Chicago - Advice for tearing down and developing a lot

22 Replies | Chicago, Illinois

I currently own a pre-fire 3 flat (aka VERY OLD, 100+ years) in a very desirable neighborhood of Chicago and when we purchased it, we purchased it for the land value (tear downs all up and down our block). The house is in good shape for it's age and we did some remodeling to it a year ago and currently live in 1 unit and rent the other 2. Our goal has always been to find a "forever" multi-unit in the city but the more I am thinking about it, the more I am thinking about the possibility of demoing our current 3 flat and building a multiunit, exactly how we want it, on the land.  I don't have any experience working with an architect, financing a deal like this, pricing it out or finding the right contractor to do the work who is also familiar with Chicago building codes, expediting permits, etc.   This wouldn't be something we do for 5-10 years but want to start exploring if this is realistic and the right plan.  

Has anyone gone down this road, specifically in the city of Chicago, who could point me in a direction to start getting some information about what it would really take do to this?    

@Stefanie K. - Talk with @Prashanth Mahakali about it. But from my understanding the current zoning would come into play. Most side streets are zoned RS which is SFH so if you were to demolish it then it would need to be rebuilt to it's current zoning, not the grandfathered in 3 unit status

Good day- first verify your zoning situation
You can do this here on Chicago website
https://gisapps.cityofchicago.org/ZoningMapWeb/terms.html
Next, get yourself an architect who is familiar working in Chicago area(if you need recommendations feel free to message me privately) make sure you bring a plot of survey when you meet up with the architect and have him draft a preliminary stage, this will get you a better idea of construction pricing. If you have any questions please feel free to private message me with any questions. I am very familiar with Chicago and worked all surrounding.

As for finding an architect and builder, I'd say scout the city for building you like, speak to the owners to see if they are happy with the construction, and get recommendations.

@Stefanie K. Thanks for starting the thread! I am going through a similar process myself, but I am not doing a tear down. I am under contract for a piece of land and should be closing this month! It is true what many others on BP are stating that zoning will play a huge part in that decision making process. 

Now although I am starting with an empty lot, we still have had to do a lot of things to make sure this is the right investment. We did hire an architect so we have all the plans ready which are important for our community meetings to discuss rezoning. 

It honestly depends on the work load you are willing to take on but from this first deal I am going through I have learned a lot about ground up construction! Now before I dove in, I did do a couple rehabs down to the studs and being a realtor and investor I have learned a lot along the way. 

My contacts are always available if you would like me to connect you with anyone! 

@Robert Los @Weston Harding @Ray Harrell

@Brie Schmidt

Thanks for the input so far. My zoning is currently RS-3 which is "Detached single family homes and two-flats." So, does that mean I can rebuild with a 2 flat but if I want to increase to 3 units, I would need a zoning change? In practice, how difficult is this? Developers do it all the time (I get the legal post card notices in the mail and constantly see the "cookie cutter" 3 flat condos going up everywhere SFH used to be) so I know it's possible just not sure timeline, cost and politics to make it happen.

Hello Everyone,

In Chicago demolition process starts with application for a wrecking permit. You can’t get a building permit for a new construction without applying for a wrecking permit(unless it’s a vacant lot) or having one already. You can pre-determine if the lot zoning would allow what you want to build there.

Since this topic has generated some interest, I will add my process to the topic.

First step is to determine if tearing down the building is the right thing to do. So I usually set up a field visit to walkthrough the building. I also check for building violations, current cash flow, rehab budgets( if it makes sense etc). I educate the owner enough to make a determination if the project is viable as a rehab or a teardown for new construction.

Once it has been determined that the building is beyond repair, we consider new construction. If the comparables in the area prove that a multi unit makes sense, then I compile some similar properties and figure out what was built: Area, materials, number of units etc. Most often someone has already done what you want to do in the area. For a three story building, you have to use masonry construction in Chicago. So use $150-$160/sf as general cost of construction. Reverse determine how much area of building you can afford based on your cash on hand and pre-approval. Determine if the project is still viable based on how much you can afford to build.

I do a zoning analysis after I do the financial analysis since it helps determine the project direction. If zoning does not allow you to do what you plan to do, I usually consult my zoning attorney to check out other options. We recently went with a zoning change AND a zoning variance for a Project since it made financial sense to spend the time and effort to go through it.

Getting to the design and permits comes after a long way into the process. In summary, I put my architect/GC/ Broker hats on to evaluate the best direction for a project. I use the market data, client’s available financial resources, zoning and building code information to determine the best route for the project.

Thank you for reading my elongated post. Each project is unique and you have a consider a variety of information sources before you make a decision. To simplify, My motto has always been “Let money show you way”. Hope this helps.

Prashanth

@Weston Harding - when you start it you should post it as a "deal diary" and update us all on the progress weekly or bi-monthly.  It will be a great learning experience for everyone to read

Man there are a lot of super knowledgeable people on BP! As a licensed GC in Chicago we have done about 85% of our work in new, ground-up new construction (SFR and multi-family/mixed use) and I was expecting the usual crappy mis-information. BP proves me wrong again!

I would add that demo itself is NOT a big deal. It is done all day, every day in Chicago as there is not a lot of vacant land in desirable neighborhoods. In almost 20 years, we have built on a vacant lot exactly once. Zoning will be your first (and biggest) hurdle. Most residential neighborhoods are zoned R3 will allow you to build up to 2 units, if you want more you will need a zoning change. Zoning is handled almost 100% by the alderman in your ward. Some are very amenable to zoning changes, some will not give it to you if you promise them your first born. We have worked in a lot of wards over the years and your success with a zoning change is almost 100% alderman specific. We walked away from a deal last year when we discovered that one side of the street was one ward, our side was a different ward and alderman (who never grants changes).

