The Sterling, the #1 Foreclosure Building in Chicago, in Crain’s
Apparently, we’re not the only ones who noticed that The Sterling is Chicago’s #1 foreclosure high-rise.
Can articles on River City, Millennium Centre and The New York, other notorious foreclosure buildings, be far behind?
We’ve been chattering for months about the foreclosures in The Sterling, at 345 N. LaSalle in River North. Crain’s has all the dirty details this week:
Over the past three years, lenders have filed 95 foreclosure suits, accounting for about $40 million in loans, on condominiums in the 389-unit high-rise, fueling a big drop in condo values throughout the building.
Completed about six years ago, the Sterling has emerged as the most prominent symbol of the excesses of the downtown condo boom.
“What a nightmare,” says Michael Fields, owner of Jax Realtors & REO Group, a Berwyn-based brokerage that specializes in foreclosures and has two units for sale in the Sterling.
There are 389 units in the building. That means that about 25% of the building has already gone into foreclosure.
And the deluge isn’t over yet.
Whatever the cause, “it’s just a horrible situation,” says Sandra Halliburton, owner of Halli Enterprises LLC, a South Side brokerage hired by banks to sell real estate taken over through foreclosure. “At one point in time, I had five listings in the Sterling that were all in foreclosure.”
She has one listing now for a three-bedroom unit on the 33rd floor priced at $479,700. The owner paid $801,000 for the unit in January 2005. Six months later, subprime lender WMC Mortgage filed to foreclose, claiming it was owed $599,974. The condo is under contract, says Ms. Halliburton, who declines to disclose the sale price.
Adding to the Sterling’s woes is its high percentage of investor-owned condos, which makes it harder for buyers to obtain loans. (Buildings dominated by investor-owned units tend to be viewed by lenders as riskier bets.)
Ms. Halliburton estimates as many as 80% of the Sterling’s units are rented out. She expects more price cuts as foreclosure suits continue.
Who would buy there right now with 80% of the units being rented and 25% of the building foreclosed?
The building also recently had a special assessment to cover repairs to the facade of the building.
“For run-of-the-mill (condos), it’s going to hold down prices,” says Gail Lissner, vice-president of Chicago real estate consultancy Appraisal Research Counselors.
On a per-square-foot basis, resale prices at the Sterling fell 17.4% from 2005 to 2007 as a wave of foreclosures swept through the building, according to Appraisal Research. That’s the biggest decline among 10 newer downtown condo buildings recently surveyed by the consultancy. Prices were flat on average, falling in four buildings and rising in six.
What happens in the future for The Sterling?
The situation isn’t hopeless, says Ms. Lissner of Appraisal Research. With its location and views, “there’s absolutely no reason in the world that that building should not do well over the long term,” she says.
Would you buy in The Sterling?
Just think of the effects of this on the banking system. The 120k hit to the lender, if the mortgage is held by a commercial bank, could translate into far more money (1.2MM) that the bank can not loan out now due to reserve requirements.
And they’re going to be slow to attract deposits to cover this 120k without losing even more $ as interest rates are at historic lows.
Bank failures are next.
You were out in front of Crains on this one Sabrina. Great job!
A special assessment after six years? Isn’t that a bit unusual? Is it that all the foreclosures are affecting the reserves? I’m new to this all, but wouldn’t 25% of the units going into foreclosure mean that projected assessment revenue is lowered by 25%? Which would mean the association either has to a)have special assessments or b)raise assessments?
I would buy for 120X the monthly rent.
For a 2-bed that rents for $2500 a month, that would be $300K tops.
But I saw a 2 bed 1200 sq foot in this bld for $259K.
So I’m not sure.
Guess so, Laura, but why would anyone rent a 2BR here for $2500 a month? You could almost get 600 N Fairbanks rental for that… I would think a 2BR here should go for more like $1500. Remember, there’s no parking. Am I offbase on this?
I have never been a fan of the Sterling. I went years ago to the sales model and you could tell it was not a great conversion. After all, it was planned as a rental. With the bank not paying assesments on their units, what does this mean for the actual owners who have to pay assesments? Are there reserves?
I believe from the MLS that the 600 N. Fairbanks 2/2’s have been renting anywhere from 2,700 to 3,400. But you are correct, you could do better at that rental price.
She has one listing now for a three-bedroom unit on the 33rd floor priced at $479,700. The owner paid $801,000 for the unit in January 2005.
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I might be shown up, but I don’t think 480 is the going market price. Probably much lower.
