FLATS Chicago developer weighs in on housing affordability debate

July 10, 2014

WBEZ/Odette Yousef
Jay Michael’s brand, FLATS Chicago, has converted seven residential properties on Chicago’s far North Side to market-rate housing. Many accuse him of pricing out low-income tenants who previously lived in those buildings.

The City of Chicago continues to work on an ordinance to address the phenomenon of fast-disappearing single-room and residential hotels. In recent years, many of these traditionally affordable housing options, particularly along the lakefront on the city’s North Side, have been bought and converted into high-end rentals. Hundreds of low-income tenants have been displaced, and with the help of community organizers, have turned the attention of city policy makers to the issue.

Developers, some of whom have been accused of accelerating the loss of residential hotels, have been quieter. But Jay Michael, co-founder of Cedar Street Properties and FLATS Chicago, recently shared his take on the efforts, and responded to criticism that he’s one of the reasons that low-income residents can no longer afford to live on the North Side.

“This is our favorite space. This may have been what really sold us,” he said, standing in the basement of his most significant acquisition to date: the Lawrence House. He’s looking at a 60-foot swimming pool, covered with wooden slats, but extending 8-feet deep on one end. The floors and walls are lined with beautiful aquamarine blue tiles.

“It’s totally destroyed, but in the back there are these hamams -- these men and women steam facilities,” he continued. “We were like, ‘Oh my God,’ my business partner and I, this is just like out of a movie --  it is out of a movie - this could be a movie, right?”

Michael’s company, FLATS Chicago, closed on the Lawrence House last year. It’s a 13-story residential hotel in the heart of Uptown. When it opened in the late 1920s, it was the pinnacle of glitz and glam: it had an all-glass atrium entrance, porters at the doors, and hosted fashionable visitors who came in town to catch shows at the Aragon Theater and other mainstays of the then-bustling entertainment district.

When FLATS acquired it, however, the building was under two receiverships, home to about 100 residents who endured slum-like conditions. Delinquent owners allowed the structure to fall badly into disrepair. It was ridden with bed bugs, mice and crime and the utilities would sometimes even shut off. Despite the problems, some residents still paid as much as $700 per month to live there.

Michael’s total gut rehab and historic restoration is expected to cost around $18 million. In the end, rentals will start above $800 and go beyond $2000. While nobody believed the building’s previous living conditions were acceptable, these prices have made him the new target of criticism.

“The track record has shown that the units that he (Michael) has converted really has affected residents in a negative way,” said D’Angelo Boyland, an organizer with ONE Northside. The group holds FLATS Chicago responsible for the loss of more than 800 affordable units on Chicago’s North Side within the last three years, contained in six FLATS-branded buildings.

Last year, ONE Northside made the fight against Michael a personal one. They rallied outside his Gold Coast home to protest the displacement of hundreds of North Side residents. Michael has refused to speak with them ever since.

Others agree that there’s a growing housing crisis for low-income residents on the North Side. Many say single-room and residential hotels traditionally offered crucial transitional housing for people who otherwise would face homelessness. Social service agencies typically keep a list of these buildings on hand for when clients need them.

“You know, I’d have to update my list and say this one’s not here anymore, and this one’s closing, and so if anybody has any clients who live there, we’re going to need to work with them and help them relocate,” said Jennifer Cushman, who was a housing coordinator for Trilogy Health Services in Rogers Park.

But Cushman said she doesn’t blame Michael -- or any other particular developer -- for the problem. She said the city needs to support more affordable housing. Michael agreed, and pointed out that he has preserved -- and improved -- some affordable housing. To prove it, he points out The Windale, an 81-unit building in Edgewater. It’s one of two single-room occupancy hotels that Cedar St. Properties has acquired.

“This one, we’re planning on restoring and keeping as an SRO,” said Michael. “One of the things that I thought would be great, and this came from feedback from social service agencies, there’ll be two case worker rooms at the end.”

Michael has kept rents at the property under $700, all while renovating it to look cleaner and more pleasant. His company has pulled out the carpet, laid down wood flooring, and repainted the hallways. He said he plans to build a common kitchen on the ground floor.

Still, about half the previous tenants of the building opted to leave the building once Michael acquired it. He said they weren’t interested in abiding by the new rules his company has set down: visitors only between 8 a.m. and 10 p.m., no overnight guests, and monthly room inspections.

Michael said he, himself, would not agree to live in a building that had rules like that.

“But I think that if I had to live in 6019 (The Windale), I would probably prefer to live in (a building) with rules that looked clean and was safe like that, than the ones that didn’t have rules and were nasty,” he said. He added that he’s awaiting federal approval for his first Section 8 housing voucher tenants to live in one of the pricier, FLATS-branded properties. He said once that goes through, he looks forward to having more government-subsidized tenants living in his upscale buildings.

Michael is working with the city and other housing advocates now on the SRO preservation ordinance, which would apply both to single-room occupancy buildings, and to residential hotels. They’re thinking about how to preserve these buildings as affordable. But he worries about restrictions on owners.

“My opinion is, if you’re going to take someone’s rights away from them, that’s in exchange for an incentive,” he said. “So if you choose to renovate your building, and if you choose to renovate it with affordability, there should be some sort of incentive offered.”

Ultimately, Michael said the city will have to come up with a big pot of money as incentive for developers to keep affordable housing in their plans.

Odette Yousef is WBEZ’s North Side Bureau reporter. Follow her @oyousef and @WBEZoutloud.