Appraisal Research Counselors

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1 Appraisal Research Counselors 400 E Randolph Street, Suite 715 Chicago, Illinois T: F: Click here to view AppraisalResearch.com Professional Service Since 1968

2 How far can the Near South go? ; Area looks golden --- if the market cooperates: [Chicagoland Final Edition] John Handley, Tribune staff reporter. Chicago Tribune. Chicago, Ill.: Oct 20, pg. 1 Full Text (2157 words) Copyright 2002 by the Chicago Tribune) Miner T. Ames bought the four-story limestone mansion at 1811 S. Prairie Ave. on Chicago's Near South Side for $50,000. The down payment was $10,000 and the five-year loan was at 6 percent. That was back in Ames' neighborhood was nearing its peak when the coal mogul moved in among the elite of Chicago society. By the 1920s, many of Prairie Avenue's grand homes had become rooming houses, and only a few of Prairie Avenue's prominent residents remained in their Victorian neighborhood Now the neighborhood known as Prairie Avenue Historic District lies at the heart of a what could be the downtown area's hottest housing market in years to come. The draft of the city's blueprint for the future, the Central Area Plan, projects that 70 percent of residential growth in the central area between now and 2020 will occur in the South Loop and the Near South Side, according to John Swenson, deputy commissioner of the Department of Planning and Development. The central area includes the Loop and the Near North Side as well. The South Loop runs from Congress Parkway to Roosevelt Road and from Lake Michigan to Halsted Street. The Near South Side extends from Roosevelt to the Stevenson Expressway. Anyone who has driven through this area just south of downtown knows that the building boom is continuing here, even though residential sales have slowed in most of the city. Cranes tower over construction sites and signs announce new projects. Some 6,000 housing units are expected to come on line between now and 2006, according to Bonnie Sanchez-Carlson, executive director of the Near South Planning Board, a nonprofit group. She said low interest rates continue to sustain the residential market. "A lot of new projects are pending, though we have noticed a slight dropoff in new proposals," Sanchez-Carlson said. Some housing experts wonder whether the hot downtown residential market is cooling off. After all, the Near South is no stranger to ups and downs. It has ridden a rollercoaster of fortune over the years. The desirability of the area has come full circle from the late 19th Century, when Ames and other Chicago movers and shakers such as Marshall Field, Potter Palmer and Philip Armour lived on trendy Prairie Avenue. But then the area slid into decay and bottomed out after World War II when it was called one of the worst slums in the nation. Now it has rebounded and then some. Under construction next door to the Coleman-Ames House is an even taller four-story residence with a price tag of $1.8 million. One of 17 attached homes with 4,600 to 5,800 square feet and called the Commonwealth of Prairie Avenue, "it was designed to re-create the architectural elegance of that era," said Dan Mahru, president of Rezmar Development Group, the developer. The redevelopment of the Near South Side is not just for millionaires, though. On the drawing board is a $92 million facelift of Hilliard Homes, a public housing project that was designed by noted architect Bertrand Goldberg of Marina City fame. But the bulk of new housing falls in the middle price ranges. The average cost of a two-bedroom unit in the South Loop is $300,000, according to Ted Guarnero, sales associate at Rubloff's

3 South Loop office. "The area is desirable because of the nearness to Grant Park, the lakefront, the Loop and the access to transportation. Also, the mayor [who lives at Central Station, an 80-acre Near South development] is not going to let the neighborhood go down," Guarnero said. While many new residential projects dot the streets of the emerging community, it is still a mix of uses, including older commercial buildings from previous development cycles. "In the late 1980s, the streets of the South Loop had potholes and the street lights didn't work. There was a perception that the area was unsafe. With the new police station [at 1718 S. State], that has turned 180 degrees," said Roby Frankel, partner in Frankel & Giles Real Estate, which is developing 212 East Cullerton, a 13- story, 116-unit condo at Cullerton Street and Indiana Avenue. B.J. Spathies, one of the developers at Central Station, described her buyers as "a rainbow coalition -- black, white, Asians. They're mostly city people and commited to South Loop living." Many come because of the price differential between neighborhoods north and south of downtown. "Expensive stuff in the North Loop creates options for the South Loop, where there is an overall younger profile of buyers," said Stephen Friedman, president of S.B. Friedman & Co., a Chicago real estate development advisory firm. He added that empty-nesters, who are investing in real estate rather than stocks, are still buying, "but downtown condo sales are vulnerable if there is a shortage of first-time buyers." Could economic conditions stop some developments? "Once a project is started, it's better to finish it. If you keep building, maybe the market will turn around by the time it opens," Friedman said. The residential development of the Near South Side had to wait for former railroad land to become available. That started to happen in the 1970s. Central Station, the largest single project, is being developed on former Illinois Central Railroad property west of Lake Shore Drive and between Roosevelt Road and McCormick Place. It is planned for more than 3,500 homes, senior housing, hotels, retail and offices. "The South Loop could be substantially built out in 10 years," said Joel Stauber, urban planner and senior associate at OPP/P Architects, Chicago. "Renters are continuing to become buyers because of attractive interest rates, and prices are better than in the Near North because land is less pricey in the south," Stauber said. He noted that two-thirds of available land in the downtown area is in the South Loop. "Railroad land along the Chicago River may see major development," he said. This possibility is detailed in the city's Central Area Plan: "New residential neighborhoods will emerge south of Roosevelt Road.... In a dramatic reversal of its history as a derelict railyard, the river's edge south of Congress will become a grand river promenade... The street grid will be extended in the South Loop and Near South, creating links to new neighborhoods from the downtown." Some city developers, however, may be hitting the pause button, at least until they can assess the direction of the market. Gail Lissner, vice president of Appraisal Research Counselors, said that 963 condos remained unsold in the South Loop at the end of the second quarter out of 2,813 units in 17 projects on the market. However, she said that the South Loop was the most active downtown submarket with 228 sales in the second quarter. "The height of the condo sales boom downtown was in We're not going to match that," Lissner said. "The market has not totally tanked, but it has been slow, disappointing," said Spathies, CEO of Bejco Development Corp., which is building Prairie House and plans Prairie Tower, a 23-story condo with 162 units. Both are at Central Station.

