Adding a Conforming Additional Dwelling Unit (ADU) to a building in one of Chicago’s Non-ADU Zones

NOTE: The following is a repost from our sister company doraziorealestate.com

Adding a conforming additional dwelling unit (ADU) to a non-ADU zone building in Chicago - what a mouthful of a title! And guess what — the process is just as convoluted. This topic comes up quite a bit in Chicago real estate realms and deserves some attention and explanation. But first I’ll explain what this really means.

Chicago recently rolled out a pilot program (in 2020) wherein building owners could legalize their basement, attic, or coach house / accessor building units to expand more affordable housing throughout the city. Oftentimes these units were already being used in such a manner, so this process would effectively create an easier path towards legalization. The pilot program only covered a certain portion of the city however, and many wards chose at the time not to participate in it.

So what happens when a building is NOT in the ADU zone? Is it possible to add an additional unit? It turns out you do have options to get your ADU approved, it’s just going to take a little more elbow grease and mental fortitude. The path includes attorneys, architects, committee hearings, contractors, and aldermanic approval. The building will likely need to undergo an official zoning change, and will need to be brought before the zoning committee for approval.

Here is the standard process, along with a little about my experiences after having performed these conversions a number of times on 6-unit buildings to which we wanted to add a seventh legal unit.

• Step 1 - Contact an Attorney
  
  As with any complicated process, retaining an attorney is very important here, specifically a land use attorney who specializes in this type of work. There are a number of folks who do this but the good ones know their way around this process like the back of their hands. Our recommendation here is Mark Kupiec of Kupiec Law. (312-520-1878 / mkupiec@kupieclaw.com). Whatever attorney you choose will lay out the process for you and get you headed down the right path. Their counsel here is needed and worth the cost. The first step will be to get initial forms filled out and get a meeting scheduled between you and the Alderman / woman of the ward where the conversion will take place.
  
  Time Required: 1-2 Weeks
  
  

  Step 2 - Get Aldermanic Support
  
  The next step in this process is to get some face time with your Alderman / woman. While most seem to be in favor of the ADU ordinance, you’ll still need to pitch your plan and get them on board with your proposed changes. Approaching them for support could mean a one on one meeting, or may involve a meeting with their zoning counsel. Either way, the office is going to come up with a list of their priorities for you to agree to in exchange for their support. Some may require you to sign a covenant on the property for a number of years (we have heard as little as 5 years and some as long as 30+) guaranteeing a specific level of affordable housing. Some will require you to work with a local organization of their choice to fill the newly created unit. Either way, their support is needed in the process so giving a little at this point will likely help a lot in the long run.
  
  Time Required: 2-4 weeks
  
  

• Step 3 - Get Architectural Plans
  
  The zoning committee, when reviewing everything on your proposed zoning change, will need to see the entire picture and scope of the project. That will include not only the plans for the ADU itself, but for the rest of the building and any changes occurring as a result of the conversion. They are looking to gauge the footprint of the building, how tall it is, how much room there is for parking, how much greenspace exists, etc. The architects will need to get into every unit, and it will be a lengthy process. Usually from start to finish it is a 6-8 week process and can cost around $10k to complete. We have used Red Architects (773-772-2756 / myredarc@gmail.com) in the past, and they have done a great job getting this all accomplished for us within a reasonable and required timeframe. One other thing to note about this process is that the architects will be your main source of information when it comes to getting the building ADU legally up to code. This may require new beams, new windows, more egress options, and / or increasing the water main. Make sure to ask these questions when going through the process.
  
  Time Required: 2-8 weeks
  
  

• Step 4 - Prepare for the Zoning Hearing
  
  Your attorney is putting a lot of pieces together to prepare your information packet for presentation at the committee hearing. Usually they meet every month, and there is a lot of prep work to get your file on the docket. Your architectural plans, pictures, survey, public transportation information, the amount of parking and/or bike storage, all application forms, and more will all be submitted on your behalf. There is also a requirement to hang a sign outside of your building for a period of time stating to the public that there will be a hearing around the zoning change of that building.

  Because of the high number of files that get submitted and the amount of work it takes to obtain approval, it can sometimes take several iterations before your file is ready to go. If there are changes, your attorney will work with you to make sure everything is done properly. This is why using an attorney that has “been in the endzone” before is critical to the process.
  
  Time Required: 4-10 Weeks
  
  

• Step 5 - Attend the Zoning Hearing
  
  These meetings can be long but they certainly are interesting. You’ll get a first-person view of all of the changes that are occurring in the city. I highly suggest you attend this hearing to see the machine in action and to get an idea of how this all works. When your project is in the queue and ready, the chairman will call your name and file number to head down towards the front of the hearing room. When it’s your turn, the attorney will do most, if not all of the talking and will give a quick overview of your case to the group. They will then ask the room for a vote; normally you are coming to this hearing having already received Aldermanic support, so that usually means you’ll get a green light from the room. At this point, if the thumbs up is given, the zoning change is then approved.
  
