As anticipation builds for the upcoming announcement of the 2016 Olympic bid winner, few Chicago industries have as much potential to gain from the International Olympic Committee’s October 2nd decision as the real estate community. With residential and commercial property values plummeting across the globe and recovery expected to take years, the city of Chicago (like most cities) is in desperate need of a catalyst to spark development and acquisition activity. The question on many real estate locals’ minds is: will the 2016 Summer Olympic Games provide that spark, and will Olympic- related transactions ultimately be profitable and sustainable?
There are two primary ways for developers to place bets on the positive long-term impact of the Olympics: ownership of a portion of the Olympic Village and development/acquisition projects in neighborhoods near Olympic venues.
|Rendering of the proposed Olympic Village in Chicago|
Numerous private developers have already responded to early Requests for Proposals or the master development of the Olympic Village, confirming the real estate community’s confidence that there are profits to be made in this landmark development. The Village is slated to be built just south of the McCormick Convention Center on the former Michael Reese hospital campus, which the city acquired for $85M from Medical Industries, Inc. in July. Plans call for a $1.1B mixed-use development consisting of approximately 21 twelve-story residential towers necessary to house over 16,000 athletes and officials during the games. Afterwards, the Village would be transformed into a combination of retail, market rate and affordable rental housing, condominiums, student and senior housing, and hotels.
The key challenge facing potential developers and investors is predicting if sufficient demand for these assets will exist in 2017 when the conversion is complete. The major residential supply in the area includes Draper &Kramer’s Prairie Shores Apartments (nearly 1700 units spread over 5 towers) and Lake Meadows Apartments (almost 1900 units spread across 9 towers). Although much older than the Village (both developments were built around 1960), these properties will still have a significant effect on market dynamics, particularly as D&K reacts to the bid results.
Another challenge facing the Village stems from the fact that the majority of the project will require substantial modification to transform the units from Olympic regulation housing to marketable units. Although some government funding may be available for the retrofitting of the units, developers will need to find a way to keep retail tenants happy between the conclusion of the games and the completion of the retrofit, as there will be a significant decrease in the installed customer base during construction. Despite these challenges, the guaranteed financial backing of the city makes the Village a compelling investment opportunity.
The even larger opportunity for private developers comes in the form of development/acquisition projects in the areas surrounding the Olympic venue sites, particularly in Chicago’s South Side where the majority of the games will take place. The neighborhoods widely anticipated to be the most impacted by the 2016 games are Douglas, Oakland, Kenwood, Grand Boulevard, Hyde Park, and Washington Park. Located between the Village (Douglas) and major permanent venues such as the Olympic Stadium and Aquatics Center (Washington Park) and the hockey fields (Jackson Park), these neighborhoods will be a major corridor of activity during the games and therefore a target for substantial redevelopment.
On the surface, this alone seems to be incentive for investment in the region; the question also arises as to what long-term fundamental changes will occur on the south side as a result of the games. Permanent stadiums and fields alone are enough to foster a significant change in market dynamics. Therefore, to rationalize investment we must ask what other drivers will spark profitable new construction. Typically, these drivers would include new public transportation access to downtown, government infrastructure investment, tax incentives / easier access to financing, and alderman support for redevelopment. As it stands, there are no plans for additional train lines that would connect previously marooned areas to downtown. Although the city has pledged to upgrade infrastructure to support the games, details are still in the works. Also, it is unclear what tax incentives and additional support the city will provide to spur development in these areas. There is clearly potential for tremendous growth in south Chicago stemming from the games, but the games alone will not be enough. The city of Chicago will need to be an integral partner in incentivizing the revitalization of many of these south side neighborhoods and continuing the efforts beyond the conclusion of the 2016 games.
Will the 2016 Games be the much needed lifeline for the Chicago real estate industry, or will the Olympics simply lead to new overbuilt, under-occupied neighborhoods? It’s too early to tell. However, as the city provides more concrete plans for transportation improvements, infrastructure development, and tax incentive structures, the potential profitability of the games and the longer-term sustainability of these developments will be much more apparent to the real estate community.