By Iurii @ Adobe Stock
With the announcement that Chicago will offer the most generous subsidies in the U.S. to save its downtown, you can expect more of the same from other blue blob cities. As I’ve said before, cities will be beautiful but smaller as governments spend resources to save their city centers. But they don’t have the money to do it for an entire city. This will create more no-go zones in more cities. If you’re not already living in the safest areas, plan your escape now. In The Wall Street Journal, Peter Grant explains Chicago’s plan to save its own city center while its outskirts crumble:
Chicago gave birth to the skyscraper in the late 19th century. Now, local developers and politicians are trying to keep many of today’s office towers from dying off.
The city is going beyond any other in providing public subsidies to convert obsolete office space into apartments and hotels, despite enormous budgetary challenges. Even Chicago’s politically progressive mayor signed on last month.
The city’s office market has been hurt by weakening demand, higher interest rates and difficulties in refinancing. Big companies such as Citadel and Boeing have moved their headquarters elsewhere, and Chicago commercial-property values have plummeted.
While these economic trends have afflicted central business districts in other major U.S. cities, by one measure Chicago’s is the hardest-hit.
Three-quarters of the mortgages backing its office space that were converted into securities are either in default or are at risk of default, the highest of any major metropolitan area in the nation, according to credit research firm KBRA Analytics.
Chicago’s office-vacancy rate has soared to 16.3% from 11.9% in early 2020, and it is notably higher than the U.S. average of 13.8%, according to data firm CoStar Group. Some downtown office buildings have sold for less than one-quarter of what they were valued at a few years ago.
Average asking rents haven’t fallen much, but partly because so many landlords are facing financial difficulties, the available supply is shrinking.
“There are fewer landlords competing for tenants because so many buildings are in this zombie state,” said Michael Reschke, a leading Chicago developer.
This dire situation has even caused the city’s mayor to ally with the real-estate community on a plan to save the downtown office district.
Brandon Johnson, who took office a year ago, ran on a pro-union platform that called for new taxes on businesses. In recent months, he has taken pro-business steps such as appointing Ciere Boatright, a real-estate executive, to lead the city’s Department of Planning and Development.
Johnson’s main revenue initiative has been a $1.25 billion bond issuance for affordable housing and economic development that received widespread business support.
“He does not want to be the mayor who loses downtown,” said David Reifman, a partner at the law firm Croke Fairchild Duarte & Beres, who served as commissioner of planning and development under former Chicago Mayor Rahm Emanuel.
Chicago’s mayor isn’t the only progressive who is turning to pro-business initiatives to revitalize ailing office districts. In San Francisco, arguably the city hardest-hit overall by the office downturn, Mayor London Breed is backing a range of tax proposals and other initiatives to spark housing and business growth.
Action Line: City centers surrounded by no-go zones are nowhere you want to raise your family. Start your search for a better America with Your Survival Guy’s 2024 Super States. Then, click here to subscribe to my free monthly Survive & Thrive letter.
E.J. Smith - Your Survival Guy
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