I think that the max rental for a 2BR here is going to be more like $2000/mo, so 120x = $240,000. But… The assessments are nothing to sneeze at – I’d knock $10,000 – $15,000 off to compensate. So basically, I’d say a 2BR here is going to end up selling for $225,000 when the market bottoms.
I recently purchased at the Sterling and from my perspective, it was a no-brainer. I looked at just about every building in River North (new and old) for about 5 months comparing typical factors like location, price, amenities, quality (look & feel, views, etc.). I have to say that as a person looking to live in the building, the Sterling was far and above the best 2-bedroom condo I found under $400K. Every other place I saw in that price bracket could not compare. The main downside, of course, is the number of foreclosures which makes it an unattractive buy in the short term. But existing rentals here are in the $2300-$2700 range which would largely cover my expenses if I had to move out so I didn’t have a short term approach. Other than the fact that the building was way overpriced 2 years ago, I have to say that the location is ideal, the views are some of the best I have seen in the city and the building amenities are fantastic. Just one person’s opinion but there’s nothing in the area under $400K that can even compare and at $350K, its a steal. That’s not to say that prices won’t keep going lower but in my mind that’s an opportunity, not necessarily a bad thing. The place is too good to not pick up again after this investor unit dumping. I can see the rationale of looking at foreclosures and prices in the building and predicting doom, but as a person who wants to live in the area and as someone who has personally seen most of the competition, in my opinion, there really is no comparison. Hope this viewpoint was helpful.
I concur that at bottom you can get a 2br on the low floors for the 225 range, but the building needs work and new management. I would consider buying ONLY as a rental or if I was just starting out (I am not) as a purchase to be able to live in the downtown area. I feel sorry for those who bought in 2003-2007 (or those even now catching that knife).
Is 120x rent a “rule of thumb” in these situations? I just haven’t heard that before. Along those lines, does anyone have any recommendations for a good “rent vs. buy” calculator that takes tax benefits and other expenses into consideration? Most seem a bit too rudimentary to be of much help. Sorry if this is totally off-topic.
Kenworthey,
There is attached parking at the Sterling. It is rental though, you cannot buy a space. Around 225-250/month.
Fairbanks/Kenworthey,
2/2’s have been rented for 3000-3500/month
1 beds have rented around 2200-2500/month
3 bedrooms rented for around 5500/month
What I meant was that unlike with (most) 600 N Fb. rentals, you have to tack on rental parking to the rent you pay the landlord. It isn’t “included” as it is in most the 600 N Fbs.
I have to say, I’m really shocked/impressed that 2/2s have rented for 3000-3500 in the Sterling. Total monthly layout with parking is more like 3250-3750/mo. SR–these aren’t just hopeful asking prices, these are actual rents being paid at the Sterling? WOW.
Kenworthey
Those numbers were for 600 N Fairbanks, not the Sterling
K:
I read SR as refering to rents in 600 Fairbanks, not Sterling. I, too, can’t imagine Sterling 2/2’s going for much more than $1500.
Also, 120x is a nice, safe multiple for having positive cashflow on a property held for rental. 160x should be sufficient to cover costs, in the absence of known special assessment problems or the place having other factors substantially depressing expected resale value after a holding period. The Sterling probably has both of these problems, so 120x isn’t absurdly aggressive.
Even if you’re generous, saying rent is 2000 and using 150x, you only get to $300k, and the issues discussed require a substantial risk-based write down.
Frank: You purchased there even with the big special assessment? I didn’t hear the total tally per unit, but they are allegedly repairing the facade because of leaking.
The foreclosures at 33 W. Ontario are much nicer for the prices there (in the low $300,000s.) Most have hardwood floors and pretty up to date kitchens. The Sterling kitchens were the regular apartment kitchens until the 20th floor or so when you could buy the “upgrade” package. But even that upgrade package wasn’t that great.
What does the association charge for move ins and move outs? I would think that would be a real issue with 80% of it rented. The wear and tear on the elevators and the hallways must be pretty high.
The location is pretty good- I think. But with prices falling in River North- not sure I’d pay for that building.
I believe I said this about the Sterling months ago as well… American Invesco does a great job getting these small time investors into their buildings and look what happens.
“Norm, go ahead and buy yourself a 2/2 in the Sterling for 300k. That building is complete garbage. It’s a perennial loser just like the Washington Generals and American Invesco. Any building American Invesco has converted has failed miserably. I would take any unit at 600 N Kingsbury overpriced or not over any Unit purchased at the Sterling. In 10 years I guarantee my unit at 600 Kingsbury would have a better return.”
