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  • From Boom to Bubble: How Finance Built the New Chicago by Rachel Weber
  • Carter Ringle
Rachel Weber. From Boom to Bubble: How Finance Built the New Chicago. Chicago: University of Chicago Press, 2015. 296 pp. ISBN 9780226294483, $45.00 (cloth).

According to Rachel Weber, from 1998–2008, Chicago experienced a building boom in its central business district that rested atop the artificial foundations of speculative capital, inflating the market with "hot air" and saturating Chicago's skyline with overbuilt and under-occupied commercial real estate. In her valuable treatment of the subject, From Boom to Bubble: How Finance Built the New Chicago, Weber deconstructs the life cycle of commercial property and uses this "Millennial Boom" in downtown Chicago as a case study to illustrate how "financial incentives create capital mobility, new construction, and periodic overbuilding" (4). Weber, borrowing from economist Joseph Schumpeter, describes the process as "creative destruction." Through the combined roles of complicated financial instruments and easily available capital, the professional norms of financial actors, and [End Page 985] the actions of municipal governments, new buildings were erected and older projects, now deemed obsolete, were destroyed in favor of open floor plans and the latest in energy efficiency.

By organizing the book into three parts, the first of which details the history and trends of real estate speculation before applying those developments to support the conclusions of the speculative bubble of millennial Chicago, Weber defines a narrative that explains how toxic building practices were hastened by easy money and low barriers to entry, laying the groundwork for a market metamorphosis "from boom to bubble."

The Millennial Boom was the fifth building boom in downtown Chicago that began in the twentieth century, she explains. After examining and ultimately dismissing that the building spree was fueled by tenant demand, evidenced by Chicago's employment losses and a vacancy rate of downtown office space approaching 20 percent by 2009, she turns to the true culprits. At the center of her argument is the notion that the Millennial Boom was only "weakly demand-driven." "The debt-fueled acquisitions market—," Weber contends, "not the lackluster occupant one—was the real driver of the commercial construction boom in downtown Chicago" (128). In her investigation of the supply-side model of real estate, Weber focuses on the incentives generated by financial players and government officials that tipped their bias toward the new build. Brokers, appraisers, and financiers, as well as city planners, all had a vested interest in seeing to it that the cycle of creative destruction endured.

Even when navigating the dense forest of financial jargon (securitization, recapitalization, REITS, CMBSs, collateralized debt obligations [CDOs], TIFs), Weber clears a path accessible to those outside the fields of finance, real estate, city planning, and economics. The root of many of these financial instruments that Weber discusses was "capital switching," or the influx of investment into real estate and away from more volatile and less profitable investment vehicles. By switching capital into commercial real estate, the goals of these financial actors were to maximize returns and minimize risks. For example, brokers found tenants to occupy space in a new building or otherwise facilitate building transactions, the goal of which was to generate income and bring value to the property. Appraisers reconciled the value of a property, often favoring the new over the old, as did the banks and investment firms for whom they worked. Local governments applied regulations and public investments to promote growth and new construction. By utilizing financial instruments and tapping into professional norms, these actors manufactured demand for redundant real estate. These practices encouraged the financialization of real estate, Weber contends, and created a fragile financial and commercial property market in Chicago in the 2000s. [End Page 986]

In Part 3, Weber looks to the future. Favoring the "slow build," she warns that the costs of overbuilding outweigh its benefits, detailing its wastefulness and contribution to financial crises, with the Millennial Boom turning to bubble alongside the collapse of the housing market in 2007–2008. Indeed, much of the financial language that became popularized during the Great Recession can be applied to the commercial real estate bubble. Weber's dissection of the supply...

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