Housing Boom on Tap for Downtown Chicago; Will the Bubble Burst?

While developers are signing up in droves to join the growing contingent of apartment builders, Gallun asks if anyone is guarding against a repeat of the city's recent condo boom and bust. "The question is whether construction lenders will let the party get out of control — like they did during the condominium boom — or whether they'll take away the taps at the right time," he says. "Many apartment developers and investors continue to express faith in the ability of lenders to stay disciplined, financing only the most worthy projects and preventing a potential glut."

“Even if we're not concerned, the lenders are concerned,” said Jay Javors, president of Midwest Property Group Ltd., a Chicago developer.

"Developers have flocked to apartments as rising rents, occupancies and property values offer the potential for tantalizing investment returns relative to other assets," explains Gallun. "Other developers are taking a more cautious approach toward apartments, wary of starting a project in such a frothy market. That includes Mr. Javors, who compares the market to a game of musical chairs."

“Nobody wants to be the last one without a chair,” said Mr. Javors, whose last big project was a 329-unit apartment tower at 210 N. Wells St. completed in 2010. “We're looking, but we're not going to kill ourselves to have a project going.”