Chicago's Development Barons Are Using Tech, Mixed-Use To Keep Their Projects On Pace
Two of the biggest challenges to Chicago construction and development are rising land and construction costs. But savvy, veteran developers are embracing new ways to keep selling condos and make their development costs work.
Belgravia Group is using virtual reality to transport potential buyers at Renelle on the River, its 50-unit luxury condo project downtown, to a "model home" where they walk floor plans and switch out finishes. Belgravia Group CEO Alan Lev said Renelle, at 403 North Wabash, is hidden in plain sight, and enabling buyers to experience the floor plans allows them to visualize the unit and views of the Chicago River and Wrigley Building.
Lev was at the sales gallery recently when new unit owners put on the VR, and he could hear their excitement in the other room.
Lev said over 40% of Renelle's units have sold so far. Belgravia secured a lender and will begin construction on Renelle as soon as a permit is secured.
Belgravia has concentrated its multifamily strategy in this cycle on larger, luxury condos in a market overflowing with rentals. Units at Renelle are selling from $1.6M for a three-bedroom unit to $3.2M for four bedrooms, as well as a rare $1.2M duplex option. Belgravia has had success with its CA condo developments in the West Loop and just completed Sedgwick at Locust, a 45-unit building near Cabrini-Green with condos priced between $450K and $900K.
Lev said deals for condos over $1M take longer because those buyers do not have the same time constraints to move as under-$1M buyers. They often are in the middle of selling a home and want to complete that before having to move, so there is less sense of urgency. Competition in the over-$1M condo market is small, as well. Renelle's main downtown competition is 9 West Walton and Vista.
Demand for amenities differs between the price points. Lev said the over-$1M buyer has an expectation for amenities similar to what are being featured in a high-rise. Amenities are not as big of an issue with the under-$1M market. Those buyers are more concerned about finding space at a reasonable price. At CA Washington in the West Loop, Belgravia has no amenities outside of parking and storage space, but Lev said it has no issues selling the units.
With luxury apartments, there is a growing trend to include a mixed-use component — usually retail. Bond Cos. President Rob Bond said construction sites have become so expensive that a commercial component is necessary to balance the cost equation. Land and construction costs continue to rise in tandem, while rent growth has lagged. Demand for retail is another factor driving the rise of mixed-use in multifamily. Renters want the experience and convenience of retail and retail services where they live. They are short on time and this is a great way of having basic needs near where they live.
Construction of Spoke, Bond Cos.' transit-oriented development project in River West, is ahead of schedule. Bond said he is still looking for an anchor grocer or other retailer for the development that will be appropriate for the tenant mix.
Bond Cos. is also focusing on retail exclusively. It is redeveloping Touhy Plaza, a 39K SF retail center in Skokie that Bond loves for its location. It is in a well-signalized intersection, in a great retail zone with good population density. Bond is not worried about the ongoing turbulence in the retail sector and believes real estate fundamentals will always ring true.
"I'm concerned about every tenant, whether it's an apartment renter, office or retail tenant," Bond said.
With nearly 12,000 apartments set to deliver through 2019, Bond does not believe the sector is overbuilt, based on macro- and micro-economic data. Good sponsors will still obtain capital and lenders will use scrutiny in their underwriting if they feel that a cycle is at its endpoint, he said. As fewer loan proceeds go out, more equity will enter the market.
To hear more from Alan Lev, Rob Bond and our other expert panelists, attend Bisnow's 5th Annual Chicago Construction & Development event, 7 a.m. Aug. 29. Register here.