Chicago’s biggest real estate stories of 2018

A look back on the most significant real estate stories of the year in Chicago is also a look ahead. The mixed-use megaprojects proposed this year or that took shape in the past 12 months — CMK Companies’ Riverline, Lendlease’s Southtbank, Sterling Bay’s Lincoln Yards, Related Midwest’s The 78 — will take years before the last ribbon is cut. Some of those projects and others still face scrutiny from the city as they wend their way through the approval process.

Among other big industry stories was the industrial market’s continued hot streak. The Chicago area ended 2018 ranked among the strongest in industrial in the U.S. In the residential brokerage space, Compass bulked up its business by acquiring one firm and opening additional offices, after entering the Chicago market in late 2017. Meanwhile, the city’s No. 2 brokerage, @properties, made a couple of big moves. It sold off a stake of its business and made proptech investments. Another emerging trend was the surge in condo deconversions, as property owners and investors seized on the strength of the city’s rental market.

The end of 2018 also marks a turning point for The Real Deal, which had its Chicago launch on April 2.

Mega-development

Chicago developers went all-in with plans for massive, transformative projects in 2018.

Related Midwest claimed that its mixed-use development on the Chicago River in the South Loop would create a new neighborhood altogether. So it named the project, “The 78,” referencing the city’s existing 77 recognized community areas.

Related followed that unveiling in May with another days later for a two-skyscraper complex where the ill-fated Chicago Spire was once planned.

While The 78 won its first regulatory approval by year’s end, plans for the former Spire site at the mouth of the Chicago River ran afoul of Alderman Brendan Reilly (42nd). He ordered the developer make changes to the 850-unit residential complex, including removing a planned hotel portion.

Sterling Bay found itself in the same boat with its plans for the sprawling Lincoln Yards development on the North Branch of the river. Alderman Brian Hopkins (2nd) withheld his endorsement of the project, forcing Sterling Bay to make changes. That project is still in the approval process.

Meanwhile, Emerald Living dropped plans to build up to 20,000 homes on the sprawling former U.S. Steel South Works site on the south lakefront. It was the second developer to withdraw, and some industry pros wonder if that neighborhood-creating megaproject will ever happen.

Luxury housing market

The Chicago luxury housing market notched a record number of sales of $4 million or above in 2018. That was thanks in part to JDL Development’s No. 9 Walton. The Gold Coast condo tower’s multimillion-dollar units have become popular with celebrities, athletes and titans of industry, including hedge fund billionaire Ken Griffin and Chicago Cub Jason Heyward.

But even the luxury market had its limits. A Lincoln Park couple pulled the area’s most expensive listing off the market after failing to find a buyer will to pay $50 million for the mansion. And another year ends with Michael Jordan’s Highland Park mansion still for sale, six years and nearly $15 million in price cuts later.

In the overall Chicago resi market, the number of home sales continued to edge down at year’s end. A chronic lack of inventory was blamed, which led to an increase in average prices for the homes that did sell.

Tough time for retailers — and their landlords

The loss of tenants like Carson’s, Toys “R” Us and Sports Authority hit Chicago retail landlords hard, and all those vacant big boxes led to the highest retail vacancy rate in the city in years.

The 2018 holiday shopping season may have also been the last for Sears, as liquidation remains a possibility for the once mighty Hoffman Estates-based department store chain.

Resi brokerage changing landscape

Compass was the new kid on the block at the start of 2018, having entered the Chicago market a few months earlier with the intention of expanding rapidly. By year’s end the brokerage had more than 500 agents, acquiring more than a third of them in a single deal for Conlon Real Estate.

Chicago’s second-largest resi brokerage by volume, @properties quietly sold a stake in the company to private equity firm Quad-C Partners. Executives from @properties have yet to disclose the reasons behind the sale or the stake size. But the brokerage has continued to make news, including with its investments in proptech.

Apartment boom continues

Apartment developers once again delivered thousands of new units in 2018, with no apparent plans to slow down.

The apartment boom was attributed in part to millennials’ continued preference to rent rather than buy. Those young workers and their desire to work near Downtown continued to push employers to open offices in the central business district.

Apartment demand fuels deconversions

That demand for apartments had investors casting a wide net for possible properties.

The practice of buying condominiums in bulk and deconverting those buildings into rentals didn’t start in 2018, but the number of deals jumped.

The year was notable as much for the deconversions that occurred as the ones that didn’t, like ESG Kullen’s $112 million deal for a Gold Coast property. It was poised to be the biggest deconversion in city history until it fell through late in the year.

The top deconversion went to the River City complex in the South Loop. After years of negotiations and some last-minute legal wrangling, Marc Realty Capital and the Wolcott Group closed on a deal Dec. 21, in a move that should bring around 450 new apartments into the market.

Politics and the real estate industry

Mayor Rahm Emanuel shocked just about everyone in September when he announced he would not seek a third term. Emanuel was seen as generally pro-developer, and he presided over a period of unprecedented development, especially Downtown.

Change also came at the county level. Fritz Kaegi shook up the political establishment in March when he beat longtime Cook County Assessor Joe Berrios in the Democratic primary.

Berrios’ tenure often saw big commercial properties assessed for far less than they had sold. On his first day in office, Kaegi instituted a number of policy changes including proposing commercial property owners be required to provide proof of income, which could increase their property assessments.

J.B. Pritzker’s victory in the governor’s race has some in the real estate industry worried how his call for a graduated income tax might affect the housing market. The Democrat also signaled support for a growing effort to lift the state’s ban on rent control, an idea the industry strongly opposes.

Hot industrial market

Chicago area industrial sales were poised to reach an all-time high in 2018, helped in large part by e-commerce sales nationwide.

Developers built sprawling warehouses throughout the suburban Chicago landscape. Others went on the hunt for infill locations in the city for the coveted “last mile” facilities.

The industrial market also got a boost from the growing need for cloud computing storage, which helped turn Chicago into the third biggest market in the country for data centers. 

Affordable housing debate

On his way out the door, Mayor Emanuel proposed a flurry of initiatives designed to address Chicago’s need for affordable housing, including the rerturn of a dedicated housing department in City Hall.

He also pushed for the addition of another pilot zone to the city’s Affordability Requirements Ordinance, which mandates heightened affordable housing requirements in certain communities. The latest pilot zone covers areas of Pilsen and Little Village.

Developers have bristled at the ARO rules and the pilot zones since they were created, saying they stifle residential development. A Real Deal analysis of city data showed the amount of development in the first three pilot zones had decreased significantly since they were created.