Gauging the status of new construction in Chicagoland is not so easy in today’s market.

This isn’t the building boom of the early 2000s, when modern three-flats and high-rise condo buildings sprouted across the city, while new subdivisions rose up out of the cornfields of McHenry, Kane, Kendall and Will counties. That was obviously a hot new-construction market.

And this is also definitely not the late 2000s or early 2010s, when building ground to a halt during the Great Recession and some development companies folded up and never returned. That was clearly a frigid market.

What we have today is something in the middle. New suburban subdivisions are rare but not unheard of. Transit-oriented townhomes are still popular along suburban Metra lines. Building rehabs and condo conversions are hitting the market. Office-to-residential projects are in the works to address office vacancies in the Loop.

Nationally, there’s a need for housing, by some estimates as many as 1.5 million new homes to keep up with the growing population. Yet building costs are also challenging. Inflation took away some of the margins for developers, and passing on those costs to buyers at the same time interest rates are rising can hurt builder confidence and scare off some buyers.

Still, there is reason for optimism. Interest rates ticked down in August, and Fed rate cuts are expected soon. That could get buyers off the sideline, driving a frenzy of activity. That’s the theory, at least.

Jason Buchberg, partner at Crescent Heights, which recently launched sales at its 850 Lake Shore Drive condo conversion project, says the condo market and the broader new-construction market across Chicagoland have rebounded since COVID.

“The fundamentals of the condo market here and the overall residential market are very, very strong,” Buchberg said. “We showed cracks coming out COVID, and I think we were able to repair all that. Now we’re on pretty strong footing.”

The headliners

Two new-construction projects seem to get a lot of the attention and headlines in Chicagoland, and those are Lincoln Yards and 400 N. Lake Shore Dr., the site of what at one time was supposed to be The Spire.

Plans for Lincoln Yards launched to much fanfare five years ago, with a vision to transform the city’s North Side with 6,000 residential units, 11 acres of parks and retail and entertainment.

From the outside, progress has been slow and updates from the developer, Sterling Bay, have been infrequent. In a letter to Crain’s this summer, Sterling Bay CEO Andy Gloor said the company’s plan for Sterling Bay is to “see it through to completion” and “the next step is to recapitalize the project and consolidate ownership of the development. We expect to accomplish that this year, and our goal remains to begin critical infrastructure work as quickly as possible.”

At 400 N. Lake Shore Drive, The Spire was once envisioned as a 2,000-foot beacon that would have become the tallest building in the Western Hemisphere. The project was abandoned in 2016, leaving a giant hole in the ground ever since.

In June, Related Midwest broke ground on plans for a 72-story, two-tower, residential project, featuring 635 rental units, a park and an extension of the Riverwalk.

“Chicago is a city defined by innovation and tenacity that continuously rises to meet challenges and exceed expectations,” Related Midwest President Curt Bailey said at the ground-breaking. “400 Lake Shore is the latest embodiment of this spirit and will set a new standard for vibrant and equitable urban living.”

The data

Chicago Agent’s Truth About Agents survey in April provided a snapshot of how real estate professionals view Chicagoland new construction. The survey, Chicago Agent’s largest of the year and featuring hundreds of responses, showed about 50% of agents had sold a new-construction property in the last year, and about 40% of agents had clients interested in a new-construction home. The biggest obstacles to matching clients with a new-construction property, according to the survey, were timing issues, trusting developers and helping customers envision the final product.

There is a risk-reward element in play for clients looking at new construction. If you’re an early buyer on a project, you might only see a model unit or a rendering, but generally you can buy in at a discount. By the time the unit or home is ready to move into, it might already be worth more than the buyer paid for it.

Finding clients who have the flexibility to wait three, six or 12 months or more for a finished product can be difficult, and builder confidence in the market for new single-family homes dropped in August to its lowest point since December, the National Association of Home Builders said.

“We expect housing starts and building permits to increase as we approach an official Fed interest rate cut,” said CoreLogic Chief Economist Dr. Selma Hepp. “This prolonged high-interest-rate period has also negatively impacted recent homebuilder confidence. These negative sentiments are already improving through August’s early indicators and should see a slight boost month on month going into 2025.”

With many buyers waiting for interest rates to dip before making a move, builders have turned to apartment construction. RentCafe recently reported that U.S. apartment construction is expected to hit a record 500,000 new units this year. The influx represents a 9% increase compared to last year and a 30% jump from 2022. The study projects that more than 2 million new apartments will hit the market by 2028.

“Even with apartment construction conquering a new peak in 2024, higher borrowing costs are affecting the multifamily sector, prompting many developers to adjust their strategies for the coming years,” RentCafe’s study said. “This means they might focus on lower-risk projects or shift toward markets with strong demand and job growth.”

The apartment building boom seems to be more muted in Chicagoland, though. RentCafe included a list of the 20 metro areas with the most new apartments coming to market this year, featuring nearly every large market in the nation except Chicago. The markets with the most units on the list were, in order, New York City, Dallas, Austin, Phoenix and Atlanta.

What’s next

Lexington Homes CEO Jeff Benach said the trends are moving away from start-from-scratch suburban neighborhoods and more toward rehabbing existing properties, although nothing is off the table. Builders will go where the demand is.

This year, Lexington Homes launched sales of its Metro on Main townhome project in Morton Grove, featuring 89 units from two to four bedrooms starting at less than $450,000. Benach said real estate agents, as always, will be crucial to Lexington Homes and builders in general.

“Working with agents is an important part of how we market our projects and reach buyers,” he said, noting they offer a 2.5% commission to buyer’s agents.

Builderonline.com ranked the 50 best markets in the U.S. for new construction and put Chicagoland at No. 22, a decent if not spectacular placement. It may be indicative of the new-construction market in the region: not necessarily booming, but definitely not quiet, either.

For example, Pulte Home Co. recently filed a concept plan in St. Charles for a 1,900-home development, including 967 homes designated for seniors, the Daily Herald reported. It’s one of the larger development plans to hit the suburbs in a while.

M/I Homes is working on two communities in southwest-suburban Plainfield with more than 350 single-family homes in total.

New projects continue to crop up in the city fairly regularly. The city’s $528 million LaSalle Street Corridor project aims to create more than 1,000 residences out of converted office space. A 30-story residential tower, featuring 283 apartments at 37 S. Sangamon St., is planned for the West Loop. An office-to-residential conversion of 65 E Wacker Place, the building that currently houses Morton’s Steakhouse, is also in the works.

David Wolf, CEO of Wolf Development Strategies, is handling sales and marketing at 850 Lake Shore Drive. With interest rates expected to drop, he expects the pendulum to swing away from renting and toward buying.

Buyers who wait too long, he said, could miss out on the opportunities set to emerge now.

“Typically it’s cheaper to own than it is to rent in most markets,” Wolf said. “That hasn’t been the case in the last few years because rates went up so high. When that needle moves and it becomes cheaper to buy than to rent, good luck to those who waited because prices will go up fast.”

EXPERT SOURCES

Curt Bailey
President, Related Midwest

Jeff Benach
Principal, Lexington Homes

Jason Buchberg
Partner, Crescent Heights

Dr. Selma Hepp
Chief Economist, CoreLogic

David Wolf
CEO, Wolf Development Strategies