Are the Deals Getting Even Better in Millennium Centre? 33 W. Ontario in River North
In November 2009 we chattered about a bank owned 2-bedroom unit, Unit #50D, in 33 W. Ontario, better known as Millennium Centre, in River North.
See our prior 2009 chatter here (and a discussion about how we would see a “bottom” in 2010 because we were not Japan.)
At that time, it was listed for just $275 a square foot but some of you thought, with its $800 assessment, that it was still priced too high.
It did sell in January 2010 for over the asking. Here’s its history:
Unit #50D: 2 bedrooms, 2 baths, 1325 square feet
- Sold in October 2004 for $697,500 (parking included)
- Lis pendens foreclosure in July 2009
- Bank owned
- Was listed in November 2009 for $364,900 (parking included)
- Sold in January 2010 for $400,000
- Assessments of $866 a month (includes heat, a/c, doorman)
- Taxes of $7086
In the last year, some other “D” units have sold in the building including #47D which sold in November 2010 for $330,000 (not sure if this sale included parking or not).
And now Unit #55D is on the market and listed for $9100 under the sale price of Unit #47D- and it includes the parking.
It has hardwood floors in the living room and it appears, from the pictures, that its kitchen and baths are intact.
It has stainless steel appliances and granite counter tops.
Are prices still falling in Millennium Centre?
Is this now a deal? Or are they hoping for a bidding war?
Edguardo Diaz at NuVision Real Estate has the listing. See the pictures here.
Unit #55D: 2 bedrooms, 2 baths, 1325 square feet
- Sold in February 2004 for $713,000
- Lis pendens filed in September 2008
- Bank owned in July 2010
- Originally listed in December 2010 for $320,900 (parking included)
- Currently listed at $320,900 (parking included)
- Assessments of $923 a month (includes heat, a/c, gas, doorman, pool)
- Taxes of $6519
- Central Air
- Washer/Dryer hook-up in the unit
- Bedroom #1: 12×15
- Bedroom #2: 12×11
- Living room: 24×16
- Kitchen: 11×9
Hard to believe that people paid in the 700’s for a 2/2 back in 2004!
I remember going to the sales centre and the smallest 1 bedroom units started at like 299 + parking
Why did a bank make a loan on this place at $713k? $538 psf!! Crazy.
Photo #7 sold me.
This looks like a perfect entry for the sadly underused “Knife-catchers” tag. Stuff like this is just scary — losing around $70k on an illiquid asset over the course of a year.
Another American Invsco cluster fk…… need I say anymore.
Lather, rinse, repeat…each time a little more skin goes down the drain.
Back of the envelop math…taxes about 550/month, assessment 923, 320k call that a cost of capital at 5% (maybe a bit low, but mortgages are still in that ball park). $16k/year financing costs or $1333/month interest expense. Costs of ownership is about $2,800/month (before counting in-unit maintenance).
I don’t know if this rents at $2,800, probably still a little cheaper to rent than own. Assessments are killing this unit. But its also not horribly priced right here. I would pass on real estate now. I don’t know how these new taxes are going to effect the local economy and that will carry the Chicago real estate market.
haha wicker, that pic makes the listing
Taxes and condo fees kill this
This is something i pointed out yesterday – regarding American invsco, there buildings always get screwed with ridiculous assessments down the line – and eventually there’s a sell off and foreclosure/preforeclosure rush, screwing over the building completely..just look at that 400 wabash building, the sterling, and the one on state/ontario..the trend in this building isn’t too favorable either. Also, 700k with THAT kitchen? what were people thinking . jeez.
“I don’t know if this rents at $2,800, probably still a little cheaper to rent than own.”
Doesn’t appear to be the same tier, but:
http://chicago.craigslist.org/chc/apa/2156362459.html
is $2,000/mo. So, probably more than “a little” cheaper.
Haaaa i called it back the beeeyotches and more is yet to come yesterdays vote is just a feeler.
“Groove77 on November 20th, 2009 at 2:53 pm
“groove I get it; were basically f-ed.”
i hear ya, crook county will be in full swing after elections watch everything go way up.”
If $240 sqft is the new price for a high-floor, updated finishes unit in this building, the bank owned and short sales will only continue. What would the same unit on floor 11 sell for $265,000?
I would be equally as concered about the health of the HOA. With this many bank owned units, the unpaid HOA dues must really be causing some deficits in the reserves.
