Future uncertainties arising from property taxes, the financial woes of the city and state, and challenges obtaining investors have pushed several Chicago-based real estate development firms to pursue projects outside the city. For the last decade, Chicago has experienced a construction boom. However, the market has recently seen a substantial drop in developers taking on new local projects; instead favoring builds in cities such as Nashville, Dallas, and Denver.  

Property Tax Concerns

Efforts to overhaul the city’s property tax assessment process has led to concerns about future property taxes. Based on the changes implemented thus far, commercial property owners have seen a substantial increase in their tax obligations. Even passing some of the burdens on to their lessees, the increased expense of owning a property as a result of the taxation changes could result in a drop in profits. Consequently, those purchasing a commercial real estate property may look outside of Chicago to find a location where it is more favorable to do business.

City and State Financial Problems

Worries over the city and state of Illinois’ financial problems have contributed to a hesitance by investors to fund new projects in Chicago, pushing developers to take on projects elsewhere. Currently, the city and state have no solution for the rising gap between the pension benefits owed and the funds set aside by the state for the payment of these obligations. Uncertainties over what the future holds as a result of these financial struggles in terms of increased taxes or hits to the city’s economy and population have made it difficult for builders to obtain the necessary capital for new local projects.

Financing Challenges

Chicago’s real estate market saw a drastic slowdown in sales volume in 2019, which has contributed to the difficulties experienced by local developers in obtaining financing for new projects in the city. The Chicago Tribune reports the combined sales office, industrial, hotel, and apartment buildings sold in 2018 totaled $12 billion. The first three quarters of 2019 saw a sales volume of only $3.9 billion, putting the year’s projected total well below the previous year’s volume. Institutional investors may be less inclined to put up the capital for construction projects in areas where other developments have not fully leased, leading developers to pursue new builds outside of Chicago.