The Loop has long been the financial and commercial heart of Chicago. Soon, it may become the city’s newest residential neighborhood.
With little public attention or assistance from the city, real estate developers have begun laying plans to turn a smattering of office towers from the early part of the 20th Century into high-rise condominiums.
Now, City Hall is floating a plan that would help developers convert more older office buildings for residential use, as a way to shore up the downtown tax base, preserve historic structures and maintain the vitality of the central business district.
So far, only a couple of Loop buildings are being turned into living space. Questions remain about a lack of amenities in the Loop, such as parks and grocery stores, and about how many structures actually can be rehabbed.
But perhaps half a dozen more have been bought for conversion and entrepreneurs are looking at many others.
And encouragement from the city in the form of a benevolent attitude about building and zoning matters and–more important–money for infrastructure improvements and even direct subsidies could help push this growing interest into a redevelopment cycle that would transform the look of the Loop.
That apparently is just what City Hall has in mind.
The Daley administration in October announced a plan to use some $300 million in revenues generated by the North Loop tax increment finance, or TIF, district to redevelop the entire East Loop and parts of the Central Loop from the Chicago River to Congress Parkway.
Though the plan wasn’t spelled out in detail, officials of the Department of Planning and Development now say that residential use of at least some of the office buildings in the targeted area is a key part of the redevelopment plan.
“It would help us all out and put the buildings back to more productive use,” said Greg Longhini, chief planning department spokesman. “It would put more people on the street and create more of a market for the culture and amenities of downtown.”
He said the TIF funds, which will bring in $33 million a year until 2007, can be used for infrastructure work and financial assistance for development projects, including building rehabilitation, facade work and interest-rate subsidies.
The plan, which must go through public hearings and be voted on by the City Council, could include consideration of where to put retail services, parks and even schools that might be needed to support large-scale residential conversion, Longhini said.
Though still valued for their architecture, an increasing number of Loop buildings have become obsolete for office use because of antiquated design and technology.
As a result, some fear that these structures may stand vacant, pockmarking the Loop.
With other aging cities in similar circumstances, the question of what to do with older downtown office buildings suddenly has come to national prominence.
“The question of what to do with all this stuff is one of the critical problems facing most downtowns,” said Richard Peiser, director of the Lusk Center for Real Estate Development at the University of Southern California.
“If the downtown is strictly a place for office buildings, as the buildings become obsolete, there is a tipping point where you have so many vacancies that it doesn’t have the feeling it used to have as a vibrant place,” he continued. “Once that tipping point occurs, things go downhill quickly.
“If there is a salvation, (residential conversion) is it.”
Conversions also are under way in New York’s Lower Manhattan, where stately, imposing old office buildings in the Wall Street area are being gutted to turn into apartments.
State and local governments have helped out with zoning changes and tax breaks, and by pushing the creation of a business improvement district to address safety and sanitation issues in the area.
There is certainly no lack of old office buildings in the Loop. The city has identified more than 100 Loop buildings built before 1940. In the East/Central Loop area it wants for an expanded TIF district, the city lists 27 structures, mostly office buildings, that either have Chicago landmark status or are listed on the National Register of Historic Places.
Essential to the character of the Loop, the older buildings are nevertheless cutting into the city’s financial strength. Between 1991 and 1994, tax assessments in the proposed new TIF area declined 7 percent as the older buildings posted higher and higher vacancy rates.
Thus, the idea of conversion has overwhelming appeal.
The strength of the market for near-Loop living has been confirmed over and over again in the last 20 years, and the residential trend has been drawing ever closer to the center with the proliferation of lofts in what’s called the West Loop, just west of the Chicago River.
“The faith in residential is growing closer to the Loop,” said Michael Lerner, president of MCZ Development Corp., which is about to close on One Northwestern Center, a 796,000-square-foot office building at 165 N. Canal St., with plans to create 400 lofts and a 200-room boutique hotel in a $60 million conversion.
Just down the street, the Florsheim Building at 130 S. Canal St., which is being vacated by the shoe firm in January, is being acquired by Everest Partners, which is looking at a $40 million project to convert it to 211 loft and more traditional condominium units.
Closer to the center of the Loop, two smaller projects are under way.
From a model unit at the old Chicago Motor Club, a handsome 1928 building at 68 E. Wacker Pl., Markwell Properties is selling 14 planned condos, which will average more than $1 million apiece.
And interior demolition has been completed at the Singer Building at 120 S. State St., a National Register of Historic Places landmark built in 1926 that Dinko Inc. is turning into 13 condos with prices in the $145,000-$450,000 range.
“These will be the first of many (in the Loop),” said Susan Dinko, whose company acquired the building for $250,000 a year ago after it had been vacant above the first floor for about 20 years.
Still, stiff challenges remain.
Toward the central Loop, where buildings are jammed up against each other, lack of light and appealing views may dampen the market.
Parking will be a challenge because many of the buildings are too narrow to accommodate garages. Dinko, for instance, had to get a waiver for a parking requirement for her condo units.
Conversions will be costly. Most buildings will have to be rehabbed completely with all new mechanical and electrical systems installed. The detailed, sometimes fragile facades of many of the old buildings will have to be meticulously restored.
In addition, dealing with existing office tenants will in some cases delay conversion, or will require developers to shell out for lease buyout or relocation expenses.
These costs already have convinced some developers that they would have to charge more for condos or in rents than the market could bear.
Louis D’Angelo, president of Metropolitan Properties of Chicago, said that his company bought the 451,000-square-foot building at 332 S. Michigan Ave. in May with the idea of turning the upper floors into condos but put the project on hold when construction estimates came in higher than anticipated.
But the extension of the TIF district plus tax freezes for restoration of landmark facades could make the numbers work better.
Developer John Marks has a contract on the landmark Carbide & Carbon Building at 230 N. Michigan Ave., and plans a $30 million project for up to 200 condo or rental units.
He said he hopes as much as 25 percent of the cost could come from TIF assistance.
“You need to do so many things to bring most of these old buildings to a modern state that the costs require help, either from big equity investors looking for lesser returns, or from subsidizing in some way. The TIF is an excellent idea,” he said.
