Origin and Cedar Street are financing the $64.5 million development with a $42.5 million loan from TCF Bank and $22 million in equity, said Cedar Street CEO and Managing Partner Will Murphy. Origin is contributing 75 percent of the equity, with Cedar Street providing the rest, he said. The firms expect to complete the project in spring 2021.



“It’s the front door to Pilsen,” Murphy said.



Designed by Hartshorne Plunkard Architecture, Pilsen Gateway will include 202 apartments, from studios up to two-bedroom units, at an average size of 616 square feet. Seven units will be classified as affordable, set aside for lower- to moderate-income renters.



Affordability is a hot topic in the Pilsen area, where an influx of investors, developers and young professionals have pushed up housing costs, displacing many working-class residents. About a year ago, the city created a special zoning district, called an ARO Pilot area, spanning Pilsen, Little Village and parts of University Village/Little Italy, that requires residential developers who seek a zoning change from the city to set aside 20 percent of their units as affordable. The pilot area includes the Pilsen Gateway site.



Ald. Byron Sigcho-Lopez, 25th, a recently elected democratic socialist whose ward includes Pilsen and the Pilsen Gateway site, also has made combating gentrification a priority. He has insisted that developers of some new apartment projects in his ward set aside as many as 30 percent of the units as affordable.



Sigcho-Lopez recently dismissed a proposed 434-unit multifamily project about a half-mile from Pilsen Gateway, in part because only 20 percent of its units would be affordable.



Pilsen Gateway falls well short of even that threshold. But Cedar Street and Origin aren’t required to include more affordable housing in the project because the zoning for their site was approved before the creation of the pilot area—and before Sigcho-Lopez’s election last year.



“We kind of identified it as a rare opportunity,” Murphy said.



It’s the second residential project in the area for Cedar Street, which converted a nearby warehouse on 15th Street in University Village into 92 loft apartments a few years ago.



“We see 15th Street as an extension of Pilsen,” Murphy said. “There’s a lot of pent-up demand (for apartments) and very low supply. It’s a difficult neighborhood to develop in.”



It also doesn’t hurt that the Pilsen Gateway site sits in a big opportunity zone that stretches west from Racine Avenue between Roosevelt Road and 16th Street. But that wasn’t the main impetus for the project, Murphy said.



“That was really just an added benefit,” opening the door to more financing sources, he said.



Included in the federal tax-cut package signed by President Donald Trump in 2017, opportunity zones are an economic development tool to encourage investment in poor communities. Investors can defer or even avoid capital gains taxes on investments if they plow their sale proceeds into properties in the zones.



A pack of investment firms including Origin have launched funds in the past two years to buy real estate in opportunity zones. The program has attracted criticism in some cities, with detractors arguing many of the zones include wealthy neighborhoods that don’t really need tax breaks to attract capital.



That hasn’t turned out to be a problem in Chicago, which hasn’t drawn many opportunity zone investors so far. In one of the few big opportunity zone deals here, Allstate financed a 400,000-square-foot warehouse under construction in Pullman.



Because opportunity zone investors don’t have to pay any capital gains at all if they hold a property for 10 years, Origin doesn’t plan to sell its stake in Pilsen Gateway for at least that amount of time, Episcope said.



The project appealed to Origin because it was “shovel-ready,” not requiring a long pre-construction period for government approvals, he said. Origin also was impressed with Cedar Street’s track record, he said.



Cedar Street has been one of the city’s busiest apartment developers the past several years, recently completing a conversion of a vintage Loop office building into 176 apartments and a 342-unit project in Uptown.



The firm is also redeveloping a former Salvation Army property on the Near West Side into 260 apartments. And Cedar Street is also expanding beyond Chicago, with recent projects in Minneapolis, Cleveland and Portland, Ore.