CHICAGO | Boom rundown - everything over 12 floors. v5

[emathias]

Originally Posted by VivaLFuego

...
The office market will be majorly overbuilt by 2010 (millions of sq ft coming online between 353 Clark, 300 LaSalle, 151 Wacker, 200N Riverside) despite barely any increase in demand. And the older buildings set to lose out won't be in a position to convert to residential because it looks like by the time the dust settles from all the construction there will be a few years worth of inventory available in the DT market.

First off, even at last year's 2.5 million absorption rate, if there's 13.5 million square feet of available space it seems there already is over five years of inventory downtown and no one seems terribly concerned about that. At the 20-year average of just under a million square feet absorption per year, there'd be over a decade of inventory.

In the details of that report, there are currently about 13.5 million square feet of available space, out of 120.5 million square feet total space. About 5.5 million square feet are on plan to be delivered by the end of 2011, which is four years of growth (or, really, 15 quarters from now).

13.5 + 5.5 = 19 million square feet, if with zero net absorption. Last year net absorption ran about 600,000 square feet per quarter. Let's set a likely best case for the next four years just under that, at 500,000 per quarter, and it would leave us with about a 9% vacancy rate - lower than what we have now.

Likely worst case is half a year at that rate and then zero absorption for the next two and a half years and then about the 20-year average rate for the last year. That would look like 1 million plus 0 plus 0 plus 1 million, or 2 million square feet of net absorption over four years, which is about 50% below 20-year averages for absorption, and would leave 17 million square feet out of 126 million total square feet, or just under 13.5% vacancy. For Chicago, that's really a very tolerable number - not ideal, but tolerable. It could get worse than that, sure, but will it? I think only if things get much, much worse in the world.

Where's the middle ground? A return to the 20-year average rate of absorption would yield about 4 million square feet absorbed, boosting the vacancy rate to about 12%, only .7 points higher than now.

Finally, downtown continues to not just retain businesses, but increasingly is attracting new ones faster than the national average. If Chicago really has turned a corner in its transition from capital of the Midwest to a global player, then it will be rewarded as more international companies stake a claim here and existing ones reinforce their presence.

Falling condo prices downtown will scare away lightweight flip investors, but they'll also help keep Chicago attractively affordable for the professional classes the downtown companies are hiring in ever-greater numbers.

[kayosthery]

Originally Posted by APPRAISER

When are the high rise buildings going to be constructed for the Roosevelt Collection?

That part of the project will be under a separate contract. The high rise in the Northwest corner of the site will probably start when we finish the North end and take down that tower crane.

[SamInTheLoop]

Originally Posted by VivaLFuego

In response to the bolded sections... it is becoming evident as buildings become complete and start closings that often 30-50% of units in these new buildings are sold to investors (read www.cribchatter.com). With the market where its at, how many investors do you think will end up walking away from their deposits and not closing on units in the new buildings, especially if they're strained by taking a loss on previous units they've bought in other buildings? Given this risk, financing for construction is getting tighter by the minute. And the rental market will shortly (within a year) be just as overbuilt and flooded as the condo market. Remember, unlike 2005 and 2006, there is now downward pressure on downtown rental rates because the supply is increasing so quickly as investors become accidental landlords and put their new condo on the rental market (at a monthly operating loss, of course). I'd be surprised if at least a couple of those you mentioned don't get canceled. I 'm not as optimistic as you are about new towers coming anytime soon in LSE or Central Station, those areas are both already flooded with luxury inventory for sale between developers' original units and distressed flippers.



I'd be surprised if Waldorf and Arqui get built in this boom cycle, seeing as there is already so much competitive inventory available in those submarkets that the developer won't be able to sell units at a high enough price to pay for construction and profit margin (if we're real lucky, Waldorf plows in enough cash to get it moving). Remember, condo prices are dropping quickly while construction costs continue to go up. 200 N. Riverside is a go because of it's anchor tenant. I hope XO gets built but I'm still not confident (perhaps one will get built but maybe not both).

Wish I could be as optimistic as you guys, but I think the best we can hope for is continued strength in the hotel market (iffy proposition if the US economy indeed enters recession) and institutional college/hospital buildings (which seem immune to the market and are both awash in record levels of cash). Residential and Office? I think most people aren't yet aware of just how bad it's gonna get. The office market will be majorly overbuilt by 2010 (millions of sq ft coming online between 353 Clark, 300 LaSalle, 151 Wacker, 200N Riverside) despite barely any increase in demand. And the older buildings set to lose out won't be in a position to convert to residential because it looks like by the time the dust settles from all the construction there will be a few years worth of inventory available in the DT market.