I think clio owns here..i’d love to see his .02 on this
“I think clio owns here..i’d love to see his .02 on this”
If I am correct he was bragging one the stability of this one a few days back…..”
Cliooooooooo?
“Taxes and condo fees kill this”
Perhaps, but this is what it costs to live in a hi-rise building downtown. There’s exceptions, but $750-$1,000 for a 2/2 is the norm.
“Also, 700k with THAT kitchen? what were people thinking . jeez.”
They were thinking “100% financing, 2/2/2 guarantee”. This one had a $570k first (MERS) and a $140k 2d (WAMU, meaning WAMU almost certainly did both loans). Did manage to avoid LP filing until Sep-08, so made it about 2 years past the end of the AI guarantee.
Same person (apparently) also bought another unit in the building (paid $372, REO sale for $218.5) and one at the New York (paid $494.5, REO sale for $241) and one at 2000 LPW (paid $231, REO sale for $100.5), for an aggregate 49% decrease.
To clarify, $750-$1,000 per month on the assessments is pretty normal on downtown condos.
“They were thinking “100% financing, 2/2/2 guarantee”. This one had a $570k first (MERS) and a $140k 2d (WAMU, meaning WAMU almost certainly did both loans). Did manage to avoid LP filing until Sep-08, so made it about 2 years past the end of the AI guarantee.”
How much longer do you think AI can run this scam…… If I was a bank there is no way that I would loan ANY money on future AI developments……. you KNOW what the outcome will be…..
The HOA isn’t crazy high for a full service large highrise downtown.
The Bristol, 57 E Delaware, (much much much nicer building) has HOAs around 700-1000 for 2/2s
“100% financing, 2/2/2 guarantee”
Which likely came prepaid in the form of a check at closing.
haha i had an epic post on November 20th, 2009 at 10:07 am
“Why did a bank make a loan on this place at $713k? $538 psf!! Crazy.”
crazy in a hypothetical world where big banks go broke for their bad decisions.
but not crazy in this world.
As crazy as it sounds, downtown condos will eventually fall disproportionately in value to offset the high assessments. LP/LV may have more expensive 2/2’s but lower assessments; higher assessments in buildings like these but lower purchase price. It’s not like the prospective owner of a 2/2 RN makes significantly more money than the prospective purchaser of a 2/2 in LV or GC or WP etc. The guy in the cube next to you (sonies for example) decides to buy the 2/2 in RN and the guy on the cube behind you (annony) buys the 2/2 in ELP. the guy with the cube in the middle (groove) buys a SFH in galewood, or OIP etc.
The guy with the office down the hall who tell the cubes what to do (allegedly JMM) he buys a house on the north shore because he makes a litle more money than the guy in the cube. The guy with the real money (anontfo) buys the house in the green zone with all his bundles of money and surfs the internet while his children are at school. the other folks in the cubes (Bob) will choose to rent.
Another “great view of lake”
“crazy in a hypothetical world where big banks go broke for their bad decisions.”
Hmm, I can’t find WaMu anywhere today. They made the loans on this one.
“The guy with the real money”
funny stuff, hd.
sorry – late to the party again. I don’t understand this at all – I have a “d” unit (same size, same layout) bought preconstruction (?2003) but I only paid 400k for mine (actually it was more like 386 or something like that). I can’t imagine anyone spending 700k at the time. Something is really weird about that – it doesn’t make sense and I suspect some “hanky panky” going on. However, it is sad to see the 50d going for 320 with parking – that is a GREAT deal. I get 2400/month for rent for my unit plus 150 for the parking spot (rented separately). I don’t know about rental parity because I paid cash for my units. All said and done, I come away with about 1000/month – (12k/year) which is not THAT bad for a 400k investment (nowadays, anyway). I, like many other investors, will hold on until the market corrects – even if it is 10-15 years, I don’t care – in the meantime, I’ll make my 3.333% off of it (and, with rents increasing, this will also increase).
It’s amazing the amount of ignorant commentary on here.
BOD minutes for this building are public…note the reserves for the building near $2M, currently, with a no special assessment complete renovation of hallways on each floor occurring during 2011. The # of foreclosures in this building peaked 1 year ago and has trended downward, with the HOA collecting aggressively on back assessments on foreclosed units. # of owner occupied units/investors is trending from 30/70 closer to 40/60, which makes challenging financing in the ST, but as ratio shifts, will bring more liquidity to the building and improved appreciation. Rents in the building are between $1.90 to $2.10 per sq ft, which is consistent with Crain’s Class A prop article a few months back.