4 "Potential buyers are cautious. They want to sell their house before they buy a new condo," Spathies said. "My fear is this: Even if the economy is stronger, how long will it take to sell out the existing inventory of units for sale? It's scary," she said. "There's a lot of product available. Some developers who could be hurt could start discount wars." "The whole world is overbuilt, but the South Loop is not any worse than the rest of the city," she said. Real estate analyst Tracy Cross said sales in the Near South area are down about 40 percent from the peak year of 2000 and still down 30 percent from last year. Increased competition has hurt the city market. "Units purchased by speculators are coming on line. People who bought after the downtown resurgence started in 1993 are now starting to sell," said Cross, president of Schaumburg-based Tracy Cross and Associates. He noted that city condo prices have increased 11 percent annually from 1995 to "But now some developers may restructure prices to fit the down market," he said. Construction is expected to begin next spring on Tower III at Museum Park at Central Station, according to Timothy Desmond, president of Central Station Development Corp. The 25-story condo will have 208 units. Sales have begun for Lakeside on the Park, another project at Central Station. The 14-story building will have 164 units, according to William Warman, principal of Legacy Development Group, the developer. Legacy also is building 77 Prairie District townhouses. Another major project about to get under way is State Place, which is planned for 243 residential units in four buildings and 65,000 square feet of retail space on the site of the former Chicago Police headquarters at 11th and State Streets. Construction is scheduled to start March 1, said Michael Tobin, managing principal of development for Northern Realty Group, co-developer with Mesirow Stein Real Estate and Near North Properties. "The good projects with good locations will get built," said Rich Gammonley, vice president of the Gammonley Group, which is building 1111 S. Wabash, a 34-story condo. "It's not like the old days. You can't just build anything. There's more competition and buyers are more savvy." Gammonley believes that South Loop buyers have the potential to double their money in 5 to 10 years. The current market is more stable, because of "fewer flippers," said Rubloff's Guarnero, referring to real estate speculators. "We're seeing a burst of sales to real people who will live there. Now most banks are looking at contracts, and if more than one unit is being purchased it better be next door." He added that two years ago investors accounted for 30 percent to 40 percent of buyers, and it may take 6 months to a year to absorb the investor inventory. Guarnero said that the Dearborn Park residential development, started in the 1970s, "used to be at the edge of the world. Now it's in the middle of things...." "There are many potential sites for high-rises along Michigan Avenue. The pockets will fill in, but it won't become the Gold Coast overnight," said Frankel, of Frankel & Giles. One new project already slated for Michigan Avenue is Russland Capital Group's Michigan Avenue Tower. Sales are under way for the 29-story, 221-unit condo at 1250 S. Michigan. "The South Loop has changed dramatically. When I did my first project here in 1997, it was a semi-desolate area, mainly for entry- level buyers," said Colin Kihnke, president of CMK Development Corp., which recently topped out Vue 20, a glassedwalled condo at 1845 S. Michigan. "Five years ago, people would move down here only if the price was right," said Rick Turner, president of Dynaprop Development Corp., which is developing Pointe 1900 at Archer Avenue and State Street. "Now there are a lot more choices," Turner added. One of them is Hilliard Homes, the four-building complex of 654 units that is slated to be rehabbed for mixed-income rental by Holsten Real Estate. It is just south of Pointe 1900.

5 A combination of rehabbing and new construction is taking place at Engravers Lofts at Bank Note Place, a 90-unit condo development at 1910 S. Indiana Ave., where three stories are being built atop the vintage four-story structure. But, with all the new housing options, will the Near South ever be a real neighborhood? "You know it's a neighborhood when Starbucks moves in," said Frankel. That already has happened at Wabash and Roosevelt, where a new Jewel-Osco also has opened. More restaurants also are on the way. In addition to such established places as Gioco and the Chicago Firehouse, these new ones are on the way, according to Keith Giles, partner in Frankel & Giles: Opera (Chinese) and a French bistro on Wabash near 13th Street, Oysy (sushi) at 888 S. Michigan, the Bongo Room II and new restaurants in the Roosevelt Hotel, Wabash and Roosevelt, and at Dearborn Tower, 1530 S. State. While the future is building, the past is recalled on Prairie Avenue near the Coleman-Ames mansion. The sales center for the 17 new, old-looking homes is on the site of the now demolished Doane House, built in 1882 and believed to be the first Chicago home with electric lights. Soon, the lights will be on in the new homes, part of the resurgence of the Near South Side. [Illustration] PHOTOS 3 MAP; Caption: PHOTO (color): A $1.8 million, four-story home is under construction on Prairie Avenue next door to the Coleman-Ames House (left), built in PHOTO (color): Prairie District Homes are being built at Central Station. The development will have 77 townhouses and two 23-story high-rises. PHOTO: A view across the Near South Side near 18th Street and Michigan Avenue shows the historic Clarke House with new and old homes in the Prairie Avenue Historic District just beyond. Tribune photos by John Handley. MAP: South Loop. Chicago Tribune. Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission. Subjects: Locations: Chicago Illinois Article types: Feature Section: Real Estate ISSN/ISBN: Text Word Count 2157