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Chicago's Development Experts Believe A Tipping Point On Affordable Housing Development Is Coming

Mayor Rahm Emanuel's office late Friday announced a three-year pilot program to generate new affordable housing in gentrifying neighborhoods in the North Branch Industrial Corridor, Near West Side and West Town, and the Milwaukee Avenue Corridor.  

Development panelists at Bisnow's fifth annual Construction and Development event Tuesday took issue with Emanuel's plans, saying the program once again places Chicago's responsibility to build affordable and low-income housing on the shoulders of developers, and further limits what projects can break ground.

Marquette Cos. CEO Nick Ryan, Belgravia Group CEO Alan Lev and Clayco Director and Residential Unit Leader Alan Schachtman

Marquette Cos. CEO Nick Ryan said it is hard enough already to get a development approved in the city. Marquette had three sites it wanted to develop in the West Loop/Fulton Market area; only one was approved, a 263-unit apartment building at Lake and Ada streets. Between affordable housing allotments, which cost a developer 10% of a project's value immediately, dealing with aldermen and community groups and challenges from labor shortages, developers are limiting their projects to the very best ones they believe can be realized. 

Ryan said the issues that torpedoed Marquette's other two planned Fulton Market developments centered around density and a desire from the alderman to limit multifamily development south of Lake Street.

"It's like starting a football game down a touchdown," Ryan said.

Clayco Director Alan Schachtman said he wished he had Ryan's one-for-three batting average. He is finding that one in 10 projects is able to become reality. He said the confluence of rising construction costs, the city's shifting goal posts on affordable housing, rising land costs and sellers' outsized expectations on what price their sites can command are constraining the projects Clayco can actualize.

Belgravia Group CEO Alan Lev said unrealistic pricing expectations from sellers is keeping developable land vacant. Belgravia has a project in the works that it may have to scrap. The alderman is demanding more affordable housing allotments than required under the ARO and the seller will not budge on the sale price to make the numbers work for Belgravia.

Lev said this is not new. In 2006 and 2007, Belgravia recognized that market conditions were heading toward a crash. Belgravia pulled back and waited for the market to settle down before it got back to business.

Bond Cos. President Rob Bond, Marquette Cos. CEO Nick Ryan and Belgravia Group CEO Alan Lev

Bond Cos. President Rob Bond, who is working on a mixed-use transit-oriented development with Belgravia at Elston Avenue and Webster Street, believes a tipping point is coming. Developers are attempting to get new projects in the pipeline, and there is a rightful desire for people who want to live in the city to be able to do so affordably. Bond said the way the city is dictating how affordable housing should be built is counterproductive, as that would limit the number of developers who can make their projects' balance sheets work.

Bond said an affordable housing voucher program would level the playing field, let landlords command market-rate rents and allow people who want to live in market-rate housing to do so, without being branded as affordable housing recipients. Lev said a voucher program could possibly be funded by more fees. Ryan believes tax incentives and abatements can also be used to better blend market rate and affordable renters.

Schachtman said Clayco's redevelopment of 1968-70 North Milwaukee will feature the full 10% inclusionary affordable allotment under the ARO, but fears that the city process to find renters for those units will be problematic. Clayco is working with 1st Ward Ald. Joe Moreno to optimize that process.