Not sure what other trends you would look for that might suggest at the right price this is the perfect alternative to renting and worth a small amount of risk in the ST. Look to the economics here folks…do you see people categorically fleeing River North? And, do you see a rash of new high rises going up in this are in the next 5 years. Tell me why rents would fall…will everyone move to the country or back in with their parents?
Let the ignorant rants continue.
Hey Clio, did you see my two posts on the Edgewater 1 bdrm?
Clio you seem like a smart guy, but I never get your financial math.
I consider this to be “the correction” from extreme prices. I highly doubt “real” not “nominal” prices ever rise again in this area.
3.33% on your money isn’t that good. Back out maintanence costs, taxes on your 3.33%, and inflation and you have a negative return and maybe a slightly position nominal return. I can find you a lot of safe investments that give you better than that (JNJ, excelon, etc with equal yields and steadily rising dividends without the headache of managing property).
I think your underwater and won’t admit it. Who wants to accept a 3.33% return on their money that also involves the work of managing the property.
And you do know how to figure out the costs of ownership its pretty easy to figure out taking 5% as a costs of capital you are losing $500/month (and maybe $800/month when you see these listed at 2k/month; though 2k seems like a great rental deal to me). I don’t know how you can expect to make money selling at a higher price when even at current prices and low interest rates the property is cash-flow negative. Americans want be dumb enough to chase real estate at expensive prices for a very long-time…basically when an entirely new generation comes onto the scene without the memory of this crash.
gescob – I just read them. I always love to talk about real estate – is there a way to contact you?
sean, I don’t understand what you are saying. I was saying that I clear 1000/month AFTER assessments, taxes, insurance – so that is 3.3333% net profit. Also, with depreciation, I don’t have to pay taxes on that – so it is “kind of” like making 4%. I have a very diversified portfolio and it is really hard to find a consistent investment that will pay over 4% long term.
afaik clio is the only person who gets asked out regularly on cc
“it is really hard to find a consistent investment that will pay over 4% long term.”
meant to say: a long term investment that will pay consistently 4% or above.
How is that 3.333% affected if their are specials assessments coming down the line?
“I can find you a lot of safe investments that give you better than that (JNJ, excelon, etc with equal yields and steadily rising dividends without the headache of managing property).”
Since this was being discussed yesterday, how safe are these “safe investments” really? No significant risk of a 20 or 40 percent drop in value over a couple years? No significant “risk” of holding onto it for a decade with no real (or nominal) appreciation, beyond dividends? Certainly liquid though and without the same management headaches. But can’t leverage in the same way (not that leverage is always your friend).
Great Clio, I look forward to it, can you shoot me an email me at gescoba1 @ jhu . edu
I’ve already gone through 4 agents in 9 months after getting bad and then worse advice. I just don’t trust the advice those guys give on real estate, i feel like they dont know whats going on, or arent creative in thinking about stuff.
“But can’t leverage in the same way (not that leverage is always your friend).”
Clio is apparently all cash, so the gearing issue is immaterial.
Agree to disagree I guess. I think a lot of investment offer better real returns than 3.33% (I’ll assume for simplicity Home prices keep up with inflation over next 10 years which seems about right to me).
I think equities offer a far better return and treasuries offer the same 3.33% yield and can be financed at zero percent.
Q: “Why did a bank make a loan on this place at $713k? $538 psf!! Crazy.”
A: http://www.bestchicagocondos.com/blog/millennium-centre-fraud-case-indictments/
I think part of the loss of value is the market, part b/c its an American Invesco property, part b/c its a run of the mill 2 bedroom where supply is in excess, and part b/c the number of non-owner occupied units in this building. I think its got a high rental rate which probably means its no a no loan list and therefore needs a cash offer. Cash offers are always well below market.
“Q: “Why did a bank make a loan on this place at $713k? $538 psf!! Crazy.”
A: http://www.bestchicagocondos.com/blog/millennium-centre-fraud-case-indictments/”
The buyer of the subject unit (i) purchased directly from the AI entity, (ii) did not resell and (iii) is not one of the named defendants. It *is* likely that one or more of those sales served as a comp.
I know 3 different people that rent in this building. All in early 30’s, professionals, work downtown. They love living there, one of them has rented the same unit for 4 years now. I have no doubt that you could always easily find quality tenants and be at 95% if not 100% occupancy. However the assessments and taxes as an owner/investor scare me. Just too big of a building, not enough control over what happens with the budget and maintience. Specials could easily wipe out your returns for a year. I think it’s safer to invest in a 2/2 in LP or LV that’s in a 3 flat or similar small building.
