Crain’s Chicago Business reports COVID may have slowed things down, but new apartment construction has taken off in downtown Chicago. With increasing apartment rents, multi-family residential development loans are emerging in greater numbers.
This could create an oversupply of downtown apartments in the future, which could have a downward impact on older and existing apartments from our perspective.
Specifically, Crain’s states several apartment tower projects are currently in the works. In the Fulton Market District, workers are preparing a site at the corner of Randolph and Peoria streets for construction of a 43-story apartment tower. About four blocks west, work is underway on a 224-unit rental building after its developer secured a $60 million loan for the project in August. In the South Loop, crews broke ground last month on the Reed, a 41-story riverside tower with 224 apartments and 216 condominiums.
Apartment development in Chicago was at its peak after the Great Recession. From 2015 through 2020, downtown gained an average of nearly 3,600 apartments annually, according to Integra Realty Resources.
The momentum is building again with projects underway for nearly 17,000 new apartments in the greater downtown area. They won’t all hit the market at the same time. Many are still in the planning phase, awaiting approvals from the city. Some buildings are years away from construction; others may never be built.
To take the step from plans on paper to a groundbreaking, a project needs financing, equity from an investor, and debt from a construction lender.
More developers are taking that step. A random survey of proposed apartment buildings in downtown Chicago turned up at least nine with more than 2,700 units that have entered the construction phase in recent months, or are very close to securing their financing, Crain’s reports.
Securing financing is still more difficult than it was before the pandemic. Rising construction costs have become a financing obstacle for some projects, and some investors say they are leery of Chicago amid concerns about rising property taxes and crime. Nevertheless, with downtown apartment rents at an all-time high, there are plenty of construction lenders eager to finance new projects.