As I've made the argument before, you are far too pessimistic about the apartment market's prospects over the next few years. Yes, there will be impact from the increase in shadow market supply. However, the increase in demand will be just as impressive, as it is easy to underestimate the positive impact on the rental market from several converging factors, the most important of which being: years of undersupply (combination of relatively little new construction and many years of significant condo conversion volume), downward pressure on condo prices and much tighter mortgage availability (both of which will overwhelmingly keep potential first-time buyers as renters for much longer periods of time, an artificially high homeownership rate - nationwide and yes, even more so in downtown Chicago (actually much more so) of course fuelled by the housing market bubble (this one is extremely important and perhaps the easiest to underestimate the impact of), and the demographics of the very large Generation Y (just slightly smaller than the Baby Boomer generation), which is now (and still for the next decade or so) in the prime of its college years and 20s - more than ever this generation will find downtown rental living desirable into their 30s and longer. For the convergence of all of these factors, there will be very strong demand over the coming years for downtown apartments.

Also, I know you tend to be more optimistic about the hotel market - I'd argue you're severely underestimating the impact that a national recession will have on travel to Chicago (hotels are by far the most cyclical property type in relation to the national economy). Domestic business and domestic leisure travel (which even in these times of a very weak dollar and markedly increased foreign travel still comprises an overwhelming majority of travel to Chicago) figures to be hit quite hard beginning late this year or early next year. Of course, longer term, the performance of the downtown Chicago hotel market has very good prospects for reasons we can all cite...

[SamInTheLoop]

Originally Posted by kayosthery

That part of the project will be under a separate contract. The high rise in the Northwest corner of the site will probably start when we finish the North end and take down that tower crane.

Do you know if the current plan is for condos or rentals for the tower?

[VivaLFuego]

Firstly, nice post dagobert. JLL has an interest in being bullish on the commercial real estate market, even though absorption is so closely tied to the overall economy and job creation (both of which are uncertain and teetering on major decline).

Originally Posted by emathias

First off, even at last year's 2.5 million absorption rate, if there's 13.5 million square feet of available space it seems there already is over five years of inventory downtown and no one seems terribly concerned about that. At the 20-year average of just under a million square feet absorption per year, there'd be over a decade of inventory.

In the details of that report, there are currently about 13.5 million square feet of available space, out of 120.5 million square feet total space. About 5.5 million square feet are on plan to be delivered by the end of 2011, which is four years of growth (or, really, 15 quarters from now).

13.5 + 5.5 = 19 million square feet, if with zero net absorption. Last year net absorption ran about 600,000 square feet per quarter. Let's set a likely best case for the next four years just under that, at 500,000 per quarter, and it would leave us with about a 9% vacancy rate - lower than what we have now.

Firstly, I think that assumption for absorption the next 4 years is incredibly optimistic given the present lack of job growth and lack of prospects for imminent improvement. Even throughout this downtown boom, it's not like downtown employment has increased much (nothing like downtown residential and hotel have). Secondly, I think you misunderstood my point, which was that the office buildings set to lose out by the impending glut (the older, "Class C" buildings) won't be able to convert to residential as they have for the past decade because the DT market will already be so overbuilt with residential, both condo and rental. So what happens to these older buildings other than plummeting rents, thereby bringing baseline downtown rents down and making investment and construction less attractive?

Falling condo prices downtown will scare away lightweight flip investors, but they'll also help keep Chicago attractively affordable for the professional classes the downtown companies are hiring in ever-greater numbers.

I agree with you, but it will be affordable because of falling prices of existing units. Prices will fall (perhaps have already fallen) to the point where new construction will be unsustainable. Remember, my original post in starting this discussion was that the high-rise construction boom is set to end.

Originally Posted by Sam

Also, I know you tend to be more optimistic about the hotel market - I'd argue you're severely underestimating the impact that a national recession will have on travel to Chicago (hotels are by far the most cyclical property type in relation to the national economy).

To which I'll simply quote myself....

Originally Posted by myself

I think the best we can hope for is continued strength in the hotel market (iffy proposition if the US economy indeed enters recession)

So I've already acknowledged the uncertainty in the hotel market.