Someone could buy a liquid REIT stock instead. EQR (Equity Residential) is up 100% and it pays a 3.6% dividend yield.
Most landlords get enticed by leveraged returns, but leverage can kill you in a declining market.
“Who wants to accept a 3.33% return on their money that also involves the work of managing the property.”
Clio a 30 year U.S. treasury bond yields 4.5%. It’s not hard to find you just have to walk into the federal reserve at lasalle and jackson.
“This is something i pointed out yesterday – regarding American invsco, there buildings always get screwed with ridiculous assessments down the line – and eventually there’s a sell off and foreclosure/preforeclosure rush, screwing over the building completely..just look at that 400 wabash building …”
American Invsco certainly doesn’t deserve any fairness, and I wish I had done more research before I bought from them (though probably less information was available at the time). But in all fairness to them, Plaza 440 hasn’t had an assessment increase since it went into condos (or at least not a significant one). Of course, the lack of assessment increases hasn’t stopped the prices for the condos from dropping precipitously from January 2005, or a huge wave of short sales.
Don’t get me wrong – the 3.33% return is NOT great at all. My point was that it isn’t AWFUL and can be looked at as “acceptable”. The benefit of buying was that the apprciation would add a few percentages when I sold. Even if there is no apprecuiation, the investment is still OK. However, everyone here knows that there WILL be appreciation in the next 10 years. If you don’t think so, you are living in fools paradise.
“Clio a 30 year U.S. treasury bond yields 4.5%. It’s not hard to find you just have to walk into the federal reserve at lasalle and jackson.”
i will side with clio because at least after 30 years i may be able to sell in another beginning bubble and make out like a bandit.
but dang for 3.3% i have and could find a better return with less risk than a dangling RE prop with a tenant complaining about mice!
and really 3% to get a phone call at 3am about the fire alarm battery is dying to me just aint worth it.
Groove – you are right – if I had to buy again, I wouldn’t accept anything less than a solid 5% return. However, given the situation I am in, there is no hurry or rush to sell because I am sure, in 10 years, I will be able to sell for a profit and my annualized rate of return should be over 5%.
I think there are a LOT of investors out there like me who are not happy – but are not in a panic to sell and cut losses.
I need to live in Chicago for 5 years.
I also want to own more investment real estate
I am looking at a Chicago condo for $125k.
Assume $25k down, and 100K mortgage (5/1 ARM at 3% (30 year))
Amort table shows $420 monthly payment.
After 5 years, I will have paid $14k in interest, and have a balance on $89k ($11k principal paid) Over 5 years, I will have paid $12,500 in taxes.
Total 5 year “sunk cost” (interest+taxes) = $14,k + $12,500 = $27k
The $27k can be written off on taxes, so that saves me 1/3rd (now down to 18k)
So, if you take $18k and divide by 60 months, you get $300 per month.
Add $200 in common fees = $500 per month in “sunk” costs of ownership
At the end of 5 years, I would owe $88k, which I would pay off with cash.
That would leave me with a place worth $125k (roughly, assume no increase or decrease),
that I have paid $125k into, but got to live there for $500/mo for 5 years.
This is much cheaper than renting something for those 5 years.
Is my math correct? Am I overlooking anything major?
Transaction costs = $2k
Furnishing the apt = $1k
“I, like many other investors, will hold on until the market corrects – even if it is 10-15 years, I don’t care”
The market is correcting now.
“I think its got a high rental rate which probably means its no a no loan list and therefore needs a cash offer. Cash offers are always well below market.”
In that case, cash offers are the market.
A lot of non-insance people expect zero appreciation in the next 10 years. I count myself as one of them. I’m talking about “real return” (ie. minus inflation).
And you are fighting major demographic risks better on that. High taxes, bad weather, plus an aging population makes me think risks are still to the downside.
“A lot of non-insance people expect zero appreciation in the next 10 years. I count myself as one of them. I’m talking about “real return” (ie. minus inflation). ”
I think the majority here see it that way. Which doesn’t mean that clio’s nominal-price-based expectations are in conflict.
“I think the majority here see it that way. Which doesn’t mean that clio’s nominal-price-based expectations are in conflict.”
No, the conflict is in his assumption of who is in fact “living in fools paradise.”
