City Council Amends Controversial Anti-gentrification Ordinance
Changes to the Northwest Side Housing Preservation Ordinance aim to balance tenant protections with the rights of small property owners.
Gritty sand is starting to erode from under the City of Chicago’s shaky and unlawful so-called “anti-gentrification” ordinance. Pressured by the city’s powerful real estate lobbying community, aldermen’s knees are starting to buckle.
On December 2, the Chicago City Council and the Chicago Association of Realtors announced an agreement on changes to the controversial Northwest Side Housing Preservation Ordinance passed by the City Council this past September.
The ordinance – which allegedly is designed to protect housing in the rapidly gentrifying neighborhoods of Avondale, Hermosa, Humboldt Park, Logan Square, West Town, and a large section of Pilsen – went into effect on October 9, granting rare powers to renters.
The lobbying changes include key property-rights amendments to protect owners of small apartments in a six-mile-square residential zone (left).
These amendments include:
• The Tenant Opportunity to Purchase (TOP) pilot will now be sunset on December 31, 2029, alongside the demolition surcharge.
• Clear guidance for tenants and sellers on financial viability. The updated language clearly states that tenants must provide a pre-approval letter from a lender for buildings with four or fewer units – or a letter of intent from a lender or community organization for five or more units – in order to exercise their right of first refusal.
• Clear guidance for tenants and sellers on the right of first refusal waiver and renewal of rights. The updated language makes it clear that the seller or their agent may ask tenants if they plan to waive their right-of-first-refusal after the notice-of-intent-to-sell period. The ordinance amendment also specifies that the tenants’ right-of-first-refusal will only be renewed when there is a new buyer and a drop in price of 10 percent or more.
The amended ordinance sets March 1, 2025, as the new effective date for TOP, allowing time for the City Council to act on these amendments and for the Realtors and sponsors to inform all impacted parties of the changes.
Enforcement of the TOP provisions of the ordinance will be delayed until the new effective date. All other sections of the ordinance, including the changes to the demolition surcharge, went into effect on October 9, 2024, and will remain in effect.
This backlash means that both the real estate industry and small “Ma and Pa” apartment owners don’t like Chicago Mayor Brandon Johnson and his band of extremist aldermen sticking their noses into landlord private-property rights.
Chicago’s small apartment building investors in six rapidly appreciating Northwest and West Side neighborhoods say the mayor – an avowed Democratic Socialist – and his left-wing City Council have launched an attack on their ownership rights. And experts say that could cost owners money and loss of control over their real property.
Ordinance aims to protect renters but is ‘egregious’ to landlords
Veteran real estate investors believe gentrification is a natural process that renews inner-city neighborhoods and helps build middle-class family wealth, while expanding the real estate tax base.
The new legislation seeks to protect renters in two-flats, three-flats, four-flats, and apartment buildings with five units or more from being priced out by higher rents and/or displaced by gentrification by giving tenants a first right to buy the building.
Landlords and real estate managers say that the ordinance was rushed through the City Council with no input from owners and real estate investors.
The ordinance purports to “preserve naturally occurring affordable housing” by requiring owners of rental apartments who wish to sell their buildings to give tenants a right-of-first-refusal to buy.
Mike Glasser, president of the Neighborhood Building Owners Alliance (NBOA), which represents 11 real estate organizations, noted that the restrictive ordinance also significantly increases the demolition surcharge on multifamily buildings from $15,000 to $60,000 for a two-flat, or $20,000 per unit, whichever is greater.
The exorbitant fees are designed as a disincentive for developers or property owners to replace an aging multi-unit building with a new single-family home or condominiums.
The aldermen who pushed through the ordinance say dollars from the demolition surcharge will go to the Chicago Housing Trust and the Here-To-Stay Land Trust to build and preserve affordable housing.
“The right-of-first-refusal requirement is the most egregious provision of the ordinance,” said Glasser (right). “Under the ordinance, a landlord intending to sell must first provide the tenants with the option to purchase the building at the same price as they offer it on the open market.”
