Magellan's Lakeshore East: Halfway Home

Second of Three Parts

By purchasing a 28-acre site in downtown Chicago on which to create Lakeshore East, with its 5,000 homes, Magellan Development had undertaken a huge risk that day in June 2002.

To buy and improve the land, the developer had borrowed $70 million. Every second of every day, dollars were dropping as rapidly as grains of sand in an egg timer.

And most of the responsibility rested on the young and relatively inexperienced shoulders of Magellan’s vice president, 40-year-old David Carlins, son of Magellan’s founder, Joel Carlins.

The most pressing challenge was to prepare the site for construction of a dozen or so high-rises. Before the first one could be started, roads had to be built, utilities installed, the six-acre park completed. The plan would have to be implemented like a puzzle, often in a specific order.

To prepare the site and construct the buildings, Magellan hired two major contractors, both local, family-owned companies Magellan had worked with previously. The first was McHugh; the second was Walsh. “Having competing contractors working side by side keeps them honest,” David explains, with a grin.

By 2004, most of the site work was done.

The next challenge: To sell enough units to get the loan for the first building, a 209-unit condo named The Lancaster. What kept David awake at night was the same question that had caused him to vote against the project: Who in their right minds would want to move into the first building?

Sure, it would be a beautiful high-rise in a convenient downtown location with views of Lake Michigan and the park, David reasoned. But most units would overlook a sometimes muddy, oftentimes noisy construction zone. Each buyer would have to take a huge leap of faith.

Magellan estimated that it would take 18 to 24 months to sell the 209 units. The company had never sold condos to 30- to 45-year-olds before, always to younger buyers. Because a recent project had attracted too many investors, multiple purchases at Lakeshore East were prohibited.

Initially, in July 2002, sales were slow. Then they picked up and Magellan sold the 50% required to qualify for financing. Within ten months, the project was sold out--eight months before the most optimistic projection.

Why? The market was much broader than expected. Buyers were coming from not only the entire metropolitan area, but from all over the state and the world.

What Magellan hadn’t counted on was the powerful impact of two new factors: the Internet, which allowed buyers the world over to see the vision outlined in the master plan; and Millennium Park, which opened nearby with great fanfare in July 2004, four months before the first buyers took possession of their units in The Lancaster.

"Our immediate success was pure, dumb, blind luck," David confesses. "We ended up being equal distance from Chicago's two busiest venues: Millennium Park and Navy Pier, with Michigan Avenue, and the Central Business District, within walking distance.

The surprising success of Millennium Park changed everything. From around the world, it brought attention to Chicago, and everyone, it seemed, wanted to live near the park. New condos sprang up and the values of those already near the park increased dramatically. A convenient location that had been underutilized for decades had suddenly become one of the hottest properties in the city.

A second factor contributing to the quick success was consumer value. One of Magellan’s business strategies is to offer more value to buyers than its competitors do, sacrificing some profit margin for higher sales velocity and volume.

Due to the project’s 15-year timeline, Magellan decided to keep prices relatively low so it can sell units faster. The result: Buyers get more value; the developer saves on the enormous costs to carry the undeveloped land.

A third key to sales is Magellan’s marketing program. Today, it is headed by senior vice president of sales, Leila Zammatta, a former flight attendant David put in charge of sales in August 2006. Thanks to her performance at Lakeshore East, in 2007, Leila ranked second among all agents in Chicago condos sold, closing 490 units. (See profile.)

Based on a rule of thumb of allocating 3% of project costs to marketing, David estimates that, to date, Magellan has spent more than $20 million on marketing Lakeshore East. Among its efforts:

* For each building, the company sends an e-mail blast and a mailing to prospects on its mailing list.

* For each building, it creates a Web page and posts videos on YouTube.

* From its network of agents and clients, the sales staff receives, and follows up on, referrals

* Through LM2, the company places ads in local and national media, primarily focusing on online media.

* Through a Magellan Rewards Program, it encourages word-of-mouth by residents, offering them discounts on movies, area restaurants, etc., and free boat tours. Says David: “The happier residents are, the more they talk about us to their friends.”

The results: As of July 1, 2008, 2,338 of the planned 5,000 units in six buildings have been completed. Of the completed units, all but 212 are occupied by owners or renters. Sales goals have been exceeded consistently, with no building taking longer than 36 months to sell out.

In order of construction:

The Lancaster: All 209 units were sold in 10 months, at an average price of $370 per square foot. Sales began Spring 2002; construction began Fall 2002; deliveries began November 2004.

The Shoreham: All but 5% of the 548 apartments were rented in 10 months, at an average of $2.45 per square foot per year. Construction began Spring 2005. Rentals and delivery began Spring 2005. Occupancy is 92%.

The Regatta: All 325 units were sold in 18 months, at an average of $400 psf. Sales began Spring 2004; construction began Fall 2004; deliveries began Winter 2006.

The Chandler: All 304 units were sold in 24 months, at an average of $450 psf. Sales began Spring 2005; construction began Fall 2005; deliveries began Winter 2007.

340 on the Park: In partnership with Related Midwest, all 344 units were sold in 36 months, at an average of $520 psf. Sales began Summer 2004; construction began Spring 2005; deliveries began Winter 2007.

The Tides: 52% of 608 apartments were rented in six months at an average of $2.50 psf per year. Construction began Spring 2006; rentals began February 2008; deliveries began March 2008. Occupancy is 52%.

Those totals put the community’s current population, estimated at 1.5 residents per unit, at about 3,500 residents.

Sales prices for units in the first seven buildings sold ranged from $200,000 for a 600-square-foot studio in The Chandler to $3 million for a 4,000-square-foot, three-bedroom Parkhome.

Village Market Center: Among the retail outlets in this two-story, 140,000-square-foot space on the southwestern edge of the community are Treasure Island Foods and Fifth Third Bank. Located elsewhere are Caffe Rom and a CVS. Several other restaurants, including an outdoor café, are scheduled to open soon.

Under construction and scheduled for completion in 2009:

The Parkhomes: All but 16 of 24 townhomes were sold at an average of $550 psf. Deliveries are scheduled for Fall 2008. Homes still available range in size from a 1,900-square-foot, three-bedroom home to a 3,900-square-foot, three-bedroom unit.

Under construction and scheduled for completion in 2009:

Aqua: All but 7 of 270 units were sold in 18 months, at an average of $520 psf. Sales began Spring 2006; construction began Spring 2007. Deliveries are scheduled to begin in Spring 2009, currently two months ahead of schedule.

Part 3: Coming Thursday, August 7

Part 1