ChiBlockBuilder $1 lots - does the math actually work?

Question

Chicago just released 600+ vacant lots through ChiBlockBuilder - largest batch since the portal launched in 2022. The Missing Middle lots in West Englewood and South Chicago are $1 with up to $150K in construction assistance per unit, owner-occupied buildings up to 6 units.

The $1 price tag doesn't tell the whole story.

A $1 lot with $150K/unit in assistance on a 4-unit build still means you're funding hundreds of thousands in construction out of pocket. And that vacant lot currently has a near-zero tax bill. Once you build, Cook County reassesses based on improved value. On a $600K completed property, you could be looking at $12-15K/yr in property taxes.

Before applying, three questions:

1. What are comparable units actually renting for on that block?

2. What will your projected tax bill be post-construction?

3. Does the deal still cash flow after real expenses?

This 4-flat in South Chicago - where the Missing Middle lots are - is listed at $399,999 with $4,400/mo in actual reported rent across all 4 units and a 9.9% cap rate. Free investment analysis on the listing here:

https://www.realytica.com/properties/8330-s-buffalo-avenue-c...

That's a high cap for a reason - South Chicago carries risk. But it's the closest existing comp to the $1 lots, which is the point. If a ground-up 4-unit on a $1 lot can't beat what's already standing in the same neighborhood after construction costs, the lot isn't the deal it looks like.

Has anyone gone through the ChiBlockBuilder application process? Curious how it actually works and what the timeline looks like.

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Jonathan Klemm · Answer

@Piotr Senkow - Another question people need to consider before buying a Chicago dollar lot is - how much is the construction going to cost, and can I find someone who can complete the work at the price they have given, or at least reasonably close?

Also, consider the amount of stress and potential risks you are exposed to in a development deal.

I was literally with a client 2 days ago who bought two lots in a similar area, and he has been sitting on them, paying the taxes with nothing to do with them.

I could see the numbers making sense if some one were to build a six unit potentially....but that is a very heaviy lift.

Piotr, what does $150k per-unit assistance really mean, and why does it seem too good to be true?

Piotr Senkow · Answer

@Jonathan Klemm - great question on the $150K/unit.

It's grant funding from the Housing and Economic Development bond, but it's disbursed as a reimbursement. You get 50% back when half the buildings in your cluster are done, and the rest at 100% completion. So you're fronting the full construction cost and getting reimbursed after the fact. Capped at $5M per development team.

The other catch - you have to sell to owner-occupants at a price commensurate with 140% AMI. And developers take on site prep, utility relocation, sidewalks, and environmental remediation on top of construction. Plus you have to start vertical construction within 60 days of the RDA.

So the $150K is real money, but it's not something you can use to finance the build - you need your own capital or construction financing first, then get reimbursed. For a smaller developer or owner-occupant buyer, that's a major barrier.

You're right that a 6-unit is probably the only way the math pencils - more doors to spread fixed costs across and more subsidy per project. But that's a heavy lift for the owner-occupant buyer this program is targeting.

Jonathan Klemm · Answer

@Piotr Senkow - So basically you fund everything as normal, but then get a $75k bumb to the bottomline when its half way done and then other $75k and then another $75k at the end of the project assuming you meet all the requirements - that is $150k per unit!

My biggest question is whether or not banks would take into account the $150k in the "ARV" o that the deals make sense from a financing stand point.Does the money come from the City of Chicago or is it a state or federal bond?

Piotr Senkow · Answer

@Jay Hinrichs - that's exactly the math I was trying to frame. When you can buy a standing 4-flat at $100K/unit with tenants already in place, a ground-up build on a vacant lot has to clear a much higher bar to make sense. The $1 price and $150K/unit assistance grab headlines but the replacement cost gap tells the real story.

Your point about nonprofits being the only ones who could make it work is interesting - they can stack tax credits and grants in ways that a private investor can't. For everyone else, the existing inventory is the better deal until construction costs come down, which isn't happening anytime soon in Chicago.

ChiBlockBuilder $1 lots - does the math actually work?

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