Burning Residential

Data reveal that the residential market is sustaining the Chicago area's construction fortunes.

"Most of the starts are on the residential side, between single-family tracts in the [Southwest suburban] Plainfield and Oswego areas and the high-rise, multifamily market," said Mark Luetkehans, vice president of Chicago-based Paul H. Schwendener Inc., a general contractor. "There is an incredible boom going in the [South Loop's] Central Station area and near Millennium Park."

Residential starts overall soared 33.6 percent in the first half, due in part to the Trump project, which is profiled in this issue. Indeed, multiunit housing starts doubled in the first half, to $2 billion.

And, the residential market's strength is sweeping because the two-family dwellings increased 27 percent, to $127 million, and single-family homes went up 13 percent, to $3.8 billion.

Despite the residential market's overall vigor, deliveries of condominium and apartment units in the downtown area between Cermak Road and North Avenue fell by almost half. Data from Chicago-based Appraisal Research Counselors, a consulting and research firm, found there were 2,464 deliveries in 2004, a decrease from the 4,177 deliveries in 2003.

"It (the falloff) was kind of reacting to Sept. 11," said Gail Lissner, vice president of Appraisal Research. "There's that lag because after Sept. 11 sales were slow, and people held back."

Appraisal Research projects 3,150 deliveries in 2005, an increase of about 700 units from 2004, Lissner said.

"Deliveries are really going to skyrocket in 2006 and 2007," she added. "They reflect the current strength we're seeing today."

The $2 billion-plus Lakeshore East development is an especially extraordinary project in a former golf course in the Loop where the Chicago River meets Lake Michigan.

The development, which is project to last for 12 to 15 years, calls for 17 residential and commercial structures. Already, the 29-story Lancaster condominium and the 47-story Shoreham have been complete.

Also contributing to the residential boom are the popularity of the city's Millennium Park and Magnificent Mile. The $250 million 340 on the Park condominium on East Randolph Street has started, and the venerable Palmolive Building and the Britannica Centre, both on Michigan Avenue, are being converted into condominiums.

Spending Money

Signs are emerging in the construction market that consumers are spending money and driving the economy.

For example, first-half retail construction starts were up 44.5 percent, to $488 million, and hotel starts also enjoyed an increase, of 187 percent, to $117 million, due in part to the hotel portion of the Trump project.

"People deferred to Sept. 11 or other economic issues, and you can't defer any further," Schwendener's Luetkehans said.

The Illinois economy is expanding. The University of Illinois Flash Economic Index continued its strong performance, rising to 106.9 in July, the most recent reading, from 106.5 in June. A year-ago July, the Index was at 100, the dividing line between economic growth and decline.

The current reading shows growth in corporate earnings, consumer spending and personal income, said J. Fred Giertz, the Illinois economist who compiled the data.

"Illinois did very badly coming out of the 2001 recession, but we seem to be catching up a little bit," he added.

Falloffs in commercial and infrastructure construction starts in the first half could dampen the flames of enthusiasm somewhat.

Infrastructure starts fell 24.1 percent in the first half, to $1.1 billion. Nonresidential building dropped 21.6 percent, to $2.6 billion.

The approximately 17 percent vacancy rate in Loop office buildings remains a worry. "It makes us very soft compared with other major cities," added McHugh's Meagher.

The airport construction market is expected to be a powerful one for years because of the yet-to-break-ground $6.6 billion O'Hare International Airport modernization program.

Plans call for reconfiguring the airport's intersecting runways into a parallel layout, constructing a western access and building a western terminal and parking. The western terminal will be connected to O'Hare's main terminal core by an automated people mover.

Several other markets are expected to sustain local market for years, including health-care, school and university construction.

"We're pursing diligently the health-care market," said Richard Tilghman, senior vice president of Chicago-based Pepper Construction Group.

Chicago Starts (first half each year; in billions)
	YTD 2004	YTD 2005	% Ch., 05/04
Nonresidential	$3.3	$2.6	-21.6%
Residential	$4.4	$5.9	+33.6%
Engineering	$1.5	$1.1	-24.1%
Total Construction	$9.2	$9.6	+4.5%
Source: McGraw-Hill Construction

The robust residential market is giving a strong boost to the Chicago construction market.

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