The changing landscape of the suburban apartment market
Daily Herald Business Ledger | John T. Slania | April 3, 2016
Luxury apartments were relatively new phenomena in the suburbs in 1969, the year International Village opened separate complexes in Lombard and Schaumburg.
The target tenants were “swinging singles,” young, fun-loving professionals who could rent a one-bedroom apartment for $195 a month.
A newspaper advertisement spelled out the International Village amenities: “dramatic sunken living room, formal dining room, carpeting (even in the kitchen), avocado kitchen appliances … sauna spa and full-equipped health club to keep your formidable form.”
Other apartment developers followed suit, and the 1970s became known as the era of the suburban apartment boom.
But it wasn’t long before the “swinging singles” settled down, got married, had families and bought houses. Suburban apartment development slowed to a crawl.
Now, after decades of dormancy, new luxury suburban apartments are again being built at a furious pace.
Ironically, the rebirth is being led by some of the old “swinging singles” who are now known as “empty nesters.” Their children, the Millennials, are likely interested in renting, as well.
“The two groups driving the demand for apartments are Baby Boomers and Millennials,” said G. Tracy Cross, president of Tracy Cross and Associates Inc., a Schaumburg-based real estate consulting firm.
As a result, new apartment developments are sprouting up across the suburbs.
Schaumburg village officials recently approved construction on the village’s first new apartment complex in 30 years, a 180-unit development near the Motorola Solutions campus.
The Lombard village board is considering three new apartment developments, which, if built, could bring 547 new rental units to the suburb.
Naperville is examining plans for a 39-unit apartment building near its 4th Avenue Metra train station.
Construction recently began on two apartment projects in Libertyville — a combined total of 46 units — the first new rental developments in decades.
And developers in Arlington Heights have completed the conversion of a long-standing high-rise hotel into a 214-unit luxury apartment building.
“Apartment construction in the suburbs has been dormant forever,” Cross said. “Now the construction is there because the demand is there.”
New apartment construction is being driven by a number of social and economic factors, according to Cross, whose firm is often hired by suburbs to conduct a market analysis:
• Baby Boomers are aging and are selling their single-family homes and downsizing into apartments.
• Millennials are deferring the “American dream” of owning a home.
• Homeownership is lower than pre-recession levels: 63.8 percent in 2015 compared with 69 percent in 2005, according to the U.S. Census Bureau.
• There are significant “employment corridors” creating jobs in the suburbs: along I-88 between Oak Brook and Naperville; I-94 near Glenview, Deerfield and Northbrook; and I-90 from Schaumburg to Elgin.
• Developer financing is cheap, and investors are more receptive these days to rental developments than home construction.
These new apartment projects are designed to attract upscale tenants. The wall-to-wall carpeting and avocado refrigerators have been replaced with hardwood floors, stainless steel appliances, granite kitchen countertops and large walk-in closets. The fitness centers and swimming pools remain, but they’ve been supplemented with amenities such as cyber cafes and outdoor sky decks with fire pits.
These are among the selling points at One Arlington, the new 12-story luxury apartment building near Arlington International Racecourse. Besides all the typical upgrades in the studio and one-bedroom apartments, One Arlington features a roof top sky deck that overlooks the racetrack, a music recording studio, a golf simulator, a bicycle storage and repair facility, and a dog wash and grooming room.
“We took an urban solution and put it in a suburban location,” said Rick Cavenaugh, president of Stoneleigh Companies LLC in Barrington, which renovated the old Arlington Sheraton Hotel into the luxury complex.
“What people want today is not what they wanted 20 years ago,” Cavenaugh said. “When you create a new apartment development, it needs to be a luxury product.”
Existing apartment complexes have upgraded to address the luxury trend these days at International Village as well.
For example, the old appliances are now stainless steel, the kitchens feature mahogany cabinets and granite countertops, and residents still recreate in a renovated clubhouse with the latest fitness equipment and free aerobics classes.
Monthly rents at One Arlington range from $1,250 for a studio to $4,000 for a two-bedroom penthouse, Cavenaugh said.
Similar attention to detail is being made by Chicago-based Cedar Creek Companies as it begins work on the 34-unit Manchester Square development in downtown Libertyville.
Manchester Square hopes to attract young professionals because of its luxury amenities and its close proximity to downtown Libertyville’s shopping, restaurants and Metra train station.
“A lot of people are attracted to a downtown — the ability to walk to retail and restaurants. And people are attracted to transit. We think that location offers it all,” said Mark Heffron, a partner with Cedar Street Companies.
When completed later this year, monthly rents at Manchester Square will range from $1,400 for a studio to $3,300 for a three-bedroom unit.
Shodeen Group, a Geneva-based commercial and residential developer, has experienced the complete evolution of the suburban apartment market over the company’s 55-year history, said President David Patzelt.
Shodeen began building and managing apartments in the 1970s, and over the years assembled a portfolio that totaled 900 units, Patzelt said.
Over the past three years, Shodeen has sold off nearly 800 of the older units and is now building luxury apartments, he said.
“When the home building market was hot, it was on fire. People were leaving apartments to buy homes. When the recession hit, there was a big demand for people to go back to apartments,” Patzelt said.
Shodeen now has four luxury apartment projects in Geneva, with monthly rents ranging from $890 for studios to $2,775 for a three-bedroom unit.
Offerings include the cozy Dodson Place in downtown Geneva, located on historic Third Street and within walking distance of the Metra rail station, and the larger Residence of Mill Creek project, located near wetlands, parks and recreational trails.
Shodeen recently launched an expansion of Residence of Mill Creek, with plans to add two 33-unit buildings.
“We believe the trend toward people moving to apartments will continue,” Patzelt said.
“People want an urban lifestyle in a suburban setting.”