“I think there are a LOT of investors out there like me who are not happy – but are not in a panic to sell and cut losses.”
true but but not all investors are like you clio they dont operate with a big cushion, and thats the key. too many mini trumps leveraged their investments to a point they are one “oops” away from the man taking back their shyt.
we see this all too often and Crib chattererers see’s it more than other. its having that nice soft bed to catch you when you get cold cocked. your lucky and somewhat smart enough to have that bed. the numbers show that the rest are not.
plus even a 5%, according to your logic of mental and emotional aspects, the aggravation of being a LL still may not be worth the 5%.
gescob, As a fellow once Marylander do you mind me asking what Hopkins is doing in Illinois?
For the earlier comment about the 2% rise in taxes. I chose my home in Maryland over DC because of the 3-4 % dif in taxes.
I grew up in rogers park, CPS and all, did school out east at hopkins and harvard for grad school. Worked abroad for a couple years always with the intention of coming back to chicago and doing some public sector work, which i’m doing now.
I did two stints in DC area, once in rockville and then in Dupont circle, but both were as a short term renter
“For the earlier comment about the 2% rise in taxes. I chose my home in Maryland over DC because of the 3-4 % dif in taxes.”
Ind is 3.4 and Wisc is 4.6 to 7.75, so there isn’t the same spread, here.
And, you wouldn’t have chosen to live in Hoboken for 4% (not that that works).
“Ind is 3.4 and Wisc is 4.6 to 7.75, so there isn’t the same spread, here.”
I don’t know, but its a KO for the south burbs. Indiana also has a hard tax cap (now in the state constitution by referendum) of 1% of market value for homestead. Also, 7% sales tax (no county or city sales tax allowed.) And now, the 3.4% income tax doesn’t look so bad. There can be a county income tax but Lake Cty is only county in the state without one and Porter Cty is at 0.5% (some of which comes back in RE tax relief resulting in less than 1% RE tax rate.)
“I don’t know, but its a KO for the south burbs.”
Agreed. Because, in no small part, anyone who’d live in the south ‘burbs wouldn’t find living in Indiana all that different.
Of course, I think that, among even occasional posters here, that describes *exactly* no one.
Agreed. Because, in no small part, anyone who’d live in the south ‘burbs wouldn’t find living in Indiana all that different from living in the south burbs 20 years ago.
There, fixed that for you.
” one of them has rented the same unit for 4 years now.”
there goes 100k…no risk, just loss.
“No, the conflict is in his assumption of who is in fact “living in fools paradise.”
G- what is your problem with me? It seems as though your disagreements are more personal than factual. I would bet you pretty much any amount of money that a good house/condo in a good area is going to be worth significantly more in 10 years than it is today. What “significant”, I don’t know, but definitely at least 10-20% more (probably more). Again, by buying property for investment, you are hedging your bets – if people stop buying and property values go down, rents ARE going to go up. if people start buying, prices go up. Either way you are pretty safe. A sustained scenario of prices AND rent going down is just a dream.
“rents ARE going to go up.”
How are rents going to go up?
Because landlord’s tax burden just increased? So they’re going to transfer that increased cost to tenants? Or is it the roaring economy?
“Because landlord’s tax burden just increased? So they’re going to transfer that increased cost to tenants? Or is it the roaring economy?”
Both – come on Bob – you are smarter than that. Do you think investors or large companies businesses that own buildings are going to let these increased taxes eat into their profits? Of course not. As more people rent, rents ARE going to increase. This is something that affects EVERYONE.
“Both – come on Bob – you are smarter than that. Do you think investors or large companies businesses that own buildings are going to let these increased taxes eat into their profits? Of course not.”
Its called a surplus and its split between the business and their customers. The degree of elasticity determines how it is split.
Landlord’s won’t be paying 100% of this new tax, nor will they be paying nothing. With vacancy rates as high as they are now I’d think they’ll be paying most of it for the time being.
http://news.medill.northwestern.edu/chicago/news.aspx?id=141199
“Ames also has seen a dramatic drop in prices. A six-bedroom, four-and-a-half-bath house in Lincoln Park valued at $1.8 million rented for $8,750 a month in 2006, but fetched only $6,500 last spring. In some cases, apartment prices are also reduced. One of Wong’s clients was unwilling to pay the rent increase on his 800-square-foot $1,300 two-bedroom garden apartment in Bucktown.”
