`The market’s moving so fast, it’s probably the beginning of the end.”
That sounds like a stock analyst talking about investors’ irrational exuberance, but it was actually loft developer Michael Lerner talking about the spiral in Chicago central area real estate prices as builders rush to put housing in all kinds of places previously deemed unthinkable–next to railroads, expressways and grim public housing.
Lerner, who is necessarily an optimist simply because he’s a developer, was mostly joking, but there’s always a little doubt that nags somewhere: How long will the good times roll?
The doubt deepens with every cannonade of confidence. Highly respected New York-based economist Ed Yardeni this week sent out a July 4th message headlined, “It’s a Great Country.”
It has a chart showing that, if you divide the S&P 500 index by the rate of inflation, the Dow almost has to hit 10,000 by 2000. Well, it’s not quite so simple, but that’s the general idea. Now that’s scary.
Promises, promises: Scary also is the haunting comment by Stuart Nathan, executive vice president of JMB Realty Corp., that he’s thinking about putting a new office building on the notorious Block 37 between the Daley Center and Marshall Field’s State Street store.
Block 37, of course, has been branded as the shame of Chicago since it was leveled at considerable sacrifice of city money and venerable architecture, only to remain flattened for years after Nathan and his partners who own the block understandably lost heart–and lenders–for an office project there in the last real estate slump.
More Top Picks Migraine Vs Tension Headache How To Tell
It’s a shock to hear that idea reviving. While the suburbs have seen some building in the past year or so, there hasn’t been new speculative office construction downtown since 1992. (The new headquarters for Blue Cross/Blue Shield is being built specifically for the health insurance company.)
On the other hand, according to CB Commercial Real Estate Group, the downtown Chicago vacancy rate has dipped below 15 percent for the first time since 1989–the very year the slump started.
And CB Chicago regional manager Hal Ulvestad said he thinks there’s a good chance a semi-speculative project–with more than half the space pre-leased to a big company–will be announced downtown before the end of the year.
What next? A new world’s tallest proposal?
Taxing worries: Nathan and other entrepreneurs might be deterred by the fact that rents are still soft, though Ulvestad says that is going to change because large blocks of high-quality space are becoming unavailable.
They also might be unnerved by a report by the Building Owners and Managers Association of Chicago that real estate taxes on Loop buildings are the highest of any big city in the country–for the fourth year a row.
At a 1996 average of $6.02 per square foot, the taxes top Minneapolis ($5.37), Boston and New York (both $4.48). They are far above the national average of $2.89. Of course many other cities pass on more of the tax burden to residential real estate, which is much favored under Cook County’s Byzantine tax classification system.
The good news is that 1996 operating expenses in Chicago were $5.96 a square foot, below the national average. Taxes and expenses together were less than in Boston and New York, the study’s figures show.
All in all, it doesn’t sound like taxes will stop construction if some company really needs the space. Ulvestad points out that, even if plans for a new office tower are announced this year, it won’t be finished until at least 2000.
That’s when the Dow will hit 10,000, right?