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House flipping is changing the South Side—for the better

Ten years ago, a map of ZIP code 60629, a swath of the city just east of Midway Airport, was filled with hundreds of red dots indicating foreclosed homes. Now, thanks to a decade-long wave of rehabbers flipping distressed homes, that same area has homes that have been refreshed and resold.

In 60629, which encompasses parts of Chicago Lawn, West Lawn and Marquette Park, 692 homes have been flipped in 10 years, the most in any Chicago-area ZIP code, according to figures provided exclusively to Crain’s by Attom Data Solutions. The data cover about 300 ZIP codes in the region, for 10 years, 2008 through 2017, a period in which more than 41,900 Chicago-area homes were flipped.

Five ZIP codes—four on the city’s South Side and one in suburban Bolingbrook (see chart)—emerged as the epicenters of home flipping, each of them with more than 500 properties going through the process in the past 10 years.

“At that level of density, flipping creates real potential for rejuvenating a neighborhood,” said Jeff Bartow, executive director of Southwest Organizing Project, a community action and development organization. “It’s a concentration of investment that people can see, (and it tells) them that this is a neighborhood where the trend is up, not down.

Belinda Mitchell, a real estate agent whose B&B Realty has done flips in two of the top five ZIP codes, 60440 and 60628, says that in areas where there’s been a cluster of flips, “you can see the enrichment in the area. A lot of those homes hadn’t been fixed up in years, and they weren’t going to get fixed up by their owners, who were struggling to hold on.”

It’s unlikely, she and Bartow said, that hundreds of in-place homeowners would have found the money to rehab their homes in the past decade. This is not to suggest that the foreclosure crisis that forced them out was good news, but the silk purse made from that sow’s ear was that the empty and distressed homes “became opportunities for renewal,” Bartow said.

Set in motion by the foreclosure crisis that emptied scores of homes all over America and popularized by TV shows like “Flipping Out,” “Flip or Flop,” “Masters of Flip,” the flipping business hit an 11-year high in 2017, according to Attom. More than 207,000 houses, condos and townhouses were flipped in the U.S. during the year.

In the Chicago metro area, 6,012 were flipped in 2017, according to Attom, the most since 2006, when there were more than 8,500.

It was far more common for flips before the housing crash to be profiteering hand-offs between related parties, jacking up the price each time to take out ever-larger mortgages, said Daren Blomquist, Attom’s senior vice president. In recent years, thanks in part to stricter lending standards, “most of the flips we see involve a rehab and resale” at arm’s-length, Blomquist said.

One way to tell is by measuring the spread between the first sale price and the second. “If it’s just a thousand dollars or so, you’re probably seeing the wrong kind of flip,” Blomquist said. A spread of tens of thousands of dollars most likely indicates that a rehab was done. In all five ZIPs, the average spread was $79,000 or more in 2017.

That doesn’t mean there weren’t some grifters playing the system, but Blomquist said the data makes him confident that it’s a far smaller number in Chicago than in cities where it’s still common, such as Memphis, Philadelphia and Oklahoma City.

The biggest spread was in 60620: more than $125,000 on average. That’s gross profit, before subtracting all the costs of the rehab and carrying costs. Attom does not compile those figures and cannot calculate net, post-rehab profits.

The Bolingbrook ZIP code, 60440, is on the east side of the suburb, along I-355 and I-55. Most of the recent flips Crain’s found there were townhouses at the lower end of the price range for Bolingbrook homes.

In 60629, the flippers who picked up a four-bedroom house on Keating Avenue for $70,000 sold it earlier this month for $259,900. Listing photos show the kitchen and two baths were rehabbed, but few other details were provided.

On Sacramento Avenue, also in 60629, buyers paid $220,000 in December for a flat-front bungalow with a rehabbed kitchen and baths and new climate systems. The flippers bought it for about $110,000 in April 2017. The flippers who paid $45,000 for a brick two-flat on Maplewood Avenue put in new kitchens and baths, refinished the floors and made other upgrades (that weren’t spelled out in the listing), and sold it in December for $215,000.

Flipping in large numbers, said Frank Montro, a Keller Williams agent who has represented several flippers, “is changing the landscape of the South Side. It’s a place that you might not have considered desirable, but when you see these houses all redone, you might say, ‘I can live here. I can help build this community back.'”

$6 billion-plus O’Hare expansion deal about to land

After more than a year of hardball bargaining led through Mayor Rahm Emanuel’s office, the city appears to have closed in on a deal for a massive expansion of O’Hare International Airport’s passenger area, with dozens of new gates and 3 million square feet of terminal space to be added by 2026.

The deal is expected to be officially unveiled within days and introduced to the City Council this week. But that schedule could slip amid a last-minute dispute over whether to grandfather in five new gates American Airlines has been building off the L concourse in Terminal 3, or whether to count them against the carrier’s share of the new gates.

Though other big airports around the country are expanding, too, landing the deal on gates and a related O’Hare master lease agreement would be a major coup for the airport, whose position has slipped in recent years, and for Emanuel, as he prepares to seek a new term. It also would allow the city and the carriers to take full advantage of the billions of dollars they’ve spent in the past decade for new and relocated runways at O’Hare.