So your first task if you are zoned R3 is talk to your alderman's office and see how they feel about zoning changes. Some have down-zoned their entire ward to keep out congestion, some are happy to attract new investment in the neighborhood. Aldermen wield a lot of power in Chicago wards, everything else will hinge on that information. 

@Stefanie K. we have not worked with Moreno, but he has a reputation of being zoning change friendly in the right circumstances. Give his office a call, if you are living in the neighborhood they usually give you a little more attention!

@Brie Schmidt @Prashanth Mahakali @Ann Folan Great info here thanks for sharing!!

I am currently researching if I want to build on a lot (30 x 125) or sell the lot as-is. Reading the city of Chicago building code it like reading a foreign language, looking for some help!! Can you confirm a RS-3 lot can build a duplex 2 family or larger? from what I found (im no expert) I can only build a single family between 1000sqft-1800sqft.  Also, what price would a developer look for when buying a lot? 10%-30% of redevelopment ARV? Any advice is appreciated.
thanks,

Moreno? One generous donation to his campaign and you can build a high-rise... Although I know he is actively being investigated right now and a buddy is currently suing the city in federal court with Moreno being named in that lawsuit.

Originally posted by @Marco Morales :

@Mike B.

Is the lawsuit regarding the retaliatory zoning change he did to the Double Door building? 

 Yeah and the threats he made on camera. 

https://www.youtube.com/watch?v=Jb2hqFW79ZQ

@Ibn Abney the cost of that lot to a developer will 100% depend on where it is. In some cases it will even depend on what side of the street it is on. 

An RS3 is SFR but you may be able to build a 2-flat. I do not think you can build 2 duplexes or 2 condos or anything in that vein, I think you are looking at a single family or at most a straight 2-flat. You will need a zoning change to build 2 units or more. Generally, unless you get that lot dirt cheap, you need to be in a great location to make an RS3 lot desirable (think Roscoe Village, Lincoln Square, Andersonville, Lakeview, etc). The 30' width is a HUGE selling point in those neighborhoods, in those hot north-side neighborhoods folks will pay a premium for a wider lot and a wider house.

If it is not in a desirable neighborhood or a very low price or you can get a zoning change it may not be worth it. Just my 2 cents without any deal specifics.

Originally posted by @Prashanth Mahakali :

Hello Everyone,

In Chicago demolition process starts with application for a wrecking permit. You can’t get a building permit for a new construction without applying for a wrecking permit(unless it’s a vacant lot) or having one already. You can pre-determine if the lot zoning would allow what you want to build there.

Since this topic has generated some interest, I will add my process to the topic.

First step is to determine if tearing down the building is the right thing to do. So I usually set up a field visit to walkthrough the building. I also check for building violations, current cash flow, rehab budgets( if it makes sense etc). I educate the owner enough to make a determination if the project is viable as a rehab or a teardown for new construction.

Once it has been determined that the building is beyond repair, we consider new construction. If the comparables in the area prove that a multi unit makes sense, then I compile some similar properties and figure out what was built: Area, materials, number of units etc. Most often someone has already done what you want to do in the area. For a three story building, you have to use masonry construction in Chicago. So use $150-$160/sf as general cost of construction. Reverse determine how much area of building you can afford based on your cash on hand and pre-approval. Determine if the project is still viable based on how much you can afford to build.

I do a zoning analysis after I do the financial analysis since it helps determine the project direction. If zoning does not allow you to do what you plan to do, I usually consult my zoning attorney to check out other options. We recently went with a zoning change AND a zoning variance for a Project since it made financial sense to spend the time and effort to go through it.

Getting to the design and permits comes after a long way into the process. In summary, I put my architect/GC/ Broker hats on to evaluate the best direction for a project. I use the market data, client’s available financial resources, zoning and building code information to determine the best route for the project.

Thank you for reading my elongated post. Each project is unique and you have a consider a variety of information sources before you make a decision. To simplify, My motto has always been “Let money show you way”. Hope this helps.

Prashanth

 Outstanding breakdown.  And your motto reminds me of Russell Gray, from The Real Estate Guy's, motto of "do the math and the math will tell you what to do."  

Originally posted by @Stefanie K. :

I currently own a pre-fire 3 flat (aka VERY OLD, 100+ years) in a very desirable neighborhood of Chicago and when we purchased it, we purchased it for the land value (tear downs all up and down our block). The house is in good shape for it's age and we did some remodeling to it a year ago and currently live in 1 unit and rent the other 2. Our goal has always been to find a "forever" multi-unit in the city but the more I am thinking about it, the more I am thinking about the possibility of demoing our current 3 flat and building a multiunit, exactly how we want it, on the land.  I don't have any experience working with an architect, financing a deal like this, pricing it out or finding the right contractor to do the work who is also familiar with Chicago building codes, expediting permits, etc.   This wouldn't be something we do for 5-10 years but want to start exploring if this is realistic and the right plan.  

Has anyone gone down this road, specifically in the city of Chicago, who could point me in a direction to start getting some information about what it would really take do to this?    

 One thing that intrigues me is that you say its in a very desirable neighborhood as well as "Developers do it all the time (I get the legal post card notices in the mail and constantly see the "cookie cutter" 3 flat condos going up everywhere SFH used to be)."  This is surprising to me because in my experience, highest and best use in Chicago's most desirable neighborhoods is almost always as a single family home.