The ordinance also encourages apartment renters who exercise their right-of-first-refusal to form tenant organizations and work together to place a five percent down payment and buy buildings.
And it allows tenants to assign this right to third parties – and if the entity purchasing the rental property uses any public funds, they must adhere to a 30-year covenant keeping the rents at or below 60 percent of the Area Median Income (AMI).
2nd Ward Alderman Brian Hopkins, one of only three City Council members who voted against the ordinance, said he had concerns about the challenges that will be placed on owners of buildings, particularly smaller buildings owned by middle-class families.
“Many of these buildings have been owned by the same families for generations,” said Hopkins (left). “At least some of the increase in property values is the result of the buildings being meticulously maintained by those families for decades, and they should not be penalized when it is time to sell.”
A North Side real estate broker – and resident owner of his renovated three-flat family home in the Avondale neighborhood – had a strong reaction to the ordinance.
“The anti-gentrification ordinance is a political ploy by Mayor Johnson and his gang of super-liberal alderpersons to appeal to their voting base, and keep them in office,” the Avondale resident surmised. “The ordinance may slow down demolition of aging frame two-flat buildings because of the sharply higher demolition fees. However, any new replacement housing will carry higher rents and will generate much more real estate tax dollars for the city.”
Ordinance could lead to delays that conflict with loan terms and tax laws
Many real estate professionals and attorneys worry about how the ordinance will significantly complicate and delay sales of properties for both owners and lenders.
Attorneys Thomas Ball and Chad Poznansky of Clark Hill PLC, a Chicago-based real estate law firm that advises developers and lenders, noted that any current or prospective owner of rental property in the anti-gentrification zone should be aware that the right-of-first-refusal not only creates a significant lag in the process of selling a property, but they should understand the potential consequences of holding a property for an extended period of time might run afoul of mortgage covenants or loan maturities.
NBOA noted that apartment building sellers planning to utilize federal 1031 “like-kind” tax-deferred property exchanges would be hard pressed to get deals done within the required 180 days because of the 210-day requirement. In that regard, the ordinance may directly conflict with federal tax laws.
“The policy has potential ramifications for banks and lenders with mortgages on properties in the affected zone,” the Clark Hill attorneys warned.
Thomas Ball (left) and Chad Poznansky (right).
“The ordinance specifically says it does not apply to a bank foreclosing or acquiring a property by right of a deed-in-lieu of foreclosure,” the attorneys said.
In addition, attorneys Ball and Poznansky warn potential developers in the zone must deal with expensive new fees should they try to raze a building and develop the land. For example, a developer seeking to demolish a six-flat would be assessed a demolition surcharge of $20,000 per unit, or a whopping $120,000.
The Clark Hill attorneys also note: “It remains to be seen whether the restrictive ordinance would stand up to judicial scrutiny, particularly following the U.S. Supreme Court’s recent ruling in California, which restricts the abilities of local governments to impose broad fee structures as a permit condition.”
Groups fighting the anti-gentrification ordinance
The Neighborhood Building Owners Alliance represents and advocates for the following Chicagoland neighborhood building owners associations:
Edgewater Uptown Builders Association (EUBA)
Greater Austin Development Association (GADA)
Lakeview Developers Association (LDA)
Latino Real Estate Investors Council (LREIC)
Lincoln Park Builders of Chicago (LPBC)
Northwest Side Building Coalition (NSBC)
Rogers Park Builders Group (RPBG)
South Side Community Investment Association (SSCIA)
Southside Builders Association (SSBA)
Southwest Housing Providers (SWHP)
West Suburban Building Owners Association (WSBOA)
Don DeBat is co-author of Escaping Condo Jail, the ultimate survival guide for condominium living. Visit escapingcondojail.com. For more housing news, visit www.dondebat.biz. Don also is writing Chicago’s Game, a book on 16-inch softball.
