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Chicago Construction Is Down But Not Out As Fundamentals Point To Future Growth

Chicago's construction industry has been the worst-hit amid a nationwide surge in industrial project delays.

Supply chain disruptions, labor retention issues and record-high inflation rates have combined to make 2022 an especially difficult year, with a Newmark report ranking Chicago’s slowdown the most dramatic of 15 markets studied. Meanwhile, timelines for projects in the city have stretched by 80% compared to 2019, according to The Real Deal.

Yet panelists at Bisnow’s Chicago Construction & Development event July 21 at The Fields argued Chicago has all the ingredients necessary to whip up a major construction comeback, pointing to the city's new Connected Communities ordinance, its strong fiber optic network and its place as a top location for climate migration as fundamentals that could turn things around.

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GI Stone's Sandya Dandamudi, Chicago Department of Buildings' Matthew Beaudet, Farpoint Development's Regina Stilp, Level-1 Global Solutions' Thomas McElroy, Inland Green Capital's Anna Maria Kowalik and Structured Development's J. Michael Drew

“The key is to be flexible. No one knows where they are going to end, but there are still buyers out there," Farpoint Development principal Regina Stilp said. "There is still money out there. Interest rates will affect those buyers, but I think we really have to be more strategic and focused on who those buyers are going to be."

Stilp’s firm is part of a Global Research Innovation Technology team leading the $3.8B Bronzeville Lakefront project — a 48-acre megadevelopment planned for the former Michael Reese Hospital grounds. With full build-out expected to last until 2041, players are hopeful the project will create 31,000 full-time jobs on the rezoned site.

In an effort to foster transit accessibility and connectivity between communities, the multiphase project could also result in a potential relocation of the existing Metra stop to East 31st Street.

Panelists touted projects like this for their ability to combine accessibility and affordability by utilizing the city’s transportation system as an anchor for new development. 

Structured Development founding principal J. Michael Drew said Chicago’s grid alone makes it one of the strongest cities for creative development. 

“You can get across Chicago in 20 minutes to a half-an-hour, one end to the other. In New York it truly takes a day if you’re not on transit,” he said. 

Drew cited the city council’s recent passage of the Connected Communities ordinance, which builds on its 2020 Equitable Transit-Oriented Development Policy Plan. The mission centers around increasing affordable housing near mass transit, improving street and sidewalk safety by encouraging non-automobile transportation, and creating jobs that allow more homes and businesses to exist near transit through an expansion of existing TOD incentives.

“To the city’s credit, they just passed an ordinance that is focused on increasing eTOD, density and development in all neighborhoods and that means less parking requirements, identifying certain corridors where buses run and helping to jump-start development in those South and West side communities,” Drew said. “This will also help drive ridership back onto one of our greatest assets, which is the city’s transportation system.”

The biggest change to come out of the ordinance is the expansion of the transit-oriented development radius from one-fourth of a mile out to one-half of a mile for CTA and Metra stops, and one-fourth of a mile for CTA bus corridors, with the addition of bus lines from the original ordinance.

Efforts to expand beyond the North Side, Downtown and West Loop are underway, with the development of transit-oriented development projects like 43 Green in Bronzeville

Panelists said the city's intentions are clearer this time around than with previous ordinances. But with 90% of projects still not built on the South and West sides since transit-oriented development's 2013 origins, there is still a long way to go.

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Pace Loan Group's Matthew McCormack, DL3 Realty's Leon Walker, Belgravia Group's Alan Lev, Lendlease's Ted Weldon and Gould + Ratner's Rich Reizen

“A recent testimony by the zoning committee talked about how in the last 30 years, nearly all of the investment or community development commission approvals have been on the North Side," DL3 Managing Partner Leon Walker said. "You can’t have that level of disinvestment, but expect the population to grow. It’s a disservice to all neighborhoods because we all end up paying more."

When discussing construction in historically underserved communities, some panelists argued the development community has gotten too much heat over claims of gentrification and displacement.

“There’s affordability of housing and that rents are rising, so that is a challenge that the city has to face, both for those incoming residents and families that can’t find affordable housing,” Drew said. “There have been cases where people have been displaced and they should be addressed but not at the expense of cutting off development.”

Level-1 Global Solutions principal and CEO Thomas McElroy added that the city's issues cannot all be put on the backs of the development community.

“Overall, the idea that development communities are sitting on all of this money and displacing people is not a true and accurate fact of what’s going on," he said. "You can’t ask this new community to fix things that took place 70, 80 years ago and are just now getting corrected."

He also argued the city needs to do a better job of marketing itself, particularly the strengths unique to Chicago, such as its fiber optic network. 

“There needs to be more emphasis on Chicago literally being the fiber optic intersection of the United States of America,” McElroy said. “There isn’t a single substantial fiber optic carrier that doesn’t run through Chicago ... so more emphasis on a high-tech infrastructure that can be made available to these developers who are doing high-tech buildings and who are looking at high-tech clients in order to perform their function."

Another strength that should be promoted because it separates Chicago from other major cities, panelists said, is its lack of natural disasters and wealth of accessible fresh water.

“We are in a top city for climate migration, sitting next to 21% of the world’s fresh water,”  Lendlease Development Executive General Manager Ted Weldon said. “That’s pretty exciting and it’s not going to flood. It’s not going to go away. We need to start selling the city better when it comes to things like this.”

Though Chicago residents, particularly those living along South Shore Drive, the city’s mostly public shoreline, are already feeling the cost of climate change when extreme storms hit the city, panelists repeatedly framed Chicago as an oasis for climate migration.

And despite a host of problems such as high taxes, crime and a slowing construction market, developers are choosing to focus on what the city actually has, rather than on what it is lacking.

“A lot of these things help when developers are trying to figure out the kinds of things that will allow us to be profitable and sustainable and attract the kind of tenants that want to sign a lease,” McElroy said. "It is really the infrastructure of the development and it is the infrastructure of the city that’s most important.”