Originally Posted by Sam

As I've made the argument before, you are far too pessimistic about the apartment market's prospects over the next few years. Yes, there will be impact from the increase in shadow market supply. However, the increase in demand will be just as impressive, as it is easy to underestimate the positive impact on the rental market from several converging factors, the most important of which being: years of undersupply (combination of relatively little new construction and many years of significant condo conversion volume), downward pressure on condo prices

Well, rental prices are trending downward as landlords (both intentional and accidental) compete to get their units rented. Given the inability to flip or to rent anywhere near break-even, investment prices for condos will continue going down (thus further driving down the rents of investment condos, but at a lesser rate). At some point we're going to reach very soon, rental prices will be too low to sustain new construction, given ever-escalating construction costs (again, see my original point about the end of the highrise construction boom).

[TowerGuy37]

The really sad part of this whole cycle as was in the mid to late 80's cycle is that all the really good promising tall architectually significant and great tall towers won't ever get built! We did get trump, waterview and aqua (YEAH!)
but it looks like that saturation point and credit crunch has hit before the rest can get built, and were left with all the chandlers, tides, regattas and mediocre crap that sucked sales away for the Park michigan, arquitectonica, mandarin, waldorf ECT... lets hope they stay in the pipeline and eventually get built!

[kayosthery]

Originally Posted by SamInTheLoop

Do you know if the current plan is for condos or rentals for the tower?

The high-rise will be apartments.

[Sir Isaac Newton]

Originally Posted by TowerGuy37

The really sad part of this whole cycle as was in the mid to late 80's cycle is that all the really good promising tall architectually significant and great tall towers won't ever get built! We did get trump, waterview and aqua (YEAH!)
but it looks like that saturation point and credit crunch has hit before the rest can get built, and were left with all the chandlers, tides, regattas and mediocre crap that sucked sales away for the Park michigan, arquitectonica, mandarin, waldorf ECT... lets hope they stay in the pipeline and eventually get built!

Aren't you forgetting the Chicago Spire? And 300 North Lasalle, Legacy, OMP, Parkview West, 340 on the Park, Staybridge Suites, as well as many other buildings that a lot of people would consider to be very quality. Granted, the boom has given us a lot of mediocre buildings, but it has given us a lot of fantastic buildings too....and with the credit crunch, in addition to a few nice buildings that may not get built, there will be plenty of mediocre buildings that won't get built either. There are plenty of buildings from the list of 95 that are currently proposed, that aren't any better, if not worse than the Tides.

[aaron38]

Some pictures from today, 3-16-08.
Closeup of Trump and 300 N. LaSalle. And I think the project just to the left of Trump's base is SoNo.


The Clare and Elysian's crane


The Monthly skyline shot for March

[harryc]

From above


Full sset - higer res

Remains of a previous building


Steel !








Going fast

[ethereal_reality]

^^^ aaron38

Your first shot is great.....Chicago looks HUGE!
Thanks for sharing.

[ethereal_reality]

OOPS.
I just noticed your Pano.
That one is pretty special too, aaron38.

[harryc]

note the rungs from when the caisson was dug - by hand.






Sqaured and ribbed ( long wise ) rebar.



More to come



Protecting the neighbor

[harryc]

One11 W Illinois March 14


Series 2007
Series 2008


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251 N State - TheWit March 14


Series





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757 N Orleans - Gammonley Condos
March 14

Series

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325 W Ohio - Silver Tower March 14


Series

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Stay Bridge & 110 W Superior


Series
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SoNo ?

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RD-59

[SolarWind]

March 13, 2008

235 West Van Buren

^ my brother took this picture

March 14, 2008

353 North Clark


theWit Hotel

[ardecila]

^^ What the... how do taggers get up 30 feet on a sheer concrete wall? Is there a secret stash of cherry pickers somewhere in the city?

They probably just climbed up onto the formwork when it was at that level - but how do they do that without getting noticed? Also, why did the construction crews not remove it?

[simcityaustin]

Originally Posted by SolarWind

March 13, 2008

235 West Van Buren

^ my brother took this picture

What is on that buildings roof slightly below 235??

[ardecila]

^^ It's a water-cooling plant. ComEd operates 3 or 4 of these around the downtown area to cool huge amounts of water. They then sell the chilled water to building owners as a form of air-conditioning. The things on the roof are just giant vents.

http://www.esadesign.com/detail.asp?id=16

[emathias]

Originally Posted by simcityaustin

What is on that buildings ceiling slightly below 235??

Dunno, I can't see into it to see the ceiling ... but on the roof are cooling vents ;-)

[HowardL]

Developer seeking investors for Michigan Ave. project
By: Eddie Baeb March 17, 2008

(Crain’s) — Condominium developer William Warman is looking for investors to buy part or all of the 52-story mixed-use tower Mr. Warman hopes to build at 300 N. Michigan Ave.

The article includes a rendering.