Monday, May 23, 2011
Reinvention Brewing at Donovan Park
Back when the housing boom was cresting, the area around Donovan Park looked primed for a residential reinvention. It fell outside the planned manufacturing district between Morgan and Racine, its industrial buildings were coming down, one by one. Whole blocks of land were available for new construction, and the city was willing to make zoning changes.
But the crest broke before the reinvention really happened. Regionally, new home sales peaked in the 2nd quarter of 2005, then started a long decline. They’re still declining. New home sales were down 20% in the 1st quarter of 2011 compared to 1st quarter 2010 – they’re down more than 90% from 2005.
In April 2007, two years into the decline, Lexington Homes acquired a block of parcels on the Sangamon side of Donovan Park and announced plans for Lexington Square, a collection of 39 townhomes with prices starting at $440,000. The timing was optimistic, and prices have bobbed a bit – they were down to mid-$300s in 2009 – but the units have been selling. Today prices start at $380,000 and $419,000 for townhomes of 2,200 to 2,560 square feet.
And Lexington Homes wants to keep building. Founder Jeff Benach says Lexington is in talks with owners of two other parcels around the park. “A few years ago, we would have both properties under contract by now,” Benach told me when I spoke to him in mid-May. “We’re going to have to get started soon – we’ve sold 30 units, we may sell another tonight.”
Lexington Homes isn’t just one of the last homebuilders still building, they’re also one of the few family owned companies still standing. Local builders dominated the Chicago market in new homes for decades. The balance began to shift as national builders bought local companies over the past decade or so. And the shift accelerated as some of the biggest local builders went out of business in the bust. Now, Lexington Homes stands out as an exception in the field.
Founded by father and son Ron and Jeff Benach, Lexington Homes is Ron’s 4th homebuilding company in 4 decades. The previous 3 were each sold to other builders – most recently, Concord Homes was purchased by national homebuilder Lennar in 2002.
“We survived, not because we’re so smart,” Jeff Benach says now. “We sold Concord at the right time.” And when the long draught hit the housing market, the new company was still small. “We weren’t sitting there with 20 subdivisions under development.”
Ten years ago, the Benach’s were among the first of the suburban homebuilders to move from cornfield development, where whole subdivisions are built from the ground on undeveloped land, to urban infill, a landscape many homebuilders still avoid.
“It takes a different skill set,” Benach says. The property starts out with vestiges of earlier developments, whether it’s a structure on top, or remains underground. But more than that, he says the urban environment is more heavily regulated. Municipalities have their zoning codes, and neighbors are often vocal about their preferences. Often, Jeff says, that preference is for open space.
“It’s a negotiation process,” he says. “It takes longer. And sometimes you get far into it, spend money, and something comes up and you realize it’s not going to work.”
Lexington Homes launched 2 suburban developments at the same time it announced Lexington Square in Bridgeport – one in Wheeling and one in Des Plaines. The suburban projects have sold faster -- the Wheeling development is sold out.
Regina Castle, who manages sales for Lexington Square says they anticipated a slower sales schedule for the city properties from the outset. The suburban units are almost half the price of the city units, and they are still considered urban infill, in close proximity to Metra commuter trains to downtown.
But city living has its appeal, and she points out that Lexington Square is both close to urban excitement, but still conducive to a quiet lifestyle. She says dog owners are attracted to the park, and the rooftop views of downtown, and of the fireworks from Sox Park, are spectacular.
She describes buyers who grew up in Bridgeport, went to school and are coming back to raise their families here. Others are professional couples who bought condos downtown, or in more bustling neighborhoods like University Village. Now they want a more suburban lifestyle that is still in the city. And they don’t have time to do renovations on an older single family home.
The absence of other new construction in an urban environment, where much of the surrounding stock is more than 80 years old, is apparently one of the advantages to selling urban infill. Before the bust, other developers had been attracted to the surplus industrial land surrounding Bridgeport’s protected manufacturing district, but their projects have mostly fallen through.
In fact, Lexington Homes acquired their parcels on Sangamon from another developer who sold them as his troubles began to mount. There is a trailer advertising “Donovan Park Place,” a new construction condominium project, on the parking lot alongside Lexington Square. The Jameson Sotheby’s International Agent who represents it says Donovan Park Place isn’t going forward, they just haven’t removed the trailer yet. She says the Bridgeport Collection, the Jameson Sothby’s project on 37th Place at Normal is “on hold.
Builders began making hopeful predictions that new home sales hit bottom and were about to revive back in 2009, only to watch sales register new lows. But a recent uptick in suburban land sales may be evidence that the revival has finally arrived. Suburban land is selling because prices have dropped from highs around $40 a square foot to prices closer to $10. But as Lexington Homes looks to keep building, it’s not clear the landowners around Donovan Park are ready to lower their sights yet.
Jerry Olsen of Newmark Knight Frank represents the large parcel on 37th Street between Sangamon and Lituanica – the one with the fence swathed in banners for Lexington Homes. He says the owners of the 37th street block had turned down an offer for over $3 million before the downturn, and that makes it harder to compromise now.
The land had been the site of Acme Barrel, which cleaned metal barrels from chemical companies, and the detergents seeped into the soil. It took them 3 years to get their NFR letter from the Illinois EPA, by the time they had it, the market had crashed.
He says the city has expressed interest in acquiring the parcel to extend Donovan Park, but they don't have any money right now either.
That leaves the sellers stuck coming to terms with the difference between the what the market value was, and what it is now. Olsen says he anticipates it will take 2-5 years, conservatively, for prices to recover, particularly considering the weakness of the job market.
Meanwhile, Donovon Park is surrounded by owners who appear to be settling in to wait. Fontanini’s has demolished their old plant on 38th Street, Olsen says that will make their real estate taxes lower if they have to hold on to it for awhile.
Rowena Cheng of Selective Realty Service represents the owner of the block across from the park on Lituanica. It was formerly a food warehouse. As new homes drew closer, the owner had begun to receive complaints about the trucks, so when it suffered a fire, he decided to tear it down.
Cheng says Lexington Homes approached them about the property. It would be enough land for 14 homes, and the owner wants $1.5 million, a sum Lexington Homes thought was too much to build homes for the market as it is today. But Cheng says the owner is in no hurry to sell.
“He knows what the property is worth.”