I just wrote a contract on a one bedroom…shortsale…we are paying less than 120x rent and I am using extremely conservative numbers…one poster suggests that a one bedroom can rent for more than $2,000/mo…this deal will work out to less than 100x… this is an excellent location with excellent views…very rentable given the proximity to the financial district…sounds like opportunity to me for someone who will hang on for at least three years…look at the asking prices at 400 LaSalle….even with the 17% off deals they are offering you can see how the Sterling offers alot of upside potential when the market stabilizes…people who buy really low and sell low with still make money…
Other than the foreclosures, notice anything in common with these addresses?
345 LaSalle
800 S Wells
2625 Clark
3660 Lake Shore Drive
Think… Read the full Crain’s story…
Sabrina, the special assessment was to cover facade work and that assessment was completed last November. Basically, the building needed facade repairs. So while they are working with the original builders to recoup that cost (most likely through litigation), they had a special assessment in order to pay for the repairs now rather than live with the leaks and make the problem bigger. Not ideal, but a good solution under the circumstances.
As for the move-in/out costs, they charge $200. Given the nature of some of the fittings, I did some renovation work and, according to my contractors, this building has the most rules they have encountered about keeping things clean and quiet. You really cannot see any signs of wear and tear yet although that can always change quickly.
I have friends who own at 33 W Ontario and in my opinion, there’s just no comparison. Especially with the renovations I’ve made. My rationale was that I can always renovate the interior but cannot change the location, layout or views and my unit has a great wow factor that other places could not offer. Compare that to 33 W Ontario’s cookie cutter boxy layouts and small rooms. Again, I’m speaking from a live-in owner’s perspective, not an investor.
Finally, Kenworthy, I looked at many rental options at the Sterling when I made my decision and found the rentals to be between $2300 and $2700 for a 2-bedroom at a high enough floor so I think your $2000 estimate is extremely conservative at best. As for the comment on 600 Kingsbury vs Sterling, I again looked at both buildings and would not want to live at 600 Kingsbury simply because of location. Again, that’s something that cannot be changed; just about everything else can be. I cannot compare to 600 Fairbanks because that was out of my price range but that place also has good location and architecture; although at a much steeper price. But to each his own so here’s hoping the whole market picks up!
Michael: A one bedroom in the Sterling would rent anywhere from $1300 to around $1500 depending on the floor and the size of the one bedroom (as there were several different sizes originally.)
Frank: Thanks for the insider view of what is going on in the building. It’s good to hear from owners and we appreciate you answering questions here. The crowd here can get a bit feisty!
You do realize that litigation to recoup the costs from the developer will cost the owners even more money- right? If you look around River North, which you indicated you did, you would notice that several buildings seem to have higher monthly assessments, without more amenities. Those buildings have all had litigation.
Also, you might want to check with a real estate attorney about the condo laws in Illinois. But I believe that once a unit goes into foreclosure in Illinois, the bank is not obligated to pay the assessments on the unit (and neither is the new owner, once they buy.)
I can’t even imagine how many thousands of dollars are being lost to the association with 25% of the units in foreclosure (and more to come.)
Did they tell you that assessments would likely be rising sharply to make up the shortfall? I don’t see how they can’t rise in the next year given the situation.
But I agree with you that the location is much better than some other buildings that are also in trouble.
Sabrina,
The special assessments in the building has been over for around 4 months now.
Based on the age of the building and the structural engineering report, there is a pretty good case against the contractor. I beleive the building will recoup something, may not be much.
I think the building has around 1.3 million in reseves, and we have received notice that assesment will not go up this years.
At the last board meeting it was noted that foreclosures have been reduced.
My neighbor is purchasing the unit next to hers to combine units.
25% of the units are not currently in foreclosure, the number has never been that high. At most board meeting they usually site the number and I don’t beleive that it has been over 30-40.
Is the worst over, who knows, maybe next year the picture will clear. One thing is clear and has been mentioned many times, stay away from American Invesco conversions.
Valasko: So you’re saying Crain’s doesn’t have accurate information?
A year ago when I was in the building looking at a foreclosure, The agent told me that there was 40 foreclosures then. I don’t know why he would lie.
Valasko,
How is your Momo unit? Did you move in or are you renting it out? I am excited to see some more units in that building!
Sabrina: I don’t think that Crains information is not accurate. I believe what they have published is the total number of units that have gone into foreclosure over the life of the building. Your agent was probably accurate at 40 units foreclosure at the time, as some units sell others go into foreclosure. Some people are interpreting the article to mean that there are currently 95 units in foreclosure. There has never been 95 units in foreclosure all at the same time.
Streeterville: Have not moved into MoMo yet. My unit is on a higher floor where the construction hoist is located. I probably won’t be in for a couple more months.
