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Who Overbuilt Chicago?

Who Overbuilt Chicago?

(p.126) 5 Who Overbuilt Chicago?
From Boom To Bubble
Rachel Weber
University of Chicago Press

This chapter and the one that follows provide evidence for the argument that capital supply, assisted by the professional conventions of intermediaries and the pro-growth policies of local governments, drove Chicago's building boom during the Millennium. It begins with the story of Sam Zell's sale of his Equity Office Properties REIT to Blackstone, the largest private equity transaction in history. The new office construction downtown received construction financing from regional banks, institutional investors, and global investment firms that were flush from selling loans or trading in novel Commercial Mortgage Backed Securities. Each of these phases reinforced the other and helped push what started as a boom grounded in modest “replacement” demand into a speculative bubble where pricing and supply had only tenuous connections to the occupant market. The new construction also received a boost from Mayor Richard M. Daley's administration, which extended the boom through two main strategies: financing mechanisms such as Tax Increment Financing (TIF) that allowed the City, developers, and corporate tenants to leverage the property base and tap the public debt markets to undertake ambitious building projects; and zoning modifications that maximized rentable building area.

Keywords:   real estate finance, banking, Tax Increment Financing (TIF), Commercial Mortgage Backed Securities (CMBS)\, office construction; zoning

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