The overall price tag: more than $6.1 billion, not counting other elements already underway worth hundreds of millions and possibly billions of dollars. This latest work would be paid for with landing fees from carriers, seat charges for passengers, ancillary income such as concession revenue and possibly some federal grants.

Among other key items: new gates not only for O’Hare’s dominant carriers, American and United Airlines, but discount carriers that have been seeking more space; new international space that would allow baggage to go directly to domestic gates, rather than forcing passengers to recheck items after emerging from customs; huge additions of club space for upscale passengers; and construction of a 10,000-space employee parking lot on O’Hare’s western edge that officials say could be the first step toward a western terminal that DuPage County economic leaders long have been pushing for.

No one yet wants to discuss this officially. But here’s what I hear from several sources, both in the city and the aviation business, who have direct knowledge of where things stand:

At its core, the plan is similar to one outlined by city Aviation Commissioner Ginger Evans in a speech last September to the Economic Club. There are three key elements.

First, two satellite terminals would be built to the west of Terminal 1, connected to the main terminals via walkways and tunnels. Terminal 1 now is used by United, O’Hare’s largest carrier.

Second, the existing Terminal 2 used both by American and United for domestic flights would be demolished and replaced by an expanded international terminal, with customs and border-protection facilities.

Third, doing both would allow United and American and their international partners to shift operations out of the existing international terminal, Terminal 5. The new T-5, which already is getting nine new wide-bodied gates under a previously announced deal, would house all operations of Delta Air Lines and its partners, as well as become the new home of discount carriers Spirit, JetBlue, Alaska/Virgin and Frontier. It appears the latter would get a net gain of five to 10 new gates, with some of that already underway via a gate swap with American.

The western parking lot is a major new element, aimed in part at suburban leaders who agreed to allow O’Hare to add runways in exchange for economic opportunities.

The parking lot would include security features to allow workers to check in and then be bused to their final destination. A more sophisticated people-mover system would come later. City insiders describe the parking complex as putting O’Hare on the path to a potential western terminal, which they believe will be needed after 2030.

Overall, total space in O’Hare terminals would go from 4.3 million square feet now to 7.4 million square feet. Total linear frontage for aircraft parking in this Phase 1 plan would leap 22 percent, with O’Hare adding more than a mile of airplane frontage.

Doing all that would allow an additional 30 to 34 planes to park and accept passengers, including the nine new T-5 gates under construction and the five American is building. However, those figures are a mix of spaces for wide-bodied and narrow-bodied aircraft, so the number added depends on how you divide up the space. O’Hare now has roughly 186 aircraft spaces.

Those five new American spaces have become a sticking point in talks, with American wanting them to be on top of whatever it gets in new gates, and United wanting them counted as new, inside sources say. With United and American fiercely competing for space, final negotiations were handled personally by Emanuel, who repeatedly met and talked with a senior American executive at City Hall last week.

No final deal on that had been reached as of late last week, but talks were continuing and there is a possibility the city would proceed anyhow.

I’m told that in one new feature, airlines would be given their choice of how long of a lease agreement to sign. The city’s current long-term lease applies equally to all of the carriers. Also, income from concessions will go to pay for the new construction, rather than directly into the pockets of the carriers.

Insiders say the changes should make O’Hare not only bigger but more efficient, with international flights closer to domestic gates and walking distances shortened.

The city also has announced plans for a new hotel across from T-5.

Details on later phases of O’Hare expansion are not currently available, but as part of this deal, the planning process for the next phase is to begin in 2023.

Real estate market unfazed by changes to tax law

Were fears overblown that changes to the federal tax law would trigger plunging home values?

You might recall the scary predictions from the realty industry and some independent economists that began last fall: Cutting tax benefits for homeowners would inevitably lead to declines of 4 to 10 percent in home prices, and maybe even more for upper-bracket properties in high-tax areas.

So how are those dire warnings holding up? It’s still early in the game for hard statistical answers. But it’s not too early to gather anecdotal evidence on whether buyers — citing higher tax burdens — are pushing asking prices downward, or whether sellers are caving or resisting.

To get answers, I contacted realty agents and economists who keep a close eye on consumer behavior in markets around the country. The consensus was summed up best by Ralph McLaughlin, chief economist of Trulia, a San Francisco company that tracks prices and local market trends in hundreds of communities. Price declines are nowhere in sight yet and cannot be totally ruled out, he said, but “we think the potential negative impacts (of the tax law) will be muted by the likely fact that most households will actually have more money in their bank accounts at the end of the year because of the tax plan.”

That, plus the ongoing shortages of inventories of homes for sale — along with strong buyer demand, low unemployment and wage growth — may offset whatever tax deduction concerns might otherwise be taking shape. Cheryl Young, senior economist at Trulia, cited the latest Standard & Poor’s CoreLogic Case Shiller index, which documented steadily rising prices in most markets.

