2nd Biggest Story of 2018: Deconversion of Condo Buildings Picked Up Pace
It used to be a given that an older apartment building would eventually “go condo.”
But 10 years after the housing bust, the pace of “deconversions” has picked up with several of the largest deconversions in Chicago history moving forward.
River City, the Bertrand Goldberg building on the Chicago River in the South Loop at 800 S. Wells, recently became the latest building to agree to a buy out.
It has 449 residential units, work and retail space which makes it the largest deconversion in Chicago history to date.
It was originally apartments, then went condo during the boom, saw a lot of foreclosures due to investor owned units, and now is set to return to apartments.
It’s now located in the up-and-coming River Line development which will create a more vibrant river front.
The buyers will do a full redesign and renovation of the lobby, common areas, units and retail area.
“With more than 250,000 square feet of office and retail, this is an incredible opportunity to maximize the space to create experiences and daily conveniences for both the renters and South Loop community,” said Ruttenberg Gordon Investments managing partner, David Ruttenberg. “We look forward to renovating this space to fit today’s office and retail landscape with a heavy emphasis on building community.”
“Apartments are being designed by Devon Grace Interiors, and Luxury Living Chicago Realty is the exclusive marketing and leasing brokerage. The redesign will feature a lobby with multiple lounges and co-working spaces, a party room, an acre of outdoor space with lush landscaping, outdoor grilling stations, bocce ball, shuffleboard courts and a convenient dog run. Units range from studios to four-bedroom penthouses. Apartment rental rates have yet to be announced. Leasing should begin in early February.”
They expect move-ins in March.
Another prominent building which may deconvert is 1400 N. Lake Shore Drive in the Gold Coast.
It recently approved the sale, which, under state law, must be approved by at least 75% of the owners.
But the buyer may pull out.
Now the sale is in jeopardy because ESG can’t line up financing. ESG sent the condo board a letter Dec. 7 saying it was terminating the transaction, meaning it will forfeit a $50,000 earnest money deposit, according to the board’s letter to owners.
An ESG executive didn’t return calls, nor did the president of the building’s condo board. CBRE, the brokerage representing the condo board in the sale, declined to comment.
If ESG can find another equity partner, it plans to submit another offer for the property, which would require yet another vote by the building’s condo owners, according to the letter. The board expects to hold another vote in early January, with an anticipated closing in late February or early March, as previously planned, the letter said.
With thousands of more units still expected to come on the market through new apartment construction, is there still demand to continue the deconversions in 2019?
Will we all become renters now?
“a $50,000 earnest money deposit”
For a $100m deal? That essentially tied up everyone for the duration of the sales pitch and voting period? Yowza. I know it’s not really a market transaction, but c’mon–does that even cover the association’s legal fees?
“[River City] went condo during the boom”
Another American Invsco triumph–they paid $47m for it in 1997. Defaulted on a $12m loan on the commercial space in 2006 (Marc Realty bought it from the original lender–Marc has been working on this thing for *12*(!!!) years). Even with the 2/2/2 scam, Nick must have made a ton of money on River City.
Unfortunately, Plaza 440 won’t be one of those deconversions. For those not familiar with the building, Plaza 440 was built as rental apartments in 1992, and converted to condos in 2005 (in yet another “American Invsco triump”), with condo values crashing during the last recession.
The condo board surveyed owners in October 2018 about whether we would want to explore the possibility of a deconversion, using a form that spoke positively of deconversions and specifically stating that we could get a 20% or more premium on the value of our condos through a deconversion. I enthusiastically answered yes to one of the easiest questions of my life. Yet a majority of the owners who responded opposed even exploring a deconversion. This result surprised me, as last time I heard approximately 75% of the building are absent owners, who are presumably interested in maximizing whatever value they can get.
The market value of my condo in Plaza 440 is roughly 75% what I paid for it back in 2005, and that’s in nominal terms. I don’t even want to think about how much I’ve lost in inflation-adjusted or opportunity cost terms.
“The condo board surveyed owners in October 2018 about whether we would want to explore the possibility of a deconversion, using a form that spoke positively of deconversions and specifically stating that we could get a 20% or more premium on the value of our condos through a deconversion.”
This is a silly way to do it. Most owners don’t want deconversion until they’re actually given the offer. And then they actually see the numbers.
To ask in general, “should we deconvert?” will get voted down every time (unless there’s a special assessment so massive everyone wants out.)
I am very sorry that the River City conversion didn’t work out. As a Realtor, I liked it a lot as a rental property because of the location, free bus shuttle downtown, marina and water taxi stopoff, full-service grocery and health club. During the conversion I became quite friendly with one of the A.I. reps who supervised the initial sales. Very nice, smart lady who probably got shafted somehow by Invesco by the time the dust settled. I think quite a few of the renters at that time bought their units, but apparently not enough “newbies” joined them.
