November 22, 2019
Apartment developers hit the mother lode in Chicago, but they're finding riches in the suburbs, too.
From Elmhurst to Evanston, they're stamping out high-end projects with fancy finishes, tricked-out lounges and poolside cabanas, catering to millennials moving from the city and empty nesters who want to shed the burden of homeownership.
"People see these luxury properties with all these amenities and say, 'You know what, that looks like a pretty good lifestyle,' " says Nick Ryan, CEO of Marquette, a Naperville-based developer.
The trend has been underway for a while, but it's reaching a crescendo this year, when developers will complete about 3,500 apartments in the Chicago suburbs, according to Ron DeVries, senior managing director in the Chicago office of consulting firm Integra Realty Resources. That's the biggest annual total since DeVries began tracking suburban development in 1996. It's also not much less than the 3,800 apartments he expects developers will complete in downtown Chicago this year.
Construction has soared in the suburbs for the same reason it has in the city and across the country: The job market, the primary driver of demand for housing, is expanding, and many people who would have bought a house or condominium 15 years ago are renting instead.
But other factors are drawing renters to suburban developments. Some suburbs, especially urban locales like Evanston and Oak Park, are attracting younger professionals who want to be close to suburban employers or want more bang for their buck than they can get in the city.
At the same time, more developers are building lavish, condo-style projects with large units to target an older renter: suburban couples who have sold their single-family homes after their children have grown up and left. Some empty nesters move to the city, but many don't want to go that far.
"They want to have some connection to their home town," says Tim Anderson, CEO of Chicago-based Focus.
Move-down renters have become a bigger segment of the suburban market as more baby boomers reach retirement age. Developers like Focus have responded with projects like Kelmscott Park Apartments in Lake Forest. Focus completed the 111-unit development last year, and 77 percent of its residents are over 45 years old.
At a Focus development in Vernon Hills, Atworth at Mellody Farm, 38 percent of renters are over 45. In contrast, just 9 percent of residents are over 45 at the Parker Fulton Market, a Focus building in the West Loop that opened a few years ago.
"In 2005, if an empty nester was going to move, they would buy a townhome or condo," Ryan says.
Developers will complete about 3,500 apartments in the Chicago suburbs this year, the most annually since at least 1996.
Now they are renting in projects like the Marq on Main, a 202-unit project in downtown Lisle that Marquette completed in June. The average tenant in the project, which is 82 percent leased already, is 43 years old and earns $126,000 a year, Ryan says. To attract empty nesters, the Marq includes features they have grown accustomed to in their homes—high-end cabinets and other finishes, pantry cabinets in kitchens, linen cabinets in bathrooms—and extra sound insulation in walls and windows to cut down on noise, he says.
Other developers aim to bring the energy and convenience of city living to an urban setting. For some, that means building on sites close to transit, so residents can commute easily to downtown jobs. The Marq, for instance, is about a block from the Metra station in Lisle.
Projects near train stations also tend to be easier to finance than those that aren't.
"If you have a transit-oriented site, you'll get a lot of equity looking at it," says Tony Rossi Sr., president of Itasca-based M&R Development. "That's what all the institutions want."
Ironically, only about a tenth of renters in transit-oriented suburban developments actually take the train to work, DeVries says. What many really want is to be within walking distance of good restaurants, shops and especially grocery stores—things they can get in the city.
That's one reason suburbs with big downtowns stand out as development hot spots. Evanston has added more apartments than any other Chicago suburb, 1,079, since 2015, followed by Oak Park, with 1,056, according to Integra.
"The renter in the suburbs wants walkability," says Anderson of Focus, which recently completed the Link Evanston, a 242-unit project in the north suburb's downtown. "It's never going to be like the city, but they want something that approximates that."
Focus also has tried to approximate that with the Atworth, a 260-unit project that opened in 2018. Though it's not close to a train station and lacks an urban vibe, the development is attached to Mellody Farm, a new 270,000-square-foot shopping center that includes a Whole Foods Market and 11 restaurants. Being able to go grocery shopping or for dinner without getting into a car is a big draw for many renters, Anderson says.
The suburban apartment market has been on a roll for several years, though it has advanced at a slow and steady pace compared with frenzied growth that has transformed downtown Chicago. The average net suburban rent was $1.48 per square foot in the third quarter, up 1.5 percent from a year earlier, according to Integra. A typical 900-square-foot suburban apartment now rents for $1,332 per month, up from $963 at the beginning of 2010, representing a 3.3 percent annual increase.
Developers haven't spoiled the party in the suburbs by overbuilding. Suburban Chicago is so vast, and the developments have been so spread out, that the supply of new apartments has not overwhelmed demand.
Developers are drawing up plans for more than 13,000 apartments in the suburbs, though DeVries expects completions to drop to about 2,500 units next year. One reason: Rising construction costs and property taxes have made it harder to finance new projects, he says.
Developers, who have profited handsomely by selling new projects for big sums, are also finding it harder to cash out because many apartment investors are wary of the state's precarious fiscal condition, DeVries says.
"There are not as many buyers out there that are willing to invest in Illinois," he says.
That, too, could curb development. After all, if businesses find it harder to sell their product, they will make less of it.
This article original appears in Crain's Chicago Business.