Dan McCaffery has had a celebrated career in real estate spanning thirty years. He currently serves as CEO of McCaffery Interests, the firm he founded in 1990 that is behind a number of projects in Chicago and around the country.
He spoke with us recently about his latest projects—including the recently completed Twelve01West in Fulton Market and the under construction Lincoln Common in Lincoln Park—as well as how the industry has changed, lessons learned and what motivates him when it comes to real estate development.
How has the world of real estate development changed over the course of your career? What lessons have you learned along the way that inform how you leap into a new project?
Real estate deals have changed as society, cities and the suburbs expand and change. I’m sitting in my office in Fulton Market and, as I’m sure you’ll hear right now, there’s the sound of a train going by. I’m sitting in Fulton Market and out my window I see graffiti and telephone poles and yet, it’s one of the hottest districts in Chicago. A similar situation is true around the nation—The Gulch in Nashville, the meat packing district in New York, South of Market in San Francisco. Real estate has really changed in terms of what is considered a prime location. And the dynamics, such as being near trains. The word “funky” comes to mind.
From that point of view, nothing has changed, or at least the technical side hasn’t changed that much. Going really far back, you used to be able to put your land into a pro forma and mark it up and practically build buildings with little or no equity. Now, with discipline imposed on us from the prior crashes, there are real economics, there is real money that has to be raised to do a building. You need 30 to 40 percent equity, whereas I well recall that you could mark your land up to a degree that covered your equity.
Your firm recently completed Twelve01West and Lincoln Common is well underway. Do you still run into challenges when developing a ground-up, mixed use project, even in robust neighborhoods like Fulton Market and Lincoln Park?
Oh yeah. First of all, as the world knows, getting approvals is very difficult. This is a major undertaking these days to get zoning and other approvals. It takes years. There’s a lot of, I won’t say pushback, sometimes it not just pushback but pure positive input. It’s not like you can pick up a piece of land and just get at it. Just as cities have grown, so have our bylaws.
We’re in a transition phase right now with a new mayor who limited aldermanic privilege as one of her first actions. What causes more issues on a new development, community opposition or bureaucratic red tape?
There are buildings and areas that you can just go and hop on it and with very little pushback from the community you’ve got your building underway. That’s not the case in other communities within the same city. It’s not all wrapped up in red tape. It’s a little more difficult to develop, as we did, a six-acre site in the middle of Lincoln Park. You’re going to have a lot of opinions about what is right or wrong or what people want or don’t want. Clearly it’s not a difference between the community and the developer all the time. It’s a difference between the community and the community sometimes. The community shares in this challenge of getting to an acceptable answer because there have been many times during a public meeting that I’ve hosted where there were cross-room arguments, not just arguments with the developers. So yeah, the consensus-building is a challenge, but that’s what you have to do.
Another development that McCaffery Interests is spearheading, the Southbridge project on the former Ickes Homes site, highlights the affordable housing struggles facing this city. Do you feel that mixed-income housing is the best approach to closing the affordable housing gap or will it take a multi-pronged approach?
We’re in that with a group called The Community Builders, and that’s their business—affordable housing. We’re very much riding behind them on this. They’re on a horse and we’re on a mule. They’re the leader in this thing. Are we getting an education ourselves? Sure. Regarding affordable housing and mixed-market, I have no experience at it. None. This is my first experience. So we’re involved but we are very much are the smaller player. We have more influence in the partnership with respect to the ambience around the site, integrating the retail and helping them with what will be the amenities and management necessities for the market-rate housing. They are the leader on the affordable housing components.
But I will say, we have been getting—and are due a fair amount of credit—for the fact that we’re doing affordable housing in Lincoln Park as a part of the Lincoln Common project. We’re not buying units elsewhere in the city and doing a trade-off; we didn’t offer cash to buy out. It was clear to me early on that not just the alderman, but many of the community leaders were looking forward to sitting down and talking with us about whether we could put in affordable housing. It was my judgement, and I honestly wasn’t trying to be a good scout or a bad scout, that the community was going to be very receptive to our project in the long run if we would agree to affordable housing.
We looked at the economics and they’re brutal, I don’t mind telling you. It’s extremely tough to do affordable housing in a property where every inch of density is trying to get to a pro forma that works. But we’ve done it and we had people lining up at 5 a.m. to get in the door to put in an application to get an affordable housing unit. I don’t blame them, these are gorgeous units. We don’t have one doorknob different in the affordable unit as we do in the market rate units. Nothing. There aren’t any units that we have identified and marked down in terms of quality of the finishes. These are for real and we have made a commitment to 10 percent of them, 50-something units, being affordable.
Given your past education and work experience in Canada and Europe, you bring a global view to Chicago real estate. Are there any experiences from your past that inform how you operate as a developer today?
The only thing I think, in my past, that I brought with me that has been of some value in the real estate world, though it doesn’t relate to real estate itself, is that I was a teacher. That has helped me when it comes to standing in a group of people. Not that I am all that eloquent, but I can read a crowd and read the issues a little better than I might have and it has helped me not be someone who pushes back a lot. I listen and then try to find a way to get through to them.
What do you enjoy the most about real estate? What motivates you to jump into each new project?
I love the creative side of it and I enjoy working with the community, I really do. I like working with the architect, I like working with the city, I like finding someplace where we can put a wow factor into a building that makes people take notice. The creative side, what a gift. You get to buy a piece of land and hire an architect, and next thing you know, a couple of years later there’s something there and you get to say, “Hey, I had something to do with that.” It’s pretty neat. There aren’t a lot of jobs where you can do that. You feel blessed to be able to tinker around like that.