The changing landscape of the suburban apartment market
Daily Herald Business Ledger | John T. Slania | April 3, 2016
Luxury apartments were relatively new phenomena in the suburbs in 1969, the year International Village opened separate complexes in Lombard and Schaumburg.
The target tenants were “swinging singles,” young, fun-loving professionals who could rent a one-bedroom apartment for $195 a month.
A newspaper advertisement spelled out the International Village amenities: “dramatic sunken living room, formal dining room, carpeting (even in the kitchen), avocado kitchen appliances … sauna spa and full-equipped health club to keep your formidable form.”
Other apartment developers followed suit, and the 1970s became known as the era of the suburban apartment boom.
But it wasn’t long before the “swinging singles” settled down, got married, had families and bought houses. Suburban apartment development slowed to a crawl.
Now, after decades of dormancy, new luxury suburban apartments are again being built at a furious pace.
Ironically, the rebirth is being led by some of the old “swinging singles” who are now known as “empty nesters.” Their children, the Millennials, are likely interested in renting, as well.
“The two groups driving the demand for apartments are Baby Boomers and Millennials,” said G. Tracy Cross, president of Tracy Cross and Associates Inc., a Schaumburg-based real estate consulting firm.
As a result, new apartment developments are sprouting up across the suburbs.
Schaumburg village officials recently approved construction on the village’s first new apartment complex in 30 years, a 180-unit development near the Motorola Solutions campus.
The Lombard village board is considering three new apartment developments, which, if built, could bring 547 new rental units to the suburb.
Naperville is examining plans for a 39-unit apartment building near its 4th Avenue Metra train station.
Construction recently began on two apartment projects in Libertyville — a combined total of 46 units — the first new rental developments in decades.
And developers in Arlington Heights have completed the conversion of a long-standing high-rise hotel into a 214-unit luxury apartment building.
“Apartment construction in the suburbs has been dormant forever,” Cross said. “Now the construction is there because the demand is there.”
New apartment construction is being driven by a number of social and economic factors, according to Cross, whose firm is often hired by suburbs to conduct a market analysis:
• Baby Boomers are aging and are selling their single-family homes and downsizing into apartments.
• Millennials are deferring the “American dream” of owning a home.
• Homeownership is lower than pre-recession levels: 63.8 percent in 2015 compared with 69 percent in 2005, according to the U.S. Census Bureau.
• There are significant “employment corridors” creating jobs in the suburbs: along I-88 between Oak Brook and Naperville; I-94 near Glenview, Deerfield and Northbrook; and I-90 from Schaumburg to Elgin.
• Developer financing is cheap, and investors are more receptive these days to rental developments than home construction.
These new apartment projects are designed to attract upscale tenants. The wall-to-wall carpeting and avocado refrigerators have been replaced with hardwood floors, stainless steel appliances, granite kitchen countertops and large walk-in closets. The fitness centers and swimming pools remain, but they’ve been supplemented with amenities such as cyber cafes and outdoor sky decks with fire pits.
These are among the selling points at One Arlington, the new 12-story luxury apartment building near Arlington International Racecourse. Besides all the typical upgrades in the studio and one-bedroom apartments, One Arlington features a roof top sky deck that overlooks the racetrack, a music recording studio, a golf simulator, a bicycle storage and repair facility, and a dog wash and grooming room.
“We took an urban solution and put it in a suburban location,” said Rick Cavenaugh, president of Stoneleigh Companies LLC in Barrington, which renovated the old Arlington Sheraton Hotel into the luxury complex.
“What people want today is not what they wanted 20 years ago,” Cavenaugh said. “When you create a new apartment development, it needs to be a luxury product.”
Existing apartment complexes have upgraded to address the luxury trend these days at International Village as well.
For example, the old appliances are now stainless steel, the kitchens feature mahogany cabinets and granite countertops, and residents still recreate in a renovated clubhouse with the latest fitness equipment and free aerobics classes.
Monthly rents at One Arlington range from $1,250 for a studio to $4,000 for a two-bedroom penthouse, Cavenaugh said.
