After Apartments Flood Downtown Chicago, Building Boom Reaches Suburbs
Ryan OriContact Reporter Chicago Tribune
Signs of an apartment boom are all over downtown Chicago, where construction cranes and the beginnings of towers dominate the skyline.
It’s less visible and more spread out, but there’s an apartment construction spree happening in Chicago’s suburbs too.
Rental construction reached its highest level in more than a decade last year in the Chicago suburbs, and 2018 is shaping up as another busy year. More than 4,200 units were completed in 2017, and about 3,900 more units are projected for this year, according to data from Marcus & Millichap and MPF Research.
Both totals are higher than in any year since at least 2004, and there’s no immediate sign of a letup.
“I think this has been an underserved niche for a long time, and it could be a while before supply catches up with demand, as it has in the city,” said Marcus & Millichap broker Ryan Engle.
Suburban rents have been rising along with supply, according to the Marcus & Millichap data. Through the third quarter of 2017, average rents (after factoring in free rent offered to new tenants) per unit rose 5 percent over the year-earlier period, while overall suburban vacancy fell to 4.1 percent, from 5.1 percent.
The rental resurgence is the result of several factors, including a rising disparity between suburban and downtown rents, pent-up demand after little new construction over the past decade, and declining home ownership, industry experts say.
“It’s still difficult to get a mortgage, and there’s still a reluctance to take a bite of that apple since the ’08-’09 financial collapse,” said Greg Mutz, chairman and CEO of Chicago-based developer AMLI Residential, which owns residential buildings throughout the country, including in downtown Chicago and in Deerfield, Evanston, Vernon Hills and Woodridge. “Owning a home is no longer seen as the end-all be-all.”
The ramp-up in construction continues a yearslong recovery in the suburban rental market, where fewer than 1,000 units were completed annually from 2006 through 2011.
Amid a frothy downtown market, some developers — and renters — are looking to the suburbs for a better deal.
“Downtown rents have gotten out of whack,” said Itasca-based M&R Development President Tony Rossi Sr., whose firm recently completed apartment projects in Wilmette and Itasca. “You can’t have $3.50 (per square foot) rents downtown and $1.25 in the suburbs. That’s too big a gap. At a certain point, it’s worth taking the train.”
AMLI projects greater overall rent growth in 2018 from its suburban properties than the ones it owns downtown, Mutz said. “There’s been a lot of news of jobs coming downtown from the suburbs and other cities, but there’s also been a lot more development happening downtown,” Mutz said.
Unlike downtown Chicago, where much of the development is clustered together, many suburban projects are miles from another new development, meaning they face minimal competition for new renters.
“When you look at the pipeline in the suburbs you say, ‘Holy cow, there are a lot of apartments being built,’” said Bill Van Senus, senior vice president at Chicago-based developer Draper and Kramer. “But when you look at the geography, they’re pretty spread out. It’s not the type of thing we’ve seen in Chicago, where there’s an enormous number of units being built in the South Loop.”
Tapping into increased rental demand, Draper and Kramer in 2014 bought the six-building, 758-unit Wheaton Center, near downtown shops and a Metra station in the western suburb. The firm then invested about $40 million upgrading the early 1970s buildings, which include a pair of 20-story towers and four smaller buildings.
Since completing the improvements in early 2017, Draper and Kramer has pushed occupancy to 93 percent, from 72 percent, while also increasing rents by 25 percent, Van Senus said. The firm is taking on a similar buy-and-upgrade project at the 448-unit Village Park of Palatine complex, which it has renamed The Clayson.
Like Draper and Kramer, other developers are focusing much of their suburban attention in the suburbs on walkable downtown areas and locations near train stations. Many are luxury projects, offering condominium-quality finishes and amenities.
In downtown Lake Zurich, Foxford Communities is constructing a two-building, 48-unit luxury complex called Somerset By The Lake on land it bought from the village. The development will be completed by the summer, according to Foxford executive Tim Kellogg.
Hinsdale-based Foxford, which also builds single-family homes, townhomes and condominiums, believes it will benefit from the lack of apartment construction in the area in recent years, Kellogg said.
“Also, we really like downtown areas,” Kellogg said. “Lake Zurich is putting a lot of effort into building up the downtown. Residents will be able to walk to a farmers market, go to a festival or enjoy a drink overlooking Lake Zurich. We feel our residents will really enjoy having that sense of community.”
In another downtown closer to Chicago, one of M&R Development’s recently completed projects, the 75-unit Residences of Wilmette, capitalized on a change in attitudes toward renters, Rossi said.
“Ten years ago in Wilmette, there would have been no chance of getting a permit for apartments,” Rossi said. “Before, there were areas where apartments just weren’t wanted, particularly on the North Shore.
“Now, with condo development just about going away, you’re seeing towns and cities giving building permits to apartment projects they wouldn’t have considered a few years ago. Also, I think apartments have lost some of their stigma because now they’re so damn nice.”