Broader economic troubles in Illinois wounded Chicago’s real estate market in 2019.
Investment sales fell markedly, as fears over the long-term health of the state’s economy, soaring taxes and looming reassessments held down activity. Illinois lost more residents than any other state over the last decade, and pension fund obligations are at a crisis-point, with the state owing more than $250 billion and with Chicago on the hook for over $28 billion.
After withstanding former Mayor Rahm Emmanuel’s record property tax increases, the city largely escaped more property tax pain this year under current Mayor Lori Lightfoot. Still, Lightfoot must still plug an $838 million budget deficit, and she’ll rely on a $65 million property tax increase to pay for some of it in 2020.
Lightfoot’s original plan for a real estate transfer tax was scuttled in November, though she warned that unless Springfield takes action future property taxes are on the table.
A new assessment
Just as critical to real estate investors is the work of Fritz Kaegi, the Cook County assessor. Kaegi’s office began the painstaking work of reassessing property in the county in 2019 — he was sworn in at the end of 2018 — and some of the impacts are already visible. A Chicago Tribune analysis found that under Kaegi, valuations for commercial, industrial and larger apartment properties in the north and northwest suburbs increased by more than 74 percent, compared with less than 16 percent for homes. Kaegi’s not finished with his reassessment, but the process helped put a damper on investment sales in 2019, with sales activity at its lowest point in decades. Multifamily buyers were more cautious since they weren’t sure if they could pass tax increases on to tenants, brokers told The Real Deal in October after two of the bigger deals of the year went through.
Under the previous assessor, Joe Berrios, commercial and industrial properties were significantly undervalued. Kaegi is planning to promote voluntary income and expense reporting by owners of commercial properties in 2020, which he said will make the assessments more accurate. The business community is likely to fight him on the proposal.
The aldermanic sweep
It wouldn’t be a year in Chicago without an unhealthy dose of corruption allegations.
This year saw the FBI target some of the city’s most powerful powerbrokers, including kingmaker Alderman Ed Burke, who was charged with bribing and extorting developers to win business for his property tax law firm. Some of the real estate figures caught up in the mess include developer Charles Cui and 601W Companies, which is redeveloping the massive Old Post Office. While former Alderman Danny Solis — who was head of the zoning committee — was wearing a wire to help the FBI bring charges against Burke, he was also involved in a real estate scandal of his own. It ensnared real estate developers the Cacciatore family and Fred Latsko, as well as lobbyist Brian Hynes. And Joe Berrios, the prior assessor, is reportedly under FBI investigation.
Luxury market struggles
Though the overall luxury market struggled in 2019, there were highlights in certain Chicago neighborhoods and among certain asset types. Namely, downtown condos.
Resales at Chicago’s condo tower king No. 9 Walton soared in 2019, and boutique condos such as the Hayden West Loop saw large units trade for a premium. In many ways, 2019 represented a resurgence for the luxury condo. Ten years after the Great Recession effectively wiped out the condo market, about 300 units were expected to be delivered this year, the most since 2010.
Though a feast for downtown developers, owners of tony mansions in the suburbs struggled in 2019. None of the mansions in the north suburbs cleared $10 million, and some suburban brokers had to get creative to find buyers. And for another year, Michael Jordan failed to sell his outrageous — and very MJ — mansion in Highland Park.
Fulton Market soars higher
The former hardscrabble neighborhood of Fulton Market completed its metamorphosis into a playground of bars, restaurants and Patagonia vest-sporting techies. The year saw record deals and even a shout as the country’s “coolest neighborhood.”
Shapack Partners sold 811 W. Fulton Market to Boston-based Intercontinental Real Estate for $50 million, which translated into $775 a foot, a city record. And demand for space in the trendy neighborhood has led many developers and lenders to even take the risk of building on spec. Google scooping up Sterling Bay’s space from block to block will do that. The booming values and competition means that not all will make it. Already, a food hall has shuttered and several hotels planned for the neighborhood likely won’t survive.
Condo deconversions rise and fall
During the latter portion of the decade, savvy investors wary of development opted to deconvert Chicago condo buildings into apartment buildings. Dollar volume tripled yearly since 2016, but the market was already slowing when the City Council passed legislation in September requiring buyers to convince 85 percent of a building’s owners to approve. A number of deals crossed the finish line before the new law went into effect, though overall activity is expected to slow dramatically in 2020.
Trump Inc., retail edition
It may be one of the most successful condo buildings in city history, but Trump Tower Chicago is also the biggest retail flop in city history.
The 70,000-square-foot failure is an outlier in Chicago’s competitive retail market, where no comparable space has languished on the market for nearly this long. Over the years, the Trump Organization has cycled through multiple leasing agents without success. Last year, the Trump name was even removed from marketing materials. And then added back again. Last summer, Donald Trump Jr. paid a visit to the property to kickstart leasing activity. In late November, the Trump Organization hired Cushman & Wakefield to take over leasing. The previous agents spoke with at least 77 potential tenants without success.
No presidential seal of approval at Obama Center
New plans were revealed for Barack Obama’s $500 million Presidential Center, but construction still hasn’t gotten off the ground. Not even close. The project is still reportedly held up by federal reviews. That hasn’t stopped interested real estate investors, with brokers telling TRD that some are betting that the promise of the 19-acre presidential center will attract renters.
Megaprojects march on
While 2018 was arguably the year of the megaproject, several developers got critical approvals in 2019. One of Chicago’s most active developers, Sterling Bay, locked down a $1.3 billion tax subsidy for its massive Lincoln Yards project in the waning hours of Rahm Emanuel’s administration. Related Midwest, which began the first phase of The78 megaproject in June, received a $1.1 billion tax-increment financing plan in April. Even the $20 billion One Central development, which has been stalled for years, got a last-minute extension on applying for federal funding. There are currently 13 megaprojects in the works in the city.
In 2019, Related also received approval for its two-tower, 1.6 million-square-foot project on North Lake Shore Drive, the site of the failed Chicago Spire development proposal; as well as its 18-story office building at West Randolph Street.