more non-Englewood residents to visit the neighborhood, and having projects like Square Roots in place lays the foundation for that. Englewood, like many South and West Side neighborhoods that suffered economic disinvestment over the past 50 years, lacks the population density that national credit tenants seek when selecting sites.
Huffman said the success of the Englewood Whole Foods is proof neighborhood residents need to be part of the solution when bringing new real estate development into disinvested neighborhoods. Around 75% of workers at Whole Foods Englewood come from the neighborhood. Huffman said residents believed the supermarket was a political stunt until the day it opened. The changes in the immediate area have most of them convinced that sometimes, outside-the-box thinking works.
"The approach that Whole Foods took is more thoughtful than just opening a grocery store with no conversation from the community," Huffman said.
Huffman is acting as an intermediary between his new tenants and the community. He spent months introducing Musk to neighborhood community groups well before lease negotiations started on Englewood Square. And Huffman is working with Mayor Rahm Emanuel's office to identify other development opportunities, including light industrial and data center development.
Spears and Huffman are panelists at Bisnow's Chicago 2018 Forecast on Dec. 7.