Developers work to keep up with buyer demand across Chicagoland

by Jason Porterfield

After more than two years of pandemic-related delays, new construction is making a gradual and somewhat halting comeback in and around Chicago. The short supply and high prices associated with existing homes are bringing buyers into the new housing market, though rising interest rates, high construction costs and supply chain problems continue to act as a brake on the market.

According to the homebuilding analytics and consulting firm Tracy Cross & Associates, in the first quarter of 2022, builders had their second-highest number of new contracts since 2008. That boost has been tempered somewhat by the firm’s most recent second-quarter analysis showing that the market for new homes fell over the first half of 2022 compared to last year’s numbers, with inflation and supply chain issues in the second quarter tempering that earlier growth.

Tracy Cross & Associates President and CEO Erik Doersching referred to the greater Chicago market as “supply constrained.”

“Right before COVID, there were 350 active developments,” Doersching said. “We’re now down to 272 because we had a spike in the region in terms of sales. A lot of people were exiting urban areas maybe earlier than they thought they would …”

The run on suburban developments has reduced the number of competing communities by 20%, Doersching said. He noted that it can be a challenge to bring new-construction projects online quickly because of the lengthy process of planning, zoning and land acquisition.

The firm’s analysis found there were 2,682 contracts for new homes signed from January to June, down about 16% from 3,185 new units sold during the same period in 2021. At this pace, the region can be expected to record 4,882 sales in 2022, down about 12% from the 5,527 new-home sales reported last year and slightly below the 4,993 new units sold in 2020, according to the report. In the city of Chicago, 205 new homes were sold during the first half of the year, falling 20% year over year from 256 units in the first half of 2021. New-home sales in the suburbs were down about 15% from last year, from 2,929 to 2,477.

The suburban side

The outer suburbs are among the hottest areas for new construction in part because that’s where land for large-scale developments is most readily available, Doersching said. Homebuyers can stay relatively close to the city yet enjoy more expansive outdoor areas. A development that parcels out lots that are 2 acres at the smallest allows for a wide range of uses for families.

The Templeton Reserve development in Oak Brook is one such project. Developed by TK Capital Partners, the gated community covers 57 acres and consists of 20 estate lots ranging in size from two- to four-plus acres, according to TK Capital Partners owner Dennis Keller. Two homes have been built on the development, one covering 11,000 square feet and the other at 8,000 square feet. Seven lots are still on the market, Keller said, and each offers expansive views of old-growth trees and ponds.

“I think some of our buyers have appreciated the fact that the open water in the community is a good amenity,” Keller said. “A little over half of our sites have a nice lake or a small lake or pond, and we have seven ponds altogether.”

The desirable views fit with a trend toward large and plentiful windows, according to Chris Pequet, vice president of residential sales for Jameson Sotheby’s International Realty and the broker handling sales at Templeton Reserve. The expansive lot sizes satisfy a pandemic-driven desire for outdoor space. Lots start at $1,150,000.

“During the pandemic, with everybody living in their houses and wanting to be outside and doing more entertaining outside, I do think that adding the amenity of outdoor living is a trend that we kind of expected, with the outdoor kitchens and space that is covered to the outside so that they can have heaters and live well into the cooler seasons,” Pequet said. “That whole outdoor space has absolutely exploded, and it just made perfect sense, from people wanting to entertain outside, where they’re not on top of each other.”

Keller sees the suburban market remaining strong, citing Hinsdale, Oak Brook and Burr Ridge as particularly healthy locales for new residential developments. He considers Hinsdale to be the strongest market in the western suburbs based on his reading of home sales on a per capita basis.

“If there’s one area that I would pick out in our greater five- or 10-mile circle around Hinsdale and Oak Brook, I would pick Burr Ridge as a place that not only has room for more growth, but also has a nice economic mixture,” Keller said. “There’s a fairly new business center along the north part of Burr Ridge, immediately south of the Stevenson Expressway, and they’ve been a leader in new construction.”

Doersching goes further out when noting areas that have the space to accommodate developments, including northwest and southwest suburbs such as Plainfield, and DuPage County areas like Aurora.

“In those emerging markets where there is land availability and larger-scale communities, those are really where the majority of sales are occurring,” he said. “Where there’s a number of active communities that have product on the ground, that’s really where you can call a growth area.”

Shifts in the city

Space for new developments of single-family homes or attached townhomes remains a rarity in much of Chicago, though there are exceptions. Often, the only way to add units is to build upward, Doersching said.

Some developers are working to give condo buyers more space by reducing the number of units in a building in favor of providing larger units in high-rise developments. Jonathan McCulloch, CEO of Belgravia Group, said his firm is taking a different approach with the planned CAX condo building in the West Loop. Rather than the one- or two-bedroom layout that is the norm for condos, each of the 48 CAX units is spacious and designed for family living, with each boasting an extra-wide four bedrooms. Six penthouses have five bedrooms. Each unit features 10-foot ceilings and banks of windows for expansive views.

