What Multifamily Owners Need to Know About Chicago’s New Housing Ordinance

The recently enacted Northwest Housing Preservation Ordinance in Chicago brings significant new challenges for multifamily property owners, investors, and developers. Targeted at curbing gentrification and preserving affordable housing, the ordinance introduces stricter requirements that could affect property values, redevelopment plans, and transaction timelines—particularly in neighborhoods such as Logan Square, Avondale, and Humboldt Park.

Below, we break down the ordinance’s key components and what they mean for property owners considering selling or redeveloping their buildings.

Key Impacts of the Northwest Housing Preservation Ordinance

1. High Demolition Fees

One of the most notable changes is the steep increase in demolition fees:

• $20,000 per unit for planned demolitions.
• For larger buildings, demolition fees can rise as high as $60,000.
• The fees are intended to discourage teardown projects and fund affordable housing initiatives.

Implications for owners and developers:

• Redevelopment projects that involve converting multifamily buildings into single-family homes may no longer be financially viable.

• Zoning restrictions now limit conversions to single-family homes on certain blocks, preserving neighborhood density but reducing flexibility for redevelopment.

 2. Tenant “Right of First Refusal” for Property Sales

Another major component of the ordinance is the tenant right of first refusal (ROFR). This measure requires property owners to give tenants the opportunity to purchase their building before selling to outside investors.

How it works:

• Applies to rental buildings with five or more units.

• Landlords must notify tenants 60 days before listing the property.

• Once an offer is accepted, owners must share the offer details, rent roll, and financial statements with tenants.

• Tenants then have 90 days to organize and match the offer.

• If they proceed, tenants are given 120 days to secure financing and close. Earnest money deposits are capped at 5%.

For smaller buildings (fewer than five units):

• The notification and matching periods are generally shorter but still add steps to the process.

If tenants waive their right:

• The sale may proceed, but any material change in price or terms resets the clock, requiring owners to re-offer the property to tenants.

3. How This Affects Multifamily Sales

The tenant ROFR process introduces uncertainty for both buyers and sellers:

• Longer timelines: Investors may hesitate to pursue deals knowing tenants could delay closings for several months.

• Reduced buyer pool: Certain buyers, such as 1031 exchange investors, may avoid properties covered by this ordinance due to strict deadlines.

• Higher transaction costs: Compliance requirements and potential tenant buyouts could cut into net proceeds.

• Valuation impact: Properties subject to ROFR may see lower demand, which could affect pricing.

What This Means for Chicago Multifamily Owners

If you own a multifamily property in Logan Square, Avondale, Humboldt Park, or other neighborhoods affected by the Northwest Housing Preservation Ordinance, here’s what to expect:

• Added costs: Between demolition fees and compliance measures, transaction expenses will rise.

• Extended timelines: The tenant-first process will lengthen deal cycles.

• Less flexibility: Zoning and conversion restrictions will limit redevelopment options.

• Strategic planning required: Owners should prepare early if considering a sale to avoid delays.

How to Navigate the New Regulations

Working with an experienced Chicago multifamily broker who understands these regulations is more important than ever. A knowledgeable broker can:

• Develop a tailored sale strategy that accounts for extended timelines.

• Educate buyers about ordinance requirements, ensuring smoother negotiations.

• Position the property effectively to highlight its strengths despite new restrictions.

• Advise on timing to align with your investment goals.

Conclusion

The Northwest Housing Preservation Ordinance is reshaping the landscape for Chicago multifamily owners. While the ordinance is designed to preserve affordability and protect tenants, it also creates new hurdles for property owners looking to sell or redevelop.

If you’re a property owner in neighborhoods like Logan Square, Avondale, or Humboldt Park, now is the time to:

• Review your property’s redevelopment potential.

• Understand the new cost structures.

• Plan ahead with a broker who can help you navigate these challenges.

At Essex Realty Group, the team of Jim Darrow, Jordan Gottlieb, and Brian Keegan have successfully transacted under this ordinance and understands the complexities of the process firsthand. Their proven experience makes them trusted experts in navigating these regulations and structuring deals that align with owners’ goals.

If you are considering a sale or redevelopment in one of the impacted neighborhoods, reach out to our team of market experts to discuss the best strategy for your property.

To connect with Jim Darrow, Jordan Gottlieb, and Brian Keegan – please fill out the form below.