Chicago Is Already A Champ In Adaptive Reuse, And More Projects Are On The Way

Chicago’s apartment market took a hit during the coronavirus pandemic, with the amount of new development falling below most other major U.S. cities, but the good times may have returned. Developers are unveiling plans for thousands of new units, many in or near downtown, and the desire among millennials to live in the urban core seems intact.

But as developers sniff out new apartment sites, the city already has a rich source of potential rental units. Many of its aging office buildings are perfectly designed for such adaptive reuses, experts say, and they are likely to play an important role in the market’s mounting recovery.     

Chicago was already a national adaptive reuse champ during the pandemic when it came to transforming former office buildings into apartments. In 2020 and 2021, developers delivered more than 1,200 new rental units fashioned out of buildings originally constructed as offices, the most in any U.S. city except Washington, D.C., according to a new study from RentCafé. That included Millennium at LaSalle, an office building at 29 South LaSalle St. in the Central Loop, first constructed in 1902, but transformed this year by Luxe Residential into 210 units quickly snapped up by renters.

“Millennium at LaSalle leased up much quicker than anyone expected,” FitzGerald Associates Architects Vice President Richard Whitney said.      

Whitney helped lead the redesign of the 13-story, 168K SF 29 South LaSalle, as well as the transformation of the nearly 100-year-old Century Tower at 182 West Lake St. from offices into hundreds of residences. He said there could be dozens of other buildings in downtown Chicago that are good candidates for an offices-to-apartments conversion.

Launching such projects is tempting for developers, who can create units without the expense of new construction, especially with the residential market reviving. In 2020, new construction on Chicago-area residences dropped 34%, Dodge Data & Analytics found. By Q3 of this year, developers had just over 8,000 new units underway in the metro area, or about 1.6% of the total inventory, one of the lowest percentages in the nation, according to a study by the National Association of Realtors.

But even as the apartment market sank, Chicago developers in 2020 were readying 1,020 new apartments in former office buildings. In addition to Millennium on LaSalle and the Century Tower, Chicago-based developer CEDARst completed The Alfred at 30 East Adams St., a former office property transformed into 176 new units, and The Draper, a former office building in Uptown at 5050 North Broadway St., which now offers 342 apartments.

It is a good time to debut new units. Demand is picking up, with more than 20,000 Chicago-area units absorbed in the past 12 months, NAR found. And developers now have plans on the drawing board for another 17,000 units in the city’s downtown alone, according to Integra Realty Resources’ Chicago office, Crain’s Chicago Business reported.  

Old office buildings are in some ways perfectly designed to become apartments, according to Emil Malizia, a professor of city and regional planning at the University of North Carolina at Chapel Hill who studies adaptive reuse projects nationwide. Unlike modern office buildings, which tend to have massive floor plates, making it difficult for natural light to reach each portion of the property, pre-war office buildings are slender, built for the smaller companies of that era, and include more windows, all qualities essential for living spaces.

“We’ve been building offices for the last 40 years that are airtight, where you can’t even open a frickin’ window,” Malizia said. But free-flowing air was a must in art deco structures like the Century Tower, as well as older structures.

“The average office-to-apartment conversion happens in a building about 80 years old,” he added. “And the ideal is to have a building that gives you about 25 feet on either side of a corridor.”

29 South LaSalle St. was well-suited for conversion partly because instead of being hemmed in on all sides by flanking towers, it sits beside Arcade Place, a pedestrian walkway, which opens up a whole side of the building to natural light, Whitney said. The building, known for decades as Barrister Hall and once home to the Chicago Bar Association, also had historic features prized by renters, including marble floors and marble wainscotting lining its corridors.

But not every old property can be transformed into elegant residences, Whitney added. Each potential project needs to be carefully evaluated, as most don’t conform to modern building codes. Many only had one interior staircase when first built, forcing renovators to cut a new one into the structure. Others will need stronger, modern structural supports.

“Some of these things you don’t discover until you’re actually [working on] the building,” Whitney said.

Even so, both Malizia and Whitney said they expect a steady stream of aging office properties, both in Chicago and in many other markets, will become available in the next few years for conversion to apartments. For one thing, demand for downtown apartments didn’t abate due to the pandemic.

“We spent decades segregating where we work from where we live, but millennials and Gen Z have decided they want to live in what we call employment centers,” Malizia said.

And as the older buildings grow more obsolete, more office users will start exiting, seeking out properties with more advanced telecommunications, he added. That’s become a lot easier post-pandemic, after nearly two years of soaring vacancy rates and mediocre leasing activity.

“As the office markets have gone soft, there has been a lot of trading up, with Class-C tenants going to Class-B and Class-B tenants going into Class-A buildings,” Malizia said.

That’s especially true in Chicago, according to Whitney, which has a new sleek office submarket rising just west of downtown in the Fulton Market neighborhood, a big attraction for many tenants in the Central Loop.

From the beginning of 2020 to mid-2021, builders delivered more than 2M SF of offices to Fulton Market, a neighborhood that started 2020 with about 5.5M SF of total inventory. That sent the vacancy rate over 33% by Q2 2021, but in Q3 new tenants appeared, mostly for Class-A spaces, and vacancy sank to 28%, according to Colliers International.

The Loop is already Chicago’s fastest-growing residential neighborhood, according to the U.S. census, with a current population of more than 42,000, a 44% boost over the past decade. Whitney said multifamily developers are checking out even more aging office properties and gauging whether a conversion to apartments makes sense.

“I can’t reveal where they are, but we’ve been approached about other buildings that are located downtown,” he said.