Before deciding to build in Chicago, developer Alex Najem factored in a potential black swan event that could upend the economy. Ultimately, he chose to focus his firm, Fulton St. Companies, on the booming Fulton Market district, believing it could withstand a downturn better than other neighborhoods.
But he did not factor in the coronavirus emergency.
While construction crews were still working Wednesday at development sites throughout the city, Najem and other developers and industry pros said the speed at which the virus had upended the markets, the economy and everyday life could lead to a shut down at any time. Projects built on spec, he said, would likely be the first to cease.
And because the hospitality industry has all but ground to a halt, hotel developers could also soon hit the pause button on construction, industry players said. The hospitality research firm STR today released new data that showed Chicago occupancy drop more than a third to almost 44 percent, while revenue per available room fell 43 percent to nearly $48 per available room.
Earlier this week, when Boston’s mayor ordered all of the city’s construction projects to shut down, it raised questions about whether other cities such as Chicago and New York would follow.
That has not happened yet. In a statement to The Real Deal, the city Department of Buildings said it is working closely with the Department of Public Health to ensure construction companies are taking appropriate precautions to protect workers against the virus.
Construction of Fulton St. Companies’ 45,000-square-foot complex for furniture company Herman Miller at 1100 West Fulton Street is about 40 percent complete, and Najem said crews will keep working until they receive a city order to stop.
Uncertainty is a developers’ biggest enemy, according to Bob Smietana, CEO of Downtown-based development and investment firm HSA Commercial. To take some control of the situation, Smietana said it wouldn’t be surprising if developers who had been looking to buy land or move forward with a big project decided to tap the brakes.
“I think everybody’s just sitting back a little bit because it’s been so much so fast,” Smietana said. With 30 years in the real estate business, Smietana said this was the most uncertain time he’s ever experienced.
But Smietana said none of his development projects has been put on hold yet, and he still plans to break ground on a big development in southeast Wisconsin. Like others interviewed for this story, he added that could change at any moment.
Despite the worsening economic news mounting by the day, Najem sees the coronavirus impact as a “negative short-term effect that will eventually be a long-term gain.” The virus, he said, has exposed a major weakness in U.S. when dealing with health crises. He said that could lead to the development of more life sciences and pharmaceutical facilities. It could also mean developers will rethink safety and protection practices at projects in the future.
Development around Chicago has been booming and the city is not at a loss for massive projects either in the works or in the planning stages. Those include: Sterling Bay’s Lincoln Yards, Related Midwest’s The 78 and Farpoint Development’s megaproject at the former Michael Reese Hospital site. Sterling Bay, Related and Farpoint did not respond to requests for comment, nor did several other major developers around the city.