  Time Required: 1 Full Day
  
  

• Step 6 - Apply for the Permit
  
  If you use the right architects, they will help tee up the permit process so that you’re already moving in the right direction. They will need your general contractor to fill out some paperwork and will then submit your plans to the city. It can take several weeks before anything is approved depending on the type of permit you need and the extent of the work being completed, so there may be a delay getting started. The most important point here that we’ve previously glossed over is selection of your general contractor, or GC. It is absolutely critical to choose a partner that has also done this before and knows the inner workings of how the city of Chicago does business.
  
  Time Required: 4-10 Weeks
  
  

• Step 7 - Execute the Work
  
  Now it’s time to do the work. One piece of advice that has always come in handy for us is to budget more contingency into these types of projects. There are a lot of things that can go wrong, and a lot of assumptions that may change at any point of the project. If you are adding a basement apartment, here are some potential requirements to consider:

  • The city may require you to increase your water service. Most older buildings come with ¾ inch water main lines. If, as in our case, you are going from 6 units to 7 units, they will require you to install 1.5 inch lines to maintain pressure and water volume throughout the building. Also good to note here is what side of the street the water main is on — If you are on the same side of the street as the fire hydrants, then you should be on the same side as the water main. If you’re not, be prepared for a plumber to have to dig across the entire street. This could cost between $20k-$40k depending on your specific situation.

  • The city may require you to add egress options to a basement or attic depending on the square footage of the space. This could include egress windows as well.

  • The city will dictate how many windows are required in the unit so that it meets code.

  • The city will dictate how tall the ceiling should be across the space. It is a volume measurement, so the entire space does not need to be uniform at the specified height, just a certain percentage. This could require digging out (essentially lowering) the basement floor, which can get pricey quickly.

  • The city will do an electrical load test to determine if you have the enough amperage (amps) coming into the building. In one of our conversions, we upgraded the building to 600A service to be safe and meet the requirements. Usually for a 6-unit building, 200A won’t cut it and the minimum would be 400A (however 600A-800A may be the safer route to go). You should consult with an electrician as well as the architects before going down this path, as this upgrade could cost between $10-40k depending on your situation.

  • The city can require you to add new beams depending on the condition of the existing.

Finally, how do you know if the project is worth the cost and effort? This can depend on a few factors, but the basic math behind it will ultimately determine the value proposition. The 3 pieces of the equation you need to figure out are

• How much rent will this unit command when completed?

• How much will the project cost me?

• What is the CAP rate of the neighborhood where the building is located?

Simple math would say: (monthly rent x 12) / CAP rate = Value added to the building. If this number is greater than your project cost, theoretically you should be good to go.

However there are a few more points to add for consideration:

• As mentioned previously, the Alderperson may require you limit the unit’s max rent to a certain level based on AMI (area median income) for a certain number of years, which will effectively cap the amount you can charge. Keep this in mind if that is the case.

• You should factor in an expense ratio to this rental amount, although it may be a little less than normal. We usually assume an expense rate of 35% when doing our “back of the envelope” math. Since you are adding a unit that wasn't there previously, many of your fixed costs should stay the same (taxes, insurance, trash, etc.) so your expense ratio on the unit likely is closer to 15% to account for your variable costs of operating the unit (turnover, water, management, vacancy etc.)

• Be conservative with your CAP rates so you know where your ceiling is on the rehab budget.

• Leave some contingency room in your rehab budget, as you never know what the city may require and / or change on you.

So the final formula could look like this:

Monthly Rent of New Unit: $1500
Rehab Budget: $150,000
CAP Rate: 6.5%
Expense Ratio: 15%

($1500 (Monthly Rent) x 12) = $18,000
$18,000 x (15% expense ratio) = $15,300 (or multiply the amount by 85%)
$15,300 divided by 6.5% = $235,384

$235,384 > $150,000

“Ding ding! The math works!” (as my partner loves to say).

There are many different ways this story can go, as I've called out. There are so many factors at play: what ward you are in; what type of property; what attorney you choose; how big of an existing water line you have; what side of the street your building is on; and even what side of the bed the inspector woke up on. Don't take this blog post as gospel, but rather an evolving guide down the path towards winning in this game. If you take nothing away from this post, remember this — surrounding yourself with good people is critical, as it is with any real estate dealings. Hit us up if we can help save you some time, money, or headaches!