Demolition and new property in downtown Chicago

Member since 2025 · 7 posts · 5 votes

I have a family member who currently owns (100% equity) his childhood home in the West Loop while the entire neighborhood has massively changed over the past 15 years. The building was constructed in the early 1900s and will likely need to be demolished. However, cost for demolish would be about 10-20k. He is currently seeking 500k in financing to build 2-unit multifamily. Rents around the area go for 3.5-5k for a 2 bd, 1 bath. I've suggested a construction loan then to refi once the property is completed.
What would be the best strategy for this situation? Any loan strategies or any tip he should look out for in regard to working with construction companies?

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Jonathan KlemmBusiness Member
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Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
9mo
Hey there @Erick Escalante! Sounds like your family member has a diamond in the rough.
Your family member can definitely use the equity in the land as the down payment for the new construction and long-term loan. He'll need to connect with a commercial lender....happy to refer a couple of great Chicago lenders that will do new construction.
I actually personally had the exact same situation where I bought a double lot and used the land value of the extra lot to build a new construction property in Bucktown. The biggest challenge will likely be your family members' experience, which is a big factor in this type of loan. Finding the right team will be absolutely crucial.
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Erick Escalante
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Member since 2025 · 7 posts · 5 votes
9mo
Thank you! Yes, I do understand that the experience may be a mild deterrent for lenders but I I will refer to using the land equity as a form of collateral. Also yes, any references or any credible lenders would be highly beneficial to this project.
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Jennie Berger
Lender · Chicago IL · Member since 2020 · 357 posts · 229 votes
9mo
@Erick Escalante - solid question, and smart of him to think through this before moving forward.

A few things I’d point out:

-Construction lenders will want someone on the team who has actually delivered ground-up projects before. If your family member hasn’t done that, the best move is to partner with a GC or developer who has the resume. It protects him and makes a lender even look at the deal.

-Like Jonathan, I also have a great construction financing contact who funds new builds in Chicago, but they’ll require that experience piece too. The team matters as much as the dirt and the numbers.

-Your original thought - construction loan, then refinance once stabilized - is the typical path here, just make sure the exit lender is lined up early so you don’t get stuck mid-project.

-One other thing to clarify is whether he plans to live in one of the units, or it is currently titled in his personal name (as opposed to an LLC / corporation). If it's going to be his primary residence, that changes loan type, disclosures and who can fund it — some lenders treat owner-occupied construction differently than investment product.

Happy to talk it through or intro you to my lender if it helps - sometimes a five-minute call avoids a ton of headache!

— Jennie
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