Real estate rumors float like mist across the city landscape, carrying lofty hopes for once-depressed neighborhoods teetering on the brink of transformation.
But reality is often as elusive as the fog for urban pioneers who stake an early claim in one of these ”developing” neighborhoods. Gambling on everything from crime rates to the quality of local schools and community organizations, these home buyers risk it all in hopes of landing in the promised land: a good neighborhood where homes are cheap, plentiful and could eventually be worth a fortune.
”For many years, people didn`t look at housing as a way to get rich,”
said Norman Katz, president of RESCORP, specialists in urban residential rehabilitation and development. ”My parents` generation didn`t look at (home ownership) as a speculative investment that would see a lot of appreciation. They were looking for a good place to raise a family.
”But that has all changed. Now there is a whole group of people, individuals who are interested in the real estate market as a way to get rich in the appreciation of neighborhood value, while finding a good home as well. But most don`t realize that they`re risking their time, energy and money on speculation, someone`s best guess.”
Truth be told
The rumor mill churns endlessly, it seems, with developers, real estate agents, back-yard prattlers and the media anointing one neighborhood after another as the latest ”hot” spot, perfect for someone looking to get in before prices skyrocket. But as is usually the case with gossip, it often proves to be exaggerated or simply untrue.
”Uptown was a bust,” said Sergio Martinucci, president of Stanmeyer Century 21, the city`s largest residential brokerage firm, speaking of the North Side community that fueled speculation in the early 1980s.
”That`s not to say that there hasn`t been some appreciation in that area, but it never lived up to the early talk. If someone put their money in Uptown versus Lake View, West De Paul or Bucktown at the same time, there is no question they came out last in appreciation for their dollar.
”Uptown has yet to, and may never, reach the potential of early predictions.”
Meanwhile, Bucktown and Roscoe Village have eclipsed early expectations for growth and appreciation. A single-family home that cost $60,000 in those areas only six years ago can fetch triple that amount today. And, though the market has slowed along with the economy recently, values in those
neighborhoods still outpace the market growth in most other city communities. Pros and cons
Despite the fact that those areas owe their success to a combination of social, economic and political factors, most amateurs ignore the facts when it comes to understanding what makes a successful ”changing” neighborhood. Meanwhile, the professional speculators are lying in wait.
”Real estate people and the public combine to start these rumors,”
Martinucci said. ”There are expert investors who buy in early, then tell people that it`s the neighborhood of the future. Regardless of whether it is or not, it quickly gains a reputation as a hot spot.”
”I have to admit that many times I`ll make a decision on gut feeling more than anything else,” he said, referring in part to Stanmeyer`s recent investment in West Town, a Near Northwest Side community now pegged by many as the first up-and-coming pocket of the 1990s.
”Starting from Day One, 12 years ago, when I first bought on the periphery of De Paul, I`ve combined information with my own intuition. You combine what you see with what you feel about an area,” he said.
But not everyone has the Midas touch, or guts. Indeed, some who have relied on intestinal fortitude have earned little more than the price of a Bromo. Many times, they fall prey to salesmanship.
”One of the major problems is what I suppose you might call carpetbaggers,” Martinucci said. ”These are people who say they want to develop a community. But they just wind up selling fast and reaping a profit, leaving behind overpriced property without room for development.”
Marcel Friedas, an independent architect and developer on the North Side, has also ”seen them come and seen them go,” he said.
”Suddenly a neighborhood is hot and everybody is a developer,” Friedas said. ”Many of the people are what I call `flippers.` They buy property to make a quick dollar, then flip it to another buyer, usually another flipper.
”By the time it gets to a developer or homeowner who can do anything with it, it`s overpriced for its area and basically too costly to
rehabilitate.”
Roadblocks to change
But fast-track neighborhoods that are slow to turn the corner more often are victims of what one analyst calls ”neighborhood diseconomies,” the sometimes hidden factors that determine the character of an area and its susceptibility to development.
In looking at these diseconomies, bargain hunters and potential pioneers have to be a combination of sociologist, economist, private detective and real estate analyst.
”Diseconomies include the quality of schools, for one, the crime situations, security, the political climate, traffic, gangs, all those elements that can be pressing in a neighborhood situation,” said real estate analyst Tracy Cross. ”If the problems can`t be solved, they would be negative diseconomies.
”And if there`s not enough critical mass to overwhelm them, that is, interest in changing them, then the prospects for the neighborhood are pretty dim.”
However, there are also positive factors and other indicators of the general health of communities that are clues to watch for. By looking beyond the television stories, hard-sell Realtors and street talk, you can often see which neighborhoods are up and coming and which are simply down and out.
”We look for about an 80 percent to 20 percent mix of single-family to multifamily housing in a neighborhood,” said Jay Strauss, chairman of Regent Realty Group Inc. ”Less than that and it`s difficult to have a solid base of homeowners, which is the most important factor if the neighborhood is going to stabilize and appreciate.
”If you look at Uptown or East Rogers Park, Albany Park, areas that once were considered very promising, you`ll see that there`s too high a concentration of apartment buildings for homeowners to make a significant neighborhood impact.
”Second, we look for the relative safety of the neighborhood. If you live in the city there is always a danger, but we look at how it stacks against other neighborhoods.
”High-crime areas, no matter how attractive geographically, are difficult to turn around.”
Other positive signs include the neighborhood`s proximity to public transportation.
Signs of life
Developers encourage potential buyers to make a survey of brokers who deal specifically in the area they`re considering to determine how much homes are selling for and the prospects for appreciation in value. However, skepticism is a friend here; the developers say to subtract about 10 percent from those estimates.
Price spillover is another phenomenon that speculators look for. They try to find disparities in prices that indicate potential bargains.
In most cases, a 10 percent or more price differential from one neighborhood to the next indicates a good chance for spillover-the movement of people who can`t afford the high-priced property, but have the same type of income and lifestyle structure as those who live next door. They raise the lower-priced neighborhood to the same price level over time.
”When the prices in Lincoln Park crossed the $275,000 barrier in early 1989, that inevitably led to the growth of another neighborhood,” said Cross. ”Because Lincoln Park had outstripped the affordability of most owners, it created a spillover into other nearby markets-Bucktown and Wicker Park being the two most noticeable areas.”
Trial run
The area`s general economic health, not just home prices, is also one of the best indicators of a neighborhood`s future. Before buying in an area, act like you already live there. Patronize the shops at different times of the day, eat in the neighborhood coffee shops and browse in the stores, the experts said.
Store owners who are in for the long haul and have a long history in the community are good indicators of stability.
While those are some of the concrete factors, developers look beyond them when deciding where to put their money. By looking at the neighborhood`s soul, its social health, they can tell as much about the neighborhood`s future as by looking at the bottom line.
”The community organizations and orientation can tell you a lot about an area,” said Joel Zemans, president of Midtown Bank, a prime lender for the city`s community developers. ”Uptown, for instance, does not have a strong homeowner community organization like Lincoln Park, Lake View or points west. These are the groups that keep an area alive during good times and bad.
”They make sure there are social programs for the kids, improve the parks and the like. They result from a shared interest in the health of the neighborhood. They are the lifeblood of any developing area.
”We`ve been financing in West Town for four or five years now just for that reason. The urban pioneers moved in there and are willing to stake their turf, put in sweat equity and follow with the pattern of social organizations. ”Suddenly we see prices rise and everybody is happy,” Zemans said. ”If it works as it has in other parts of the city, it`s because people saw potential that was real, the facilities were available and the people were willing to work together.
”When all those factors come together, values rise and an area with potential actually becomes a neighborhood.”