I think what killed it in the end was the flood that did serious damage to the lower-level (which included the parking facility) a few years ago. Among other results, the association never purchased enough flood insurance to satisfy lenders (especially FHA/VA) and new buyers had to pay cash as a result. Very dumb decision!
I am not at all surprised about proposed deconversion of 1400 LSD. One of the dumbest condo conversions I have ever witnessed as a Realtor! I was one of many who were invited to free luncheons (as lavishly catered as a Gold Coast wedding reception) where we were given glowing reports of how this was going to be marketed.
To make a complicated story simple, tenants could buy their units “as is” at a discount, opt to buy their units “Upgraded” at a higher price while being relocated during the renovation, or buy another unit entirely. None of those plans made much sense economically as far as I could tell. Also, the dust and debris that you had to walk through while viewing the “project” were quite a turnoff.
Also, although the 2 and 3 bedroom units were fairly large, the studio and 1-bedroom units were quite small (this was originally supposed to be a tourist hotel back in the 1920s). If you wanted to buy a place for yourself in the Gold Coast there were much better options available.
Again, sad but not surprised.
“I am not a destroyer of multi-family buildings, I am a liberator of them! The point is, ladies and gentlemen, that deconversion – for lack of a better word – is good. Deconversion works. Deconversion is good. Deconversion clarifies, cuts through, and captures the essence of the evolutionary spirit.
Deconversion, in all of its forms — for life, for money, for love, knowledge — has marked the upward surge of mankind. And deconversion — you mark my words — will not only save your condominium building, but that other malfunctioning entity called Chicago.”
Gordon Gecko would look like Mother Theresa against the cabal of greedy developers and lawyers abetted by public servants that stand idly by as these unjust takings of personal property roil Chicago condominium buildings.
The untold story is about the devastation visited upon the working class and retired condominium owners in a deconversion. Many seniors thought they would live out their lives in the condominiums where they paid the mortgage and dues for years.
Not So: These seniors become displaced persons that are virtually homeless after the deconversion closes. Despite paying the mortgage (that are all interest in the first 15 years), they are given nothing as they had no equity under the contract price. Imagine that you are retired, living on a fixed income that could cover your expenses in your condominium AND suddenly you find yourself out on the curb.
Deconversion is good!
@ SadAtPlaza440
“The market value of my condo in Plaza 440 is roughly 75% what I paid for it back in 2005, and that’s in nominal terms. I don’t even want to think about how much I’ve lost in inflation-adjusted or opportunity cost terms.”
So – is there a reason to take a hit and walk away? Is 440 not meeting your needs in some manner?
Just wondering about the how is it actually living there versus the sunk cost financials?
“Not So: These seniors become displaced persons that are virtually homeless after the deconversion closes.”
If by “homeless” you mean “having several hundred thousand dollars” – then sure.
In some buildings, there were special assessments coming due that, frankly, many of the seniors cannot pay. Deconversion solves that for them.
“I am not at all surprised about proposed deconversion of 1400 LSD. One of the dumbest condo conversions I have ever witnessed as a Realtor!”
I agree Gayle. I went to the sales office once they started offering these to buy. The building was a complete disaster (the interior hallways) even during the marketing.
A few of the 2-bedroom lake facing units that they upgraded weren’t bad, but they certainly weren’t worth the $500,000-$600,000 they were asking for them. But it was the peak of the bubble.
The building is coming full circle now.
If by “homeless” you mean “having several hundred thousand dollars” – then sure
But several $100k can’t always replace the homes they lost in the same neighborhood.
“But several $100k can’t always replace the homes they lost in the same neighborhood.”
“Homeless” isn’t the same thing as “I now have to move to another neighborhood.”
““Homeless” isn’t the same thing as “I now have to move to another neighborhood.””
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Oh, Sabrina! You gentrifier you! The horror! The Horror!
@Chichow — I moved from Plaza 440 several years ago, though I still own a unit there because it was badly underwater when I moved. I’ve rented the unit since I moved. So at this point, the question is whether to sell versus continuing to rent, which depends largely on rent versus market value of the unit.
I lived at Plaza 440 for about a dozen years, and thought the location was great — you can walk to work downtown, the red line El stop is a block away, you can walk to the beach on warm weekends, there are plenty of stores and activities around, etc. Main downside is that most Plaza 440 units have cheap, rental-quality finishings and appliances (though some have been upgraded over the years). But if those don’t bother you, renting (or buying) at Plaza 440 is significantly cheaper than recently built River North apartments or condos.
My post is more to whine in general and serve as a cautionary tale about buying units when a rental building converts to condos.
“Oh, Sabrina! You gentrifier you! The horror! The Horror!”
Old Town, the South Loop and the Gold Coast are being “gentrified” now?
That’s news.
That’s where several of the deconversion buildings are located.
“Old Town, the South Loop and the Gold Coast are being “gentrified” now?
That’s news.
That’s where several of the deconversion buildings are located.”
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Irony, dear girl, irony.