Every unit will have a balcony integrated into a striking zigzag pattern. Belgravia Group continues to see strong demand for any unit that has outdoor space.

“It’s about a 300-square-foot terrace for every unit,” McCulloch said. “And then we have the top-floor units that have massive 1,000- to 1,500-foot terraces. So, where our past CA developments have had some units with nice outdoor space, and every other unit with a smaller balcony that may be more kind of your typical six or seven foot deep, 10 or 15 feet wide, these are really saying you can have a full living, dining space outside. You can have a sectional sofa, dining table, grill — the whole nine — and enjoy that outdoor space.”

The planned CAX development follows on the heels of Belgravia Group’s successful CA6 townhome development in the West Loop, according to Liz Brooks, executive vice president of sales and marketing at Belgravia Group.

“When we launched sales at CA6, we sold out of our four-bedroom duplex penthouse floor plans almost immediately, which signaled to us the pent-up demand for larger condominiums in the West Loop,” Brooks said. “These [CAX] units not only offer that single-family home feel so many condominium buyers are looking for, but they also feature ample private outdoor space, something that became increasingly appealing over the course of the pandemic and remains a highly sought-after amenity.”

Belgravia’s CA projects offer numerous elements designed to facilitate a community feel. “So many of our buyers are coming out of a glut of new high-rise apartment buildings that have been built over decades, which come with all the bells and whistles, from doorman, pools, basketball courts, you name it,” McCulloch said. “We intentionally take a step back from that and are creating buildings that are 50 to 80 units — that aren’t 3- or 400 units. Our CA product has discrete entrances, and each elevator services only 12 units, for instance. So, bringing it to a smaller scale, one makes it feel more intimate, makes it feel more like your home. We certainly want neighbors to get to know each other.”

Sales trends and agents

Doersching noted that the higher costs currently associated with building a single-family home is leading to more homebuyers looking at town home-style developments. He described the suburban market as split about 50-50 between single-family detached and town homes or duplexes. Prior to COVID, he said, the market was closer to a 65-35 split in favor of single-family construction.

“One of the reasons you saw the shift was because prices went up so much higher than people’s incomes,” Doersching said. “Somebody who may have been leaning toward a $350,000 single-family home in a subdivision, and that price went up over $400,000. They had to rethink their decision and maybe think about a town home at $300,000 instead of a single-family home at $425,000 or $430,000. So, there was a slight shift in product in certain areas because of the price escalation, where people said, ‘I gotta go from detached to attached.’”

Rising interest rates, higher construction costs and a lack of supply have contributed to fewer home sales, but Doersching expects the market to grow in a more balanced way than in recent years.

“While the total number of developments and total number of sales are down, per-project rates are still really good,” he said. “When you look at the major builders, 75% of all new-construction home sales in our region are done by five builders — Lennar, DR Horton, Polti, M/I Homes and Ryan Homes — all publicly traded companies, and they capture 75% of the market. Their developments are moving along on a per-project basis, and their typical development is in the three- to four-and-a-half unit per month range, which is pretty good considering the market average is, like, less than two months, one-and-a-half a month when you include smaller-scale developments and smaller builders.”

In their most recent report, Tracy Cross & Associates found that in the first two quarters of 2022, D.R. Horton’s Cambridge Lakes master-planned community in Pingree Grove featuring four different product lines was the regional sales leader, with 74 total contracts, followed by Lennar’s Creekside Crossing subdivision in Plainfield and its Raintree Village in Yorkville, with 63 and 53 contracts, respectively. Crossings of Mundelein by Lennar, with 45 sales, and Silo Bend by M/I Homes in Lockport, with 44 sales, filled out the top five.

All five developments identified in the report are under the banner of one of the large builders Doersching named. Most of those builders use internal sales staff, Doersching said, though the smaller developers who make up the remaining 25% often have a Realtor representative.

As an agent working with a smaller developer, Pequet recommended setting expectations on both sides right away. The Templeton Reserve development she’s handling was on the market several years ago and nothing moved, she said. When she took over with Jameson Sotheby’s, they set expectations for everything.

“The agent and the developer have to be on the same page on what the timing is going to be, what the costs are going to be and what the marketing is going to be,” Pequet said. “As long as you get all of that figured out up front, then it is a much smoother process and things move along much better. We did set expectations on what the pricing should be, what the timing should be, what we were going to be doing for marketing. We kept to that system throughout the entire process, and we are now over 65% sold.”

Expert Sources

Liz Brooks
Executive Vice President of Sales and Marketing
Belgravia Group

Erik Doersching
President and CEO
Tracy Cross & Associates

Jonathan McCulloch
Belgravia Group

Chris Pequet
Vice President of Residential Sales
Jameson Sotheby’s International Realty

Dennis Keller
TK Capital Partners

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