It's Edgewater And Uptown's Turn In The Spotlight
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Multifamily construction will most likely hit a cyclical peak in the Chicago region during 2019, and investors still flock to local properties due to cap rates typically 200 basis points higher than coastal markets. But after years of activity in the core, builders and investors increasingly look to Lakefront neighborhoods. Of these, Edgewater and Uptown now stand out, with escalating development and investment activity.
The area already had a couple of healthy pockets, such as Andersonville, but new renters and capital have now poured into the surrounding blocks as well, he said.
Martin’s company has completed many investment sales all along the lakefront, and he said it is Edgewater’s turn in the spotlight. In the aftermath of the recession, developers launched new rental projects throughout adjoining neighborhoods such as Ravenswood and Lincoln Square, where buildings usually leased up quickly.
“If it works in one neighborhood, developers will try it in another, and what they have found in Edgewater and Uptown is if you put in the capital and take care of your buildings, you’re going to get great rents.”
Essex Realty Group co-founder and President Doug Imber said the surge in activity throughout much of Edgewater and Uptown is partly due to the natural spillover of demand from Lincoln Park, where many renters who want to be close to the lake and have quick access to downtown have been priced out.
“In Edgewater, you are only a couple of L stops further from downtown than if you elected to live in Lincoln Park,” he said. “Both Edgewater and Uptown have really developed into popular neighborhoods, largely because there are a lot more people in the city that need good, clean, reasonably priced housing, say $1,200 for a one-bedroom, which these neighborhoods provide, rather than high-end rentals, but it’s mostly the luxury housing that we read about in real estate publications.”
Developers now have 1,751 units in nine projects either underway or planned in Edgewater and Uptown, according to a series of new market reports from Essex Realty Group. That outpaces the pricier neighborhoods of Lincoln Park and Lakeview to the south, which have 1,663 units in 15 prospective developments. Rogers Park has the thinnest development pipeline of Lakefront neighborhoods, with just 280 units.
The gap in sales volume among Lakefront neighborhoods is striking, the reports show. In 2018, investors spent $187M on multifamily properties in Edgewater and Uptown, compared to $83M in Lincoln Park and Lakeview, and $58M in Rogers Park.
Developers with a long history of building along the Lakefront say Edgewater and Uptown already had several ingredients for success, and just needed several extra kicks to really take off.
“We’ve been developing in these neighborhoods for at least 10 years now, and we always took the long view that the great transportation and proximity to the lake made them viable,” CEDARst Cos. partner Alex Samoylovich said. “Even when economic times were hard, occupancy was extremely high, usually in the 97% range.”
And with the city pouring capital into infrastructure improvements for the area, including a sparkling new theater district and a $220M revitalization of the Chicago Transit Authority’s Red Line, which ties the neighborhoods to the downtown and all its jobs, Samoylovich expects development to accelerate in the coming years.
The first wave of development involved a lot of adaptive reuse projects as developers tested the waters, Martin said. He helped broker last year’s $15.8M sale of 5427 North Broadway St. in Edgewater to Laramar, after a previous owner transformed the former laundry building into a leased-up, 42-unit apartment building with condo-quality finishes.
“That was one of the projects which helped kick things off,” he said.
Samoylovich’s firm is by far the most active developer in the neighborhood, and scored some real successes with several renovation projects. CEDARst opened Lawrence House, a 344-unit building, in 2016, after buying for $7.5M the 12-story building at 1020 West Lawrence Ave. in Uptown.
It spent several years, and about $15M, on a renovation. The company’s full-gut renovation of the former hotel, first built in the 1920s, included adding a rooftop lounge and deck, as well as a backyard, outdoor movie screen and reopening its original pool.
“We consider it one of our trophy assets, and plan to hold it forever,” he said. “It gave us confidence to buy more units, and the quick lease-up showed it was also viable to launch new construction.”
Investors also took notice of this and other quick lease-ups in the neighborhoods. The prices per unit for buildings in Edgewater and Uptown with over 10 units more than doubled from $83K in 2013 to $183K last year, according to data from CoStar. During that time, prices in Rogers Park went from $81K to $112K, and in Lakeview and Lincoln Park, prices hit $249K in 2018, almost unchanged from five years earlier.
What Imber finds more impressive is that cap rates for Edgewater and Uptown have roughly equalized with their neighbors. In 2014, there was a gap of 175 basis points between Edgewater/Uptown and Lincoln Park/Lakeview, according to the Essex reports. Last year the former saw its cap rates sink to 5.79%, while the latter stood at 5.31%.
“That speaks to how highly investors value property in these neighborhoods, even more than the prices per unit, which can reflect many other factors, such as unit size,” he said.
Political changes may be the only thing that puts a damper on all this new activity. Imber said 46th Ward Alderman James Cappleman, who represents most of Uptown, has encouraged new development, including market-rate housing, ever since he took office in 2011. Helen Schiller, the previous alderman, by contrast, spent most of her political capital working to get affordable housing built.
Cappleman was forced into a runoff in the first round of City Council elections on Feb. 26, after a campaign in which he received a lot of criticism from the left on the issue of affordable housing. He will face progressive challenger Marianne Lalonde in the final round of voting April 2. In the 48th Ward, which covers most of Edgewater, and which has far less new development going on, Alderman Harry Osterman won an easy victory with more than 80% of the vote.
Samoylovich believes the key to keeping new development going in these neighborhoods, where units still garner lower rents than Lincoln Park, is increasing density. That way, developers can get more rental income out of whatever property they create.
CEDARst recently started work on the first phase of 5050 North Broadway, an adaptive reuse of an existing office building. In the second phase, the company will put new apartment buildings on the site to complement the adaptive reuse.
Samoylovich said there will eventually be 710 units on the site, and like the ones created at Lawrence House, CEDARst plans to keep them small, typically between 250 SF and 600 SF.
"That makes these projects a lot more viable."
The project will also eventually have 106 affordable units on site, or about 15% of the total, a significantly higher percentage than many new Chicago developments.
CEDARst is also helping make the neighborhood an entertainment center by transforming its 1050 West Wilson, a former bank building, into the Double Door music club, a longtime fixture on the music scene in Wicker Park before it lost its lease.
Farpoint principal Regina Stilp said the company will operate it as a nonprofit, so along with concerts and other events, she expects it to become a community resource for neighborhood residents.
"This is a labor of love more than anything, and we believe it's the final piece that will ignite the neighborhood."