Cautious Risk Takers
By the late 1960s it had become apparent to the Ruttenbergs that in addition to rehab projects, there were new construction opportunities. There were plenty of vacant lots and the demand for new housing in the city was increasing, so they started by building new six- and eight-unit infill buildings and that gave them the experience they needed to do twenty- and thirty-unit buildings. They continued pushing west and then north, to an area near Wrigley Field. “We thought of ourselves as ‘cautious risk takers’ and while those areas were rough—there were drugs and gangs—we also knew that Chicago tended to evolve on the basis of contiguity. So if your new neighborhood was contiguous with your old neighborhood, you could generally get people to migrate to the new community. But not if there was a four- or six-block gap—there are plenty of examples of people who went too far west and became isolated and in those cases it took a long time for development to catch up.”
In the late 1970s the Ruttenbergs started converting loft buildings into offices in the River North area one mile west of Michigan Avenue. “We could see the activity picking up, there were more people living downtown, and since development is about adaptation rather than innovation, we started looking to New York for inspiration.” But by the 1980s they were finished with loft conversions. “Other people started coming in and paying more for loft buildings, so we stopped. We had lived through the run-up but when the office market became supercompetitive in the 1980s we exited, and when we sold our office portfolio it comprised almost one million square feet.”
At around the same time, Ruttenberg had come to feel that developing, owning, and managing office space was simply not what they did best. “Apartments are easier—when they turnover, you just paint them. With offices, the new tenant wants more walls, less walls, a different arrangement of space, and so you need to change everything else too—the lights, the heating and cooling, and the sprinklers—and you need to pay brokers all the time. With an apartment you just put a sign on the door and have the janitor show the apartments.” So while offices and apartments may look similar, Ruttenberg learned that they are really quite different and he simply felt that he knew how to do apartments better. He also felt that zip-code development was still the best approach.
Figure 8. Buzz Ruttenberg (left) and his father, David C. Ruttenberg, in 1993. Courtesy of Belgravia Group, Ltd.
“My father and I believed in being in the center of activity and relying on our own judgment. Both of us had always lived in town and we had never hired someone or paid $5,000 or $10,000 for a market study to tell us how to invest $100,000 or more of our own equity. It was our money, we were not syndicators, we were not going anywhere, and certainly not in a hurry. Instead, we were going to creep, crawl, and be cautious risk takers, and this takes incredible discipline that is hard to develop.”
Business Transactions Are About “What Is Best for Me”
In the late 1980s the Ruttenbergs started several new construction projects farther west, beginning with one important purchase. A college friend of Ruttenberg’s called to let him know that his factory—the old Butternut Bread factory at Clyborn and Webster—in the core of Lincoln Park might be for sale. The Ruttenbergs bought it, demolished it, and redeveloped the site into a retail center. By this time, residential density had increased in the city but retail had not followed, so urban dwellers had to drive to the suburbs to shop at the mall. The importance of being able to park in the city had grown too, and in housing projects the Ruttenbergs were providing off-street parking for one and even two cars per unit. So the Ruttenbergs decided to borrow the model of the suburban shopping mall and bring it downtown. The two-story, 150,000-square-foot Webster Place shopping center was the first new retail center in Lincoln Park. It was anchored by eight movie theaters on the second floor and supported by seven hundred parking spaces. The movie theater was one more case of “breaking the rules.”
At the time downtown theater owners had agreements with the movie distributors that gave them exclusive rights to show first-run movies in a zone that included the downtown core and all of the north side, which included Webster Place. The only place downtown to see a first-run movie was at a four-screen theater at Water Tower Place, a seventy-four-story, mixed-use tower on Michigan Avenue, but a moviegoer had to brave congestion and expensive parking to get there.
So the Ruttenbergs gambled that bringing in a new theater in a suburban-style mall on the North Side with free and easy parking would increase the market for first-run movies in the city but they had no guarantee that the movie distributors would create a new zone. “At Webster Place, parking was free and you could tell right away from the parking lot whether the movie you wanted to see was showing, rather than paying for parking and then taking the elevator to the seventh floor of Water Tower Place just to find out what was playing or to find out that the movie you wanted to see was sold out.” The theaters at Webster Place opened “with secondary stuff,” says Ruttenberg, “but all 1,600 seats were full within a week and the movie distributors realized that two zones might be a good thing after all, since they would ensure more seats and more revenue for first-run movies.
“Business deals are about ‘what is best for me,’” says Ruttenberg, “and what was best for the movie distributors was the creation of a new zone. It was a perceived barrier but to me it was obvious.” Webster Place went on to become a big hit. “And with the success of Webster Place, our expertise—without any long-term plan—continued to grow, and as it grew, we gained more access to capital.”
Value, Value, Value
Since the 1990s, Ruttenberg has done nothing but for-sale housing in the city. “We needed to learn, develop our expertise, and scale up slowly, so we started out doing small townhomes, then small midrises, and then we went bigger.” Since 2000, Ruttenberg has developed three condominium towers on Chicago’s lakefront, one at 530 Lake Shore Drive and two more across the street at 600 Lake Shore Drive, all adjacent to Navy Pier, Chicago’s big waterfront entertainment center. But once again, says Ruttenberg, “Following the business model that I have already described—cautious risk taking—we didn’t build condos the way other developers did at the peak.”
The property at 600 Lake Shore Drive was about one acre and was the last piece of vacant land on Chicago’s lakefront. In the 1980s there had been plans for a ninety-story building but they fell apart when the stock market crashed in 1987. In the 1990s another developer made plans for a massive single tower but it never got off the ground either. As he was finishing 530 Lake Shore Drive, Ruttenberg approached the owner of the property across the street and said, “Your zoning is going to run out soon and the mode in the city these days is downzoning, so if your FAR [floor area ratio, which is the ratio of buildable floor area to site area] gets reduced from 16 to 12, you will lose 25 percent of your value, but if you work with me maybe we can do something.” Ruttenberg had a plan that comprised two towers that were perpendicular to the lakefront rather than one big tower that was parallel to it. This scheme offered a number of important benefits.
First, while his competitors developed buildings designed to maximize their buildable area based on zoning, Ruttenberg took a more modest tack. “Instead of building the tallest building with the biggest floor plates, we built the shortest buildings possible based on our land costs, to minimize the risk of having too much product to absorb.” Shorter is also better, says Ruttenberg, because “while many people believe that it does not cost more money to go higher, in fact every time a building gets taller it gets more complicated and more expensive.” Tall buildings are like sails, and the as they get taller, more must be spent on design and construction to offset the effects of “wind-loading.” As a building becomes taller its columns and foundations must become larger to resist the building’s tendency to tip, while exterior window and wall systems must be stronger if they are to resist both positive and negative wind pressure. “But, more important,