Similar attention to detail is being made by Chicago-based Cedar Creek Companies as it begins work on the 34-unit Manchester Square development in downtown Libertyville.
Manchester Square hopes to attract young professionals because of its luxury amenities and its close proximity to downtown Libertyville’s shopping, restaurants and Metra train station.
“A lot of people are attracted to a downtown — the ability to walk to retail and restaurants. And people are attracted to transit. We think that location offers it all,” said Mark Heffron, a partner with Cedar Street Companies.
When completed later this year, monthly rents at Manchester Square will range from $1,400 for a studio to $3,300 for a three-bedroom unit.
Shodeen Group, a Geneva-based commercial and residential developer, has experienced the complete evolution of the suburban apartment market over the company’s 55-year history, said President David Patzelt.
Shodeen began building and managing apartments in the 1970s, and over the years assembled a portfolio that totaled 900 units, Patzelt said.
Over the past three years, Shodeen has sold off nearly 800 of the older units and is now building luxury apartments, he said.
“When the home building market was hot, it was on fire. People were leaving apartments to buy homes. When the recession hit, there was a big demand for people to go back to apartments,” Patzelt said.
Shodeen now has four luxury apartment projects in Geneva, with monthly rents ranging from $890 for studios to $2,775 for a three-bedroom unit.
Offerings include the cozy Dodson Place in downtown Geneva, located on historic Third Street and within walking distance of the Metra rail station, and the larger Residence of Mill Creek project, located near wetlands, parks and recreational trails.
Shodeen recently launched an expansion of Residence of Mill Creek, with plans to add two 33-unit buildings.
“We believe the trend toward people moving to apartments will continue,” Patzelt said.
“People want an urban lifestyle in a suburban setting.”
Real Estate Forum | April 2016
The act of real estate development is seldom as simple as putting up four walls and a roof. Building properties—particularly large, commercial assets—involves as much art and finesse as it does science and skill, especially when taking into account all the moving parts and interested parties. A development project can stand out for several reasons, not simply sheer size and cost. Some projects garner attention for their design and architectural elements. Others can revitalize forgotten neighborhoods or provide a much-needed service. Still others can even create new neighborhoods, luring both residents and businesses alike. Yet bringing any project to fruition takes a great deal of coordination, from city planners and developers, to investors and lenders, to architects, engineers and legal counsel. The hands and minds involved in building a new asset are many.
As part of our special focus on development and capital, Real Estate Forum has highlighted a dozen projects that have been brought to market in the past two years and, more importantly, the teams behind them. Below you will see the kind of teamwork and coordination that is involved in “placemaking” today.
A Much-Needed Urban Suburban Adaptive Reuse
One Arlington brought an ultra-luxury rental residential complex to a suburban Chicago market that had little new product offered in over two decades. Developer Stoneleigh Cos. LLC worked with an existing 12-story cast-in-place concrete tower with a structural steel penthouse constructed in 1969 as the Arlington Park Hilton. The exterior included punched windows, epoxy stone façade, hotel mechanical systems and a banquet and conference center. The building had been vacant since 2009, when the Sheraton hotel and waterpark were foreclosed upon. The lender was selling the building and to try and maintain revenues, the Village of Arlington Heights primarily focused on its renovation as a hotel. However, the market would not support the capital investment needed to do so. The 200,000-square-foot midrise was completely gutted and re-constructed using all new materials and mechanical systems and the adaptation of the old hotel room layout into modern studio, one- and two-bedroom units while keeping the primary concrete structure in place. Designed by Pappageorge Haymes Partners, the work called for the partial removal of the second floor to create industry standard retail space on the first floor. A leasing office and lobby was built and the original Otis first-generation elevators were refurbished. The roof was removed and a 13th floor was added for resident amenities. The project was fully leased in under 18 months, after a two-year construction process. When the balance of the adjacent Arlington Downs project is completed, it will include 80,000 square feet of retail, a 160-key Four Points Sheraton, 10-screen bistro movie theatre and 443 additional apartment units.