312,
Are they all American Invesco properties?
Hopefully, city agent has good errors and omissions insurance. I have been in the real estate brokerage and investing business since 1981 and calling properties garbage and guaranteeing appreciation and returns in one area over another is always something you should avoid.
My real estate business is in southern Illinois just outside of St. Louis so it took my wife and me eight months to explore the Chicago condo market before feeling comfortable enough to purchase an in-town condo. We recently purchased a high floor; upgraded unit with a great SE protected view in The Sterling. The unit is a split two bedroom plan with two bathrooms and floor to ceiling windows. Also important to us was a balcony and in-unit washer and dryer. Compared to other units we viewed in the same price range, we found The Sterling to be great value with very nice upgrades especially in the kitchen and the WOW factor. We moved in this weekend and found the management very much in control, very professional and very friendly. All common areas are in very good condition including the dock and freight elevator.
We realized the Chicago condo market was in flux, but comparable units in new construction buildings were $250,000 to $300,000 more than our purchase price. We are not experts in the Chicago market, but we know investing in real estate always includes an element of risk. We have mitigated that risk because we are buying our unit to use and plan to keep it for 5 to 10 years. Being an in-town user even the parking situation works for us because we only pay for the days we use and the weekend rate is $8.00 per day. Owning a parking spot would have been preferable, but paying $25,000 to $45,000 ($65,000 for new construction) for a parking spot and adding $100 to $200 per month in real estate taxes and assessments is not a good financial deal compared to paying $290 per month to rent a space.
We considered the 600. N. Kingsbury area, but we wanted to be easy walking distance to Michigan Avenue, The Loop and the theater district. The Sterling location and amenities provided exactly what we were looking for in a Chicago condo.
Frank, do you mean that the facade work was completed in November or is leaking still an issue?
I am asking because I have given some thought to renting a 2br at The Sterling for one year while I look around the area for a 1br to purchase as my own.
TIA for any information.
The Sterling is a complete dog. As a realtor, I wouldn’t take a listing in that building and I surely wouldn’t let any of my buyers buy there. The finishes are horrible, it’s basically a rental building and you get screwed on the rental parking. Go elsewhere!
I do not know what is your motive to attack this building but it has the best deals in town. The building is very attractive and in excelent location. In addition, the interior of the buliding and the finish of the apartments are superb. The owners of the other buildings are mad because of the low prices. Guys it is an excelent time to grab an $800,000 unit for $400,000, no where else in the city you can do that and I have been looking for the last 12 months.
Jass: Do you own in the building then?
New foreclosures continue to appear. The building has a lot of competition for the title of “most foreclosures” with 10 E. Ontario.
If an “$800,000 unit” can be had for $400,000 then it was never worth $800,000 to begin with.
Not sure why this building is being attached so much. We are owners and we live in the building. I also own a few other investment properties in the suburb and in the city and can say that if you are looking for a newer modern building with a great location (close to downtown and the financial district) this building is absolutely a no-brainer. We looked at 400 N LaSalle accross the street, properties are on average at least 50K higher purely based on perseption and you get all the noise from the L /if you face west/. Amenities in Sterling are great (we just had a total renovation of the fitness area with individual plasma tvs on each work-out machine, etc). You can see the constant improvments every day. Old management was replaced. The building has a website now where you can discuss issues, etc. Special assessment finished 5 months ago. Assessments did not go up this year and are very reasonable /actually lower than most buildings we looked at/ considering all the amenities. Parking is attached to the building and is lease-only: great convenience as you don’t have to purchase it, pay assessment, tax, etc and at the same time very flexible when you rent it out in case your renters don’t have a car. I don’t think there are any properties on foreclosure now and very soon this “foreclosure” issue will be history. I am seriously considering buying another unit in the building as 1-br rentals go for 1,700-2,000/mo and the demand is very high due to the proximity to financial dist. We recently refinanced and the appraiser came up with a 30K appreciation based on the price /non-foreclosure/ that we paid in Dec 06. In anyway, I don’t want to sound too biased… My only advise is – do your own research before believeing the “foreclosure hype” and some of the articles written by clueless people based on old info or rumors… Talk to some of the people that live in the building and they will share their honest opinion.
Dan:
I wouldn’t be surprised to see the foreclosures slow in the building. This building was earlier than a lot of the other buildings in seeing a big pick-up in foreclosures so it’s also seeing it slow a bit sooner.
And once you have more than 25% of the units go into foreclosure, there are only so many more that can also do so.
But the problems don’t appear to be over.
Currently there are two units in short sale:
#3404
#1610