“Early versions of the tax-reform bill in November threatened to put downward pressure on prices in expensive and high-tax areas as proposals on caps to the mortgage-interest tax deduction and state and local tax deductions ding demand,” according to Young. “But the proposals didn’t cause a ripple in November home prices.” In fact, prices in San Francisco, considered one of the most vulnerable cities for price declines because of super-jumbo-sized mortgages and high taxes, rose 9.1 percent year-over-year. Case Shiller’s 10-City index rose 6.2 percent in November.

None of this is to suggest that the financial impacts of the tax law are being ignored by buyers and sellers. To the contrary, realty agents say clients, especially those preparing to enter the marketplace, followed the tax provisions carefully as they moved through Congress, and they have a good sense about what the changes mean to them in practical terms.

Noah Goldberg, an agent with Redfin in Jersey City, N.J., says clients “were waiting on the sidelines at the end of the year due to the uncertainty around tax reform.” But “now that (they’ve) had a chance to calculate the monthly costs, income taxes and deductions,” they’re streaming back. Some buyers have told Goldberg that the lower federal income taxes they’re likely to owe will offset the real estate deductions they’re likely to lose. So the net effect could be a wash.

Some sellers and buyers, however, are definitely factoring higher real estate taxes into their transaction equations — either as a reason to price their properties more reasonably at the listing stage or to urge sellers to lower their price during negotiations. Chicago real estate broker Alexis Eldorrado says some sellers of upper-bracket properties have become more flexible on their initial asking prices, knowing full well that buyers may come in with Excel spreadsheets detailing how their tax bills are going up. Jill Eber, a Miami broker, said that tax law may actually be driving some owners from high-tax states to tax-friendlier Florida.

“We’re hearing from more people from New York, the Northeast and California than usual,” she said, and some are specifically citing the tax law as a reason for considering switching domiciles. What impact that might have on pricing isn’t yet clear, however.

In the Washington, D.C., suburbs, the revised tax rules are changing some buyers’ and sellers’ behavior, say agents. Kris Paolini, a Redfin agent in Bethesda, Md., says some buyers “are trying to use taxes and the predictions that prices will fall as a negotiating point, but sellers aren’t buying it.”

Bottom line: The post-tax-bill real estate scene is still evolving, and any price declines aren’t visible yet, if indeed they are even coming. Other factors — inventory pressures, growth in the broader economy and interest-rate changes — could prove to be at least as important as taxes in influencing home prices as the year takes shape.

High-speed Chicago to Cleveland Hyperloop project takes first baby steps

A plan to connect Chicago and Cleveland via an experimental high-speed transportation system known as a Hyperloop took an early but significant step forward in recent days as California-based Hyperloop Transportation Technologies reached an agreement with the North Ohio Areawide Coordinating Agency and the Illinois Department of Transportation to study the feasibility of such a project.

This data collection process will identify potential routes for the service, which would utilize electromagnetic pods running inside low-pressure, low-friction tubes to reach speeds in excess of 700 miles per hour.

If realized, the Cleveland-Chicago connection would slash the 313-mile trip down to just 28 minutes, making it possible to live in one city and commute daily to the other. The Midwest route could even become part of a larger nationwide system similar to Hyperloop One’s Vision for America plan to connect 35 major cities.

Feasibility studies for other Hyperloop projects are underway in places like Colorado and Missouri, reports Forbes. Meanwhile, Elon Musk’s the Boring Company was granted a permit to actually start digging an underground route for a proposed Hyperloop between New York and Washington, DC. The tunnel-boring firm is also one of four groups vying the contract to build Chicago’s long-discussed O’Hare express project.

Hyperloop Transportation Technologies (HTT) is taking a deliberately commerce-driven approach to its US projects, citing specific regional needs as related to jobs, manufacturing, and the movement of materials and finished goods. Such an approach would be private-public partnership—the preferred funding mechanism outlined in President Trump’s latest infrastructure plan.

“We came here because places like Cleveland, Chicago, and Pittsburgh have the manufacturing, the raw materials and the talented, hard working people in order to make it happen,” said HTT Chief Global Operations Officer Andrea La Mendola, in a statement. “We can source everything from this area. This is a place where you make big things.”

Additional information regarding HTT’s Midwest project will be revealed in the coming days. The company and its growing list of public and private partners are expected to release more details at an event at Cleveland’s Great Lakes Science Center on February 26.

While the Illinois Department of Transportation decision to share data is a key first step in the process, IDOT spokesman Guy Tridgell tempered the extent of the agency’s involvement to Crain’s Chicago Business. “We are working with the parties involved to allow a feasibility study on the service as described. No agreements are final. No state funding is involved.”

The emerging technology needed to make Hyperloop a reality is still very much in its infancy. In real-world testing, a full-scale prototype pod has taken an incremental approach to increasing speeds. In December, the team achieved 240 miles per hour—quick, but still roughly one-third to the system’s ultimate target.

Hyperloop Transportation Technologies’ XP-1 prototype pod undergoing evaluations at the company Nevada test track
Hyperloop Transportation Technologies