Bob,
come on – you can’t have it both ways:
if all of you insist that nobody is buying, well then they must be renting = more renters = more demand
if you agree that people are buying well then prices of real esate are going to go up.
The past 2 years were an anomaly because nobody knew wtf was going on and landlords/owners were willing to take less just to have their units occupied and get something (as their other investments and jobs may have been on shaky ground). However, as things stabilize, owners/landlords are not going to keep making these sacrifices and will raise rents (even if it means keeping a unit open/vacant for an extra month). Again, if more people rent (as most here seem to believe will happen) rents will increase and if more people buy (as I seem to believe) prices will increase. Either way, if you own a decent property in a good area now, things will likely be ok
“if all of you insist that nobody is buying, well then they must be renting = more renters = more demand”
No what you fail to understand is buying & renting are just perfect substitutes when you consider physical space. The current stock of housing units, is the number of units that have already been built (there’s not much new construction). So you have a pool of money willing to pay for housing in this stock. Some are owners some are renters–owners are just tied to the property financially.
Just because owners cost basis goes up in RE taxes doesn’t mean it will be transferred to renters. The pool of money available for renters to rent units isn’t going up. (And if someone goes from owner to renter that’s not a net addition because someone else just became owner).
“No what you fail to understand is buying & renting are just perfect substitutes when you consider physical space. The current stock of housing units, is the number of units that have already been built (there’s not much new construction). So you have a pool of money willing to pay for housing in this stock. Some are owners some are renters–owners are just tied to the property financially.
Just because owners cost basis goes up in RE taxes doesn’t mean it will be transferred to renters. The pool of money available for renters to rent units isn’t going up. (And if someone goes from owner to renter that’s not a net addition because someone else just became owner).”
Clio–Bob’s right on this. You may be right on where the trend is going, but Bob nails the fundamentals that will influence the trend.
“what is your problem with me? It seems as though your disagreements are more personal than factual”
No, you just seem to take my factual disagreements personally. Why is that?
“You may be right on where the trend is going, but Bob nails the fundamentals that will influence the trend.”
I don’t know – theory and reality are two different (and often opposite) things. The fundamentals that influence the trend don’t take into account the psychology of real estate. I know I sound like a broken record , but talk to people and you will begin to understand where I am coming from.
“The pool of money available for renters to rent units isn’t going up.”
Not true at all – people CAN spend more money on rent – they just choose other priorities. If your argument was correct, then NOBODY could afford a tax increase (because you could say “the pool of money available for taxes isn’t going up”) yet everyone will find a way to pay these increased taxes. Same goes for housing, gas, food, water. The pool of money available for rent will have to go up.
“yet everyone will find a way to pay these increased taxes. Same goes for housing, gas, food, water. The pool of money available for rent will have to go up.”
Nope. For taxes for non cash earners: the govt gets their take first. Its quite easier to collect over other things you mentioned so long as they’re documented & employed.
If taxes were going down that would increase the pool of money available to rent. But tax rates going up just means a smaller pool of money available to rent (remember govt gets paid first).
Bob – come on – you know what I am saying. Look at Manhattan – rents are astronomical yet people find a way to pay it (usually at the expense of going out/vacations, etc.). Rent just takes a bigger percentage of their paycheck. The same thing is going to happen in chicago. What other alternative is there?
“What other alternative is there?”
There are actually two.
Alternative 1: Rents going forward stay the same.
Alternative 2: Rents going forward decline from current levels.
“The fundamentals that influence the trend don’t take into account the psychology of real estate. I know I sound like a broken record , but talk to people and you will begin to understand where I am coming from.”
I understand where you’re coming from. And at some level of luxe, the psychology does become the dominant thing, but I don’t believe that in the realm of the 2/2 or 1/1 in a mid-amenity building that the *bulk* of the renters wouldn’t be willing to “trade down” if they can save more than $X (different for different people) per month. And that will ripple thru the market, with people at all sorts of levels paying less for less and sometimes less for more, but almost always in “lesser” buildings/locations. Perhaps everything you own is above that luxe-line, but if not, your ability to raise rents will be affected by the (current and likely to continue) excess supply and the attendant asking rent *decreases* by some segment of landlords.
Not to get off topic, but I often wonder what people are referencing when they talk about safe investments with a 4-5% return. They often list some blue chip stocks, like JNJ and excelon above. But even blue chip stocks get drug down by a bad market. Although they may come back, taking these huge 20-40% hits doesn’t seem very safe. Then there’s the 30 yr treasury at 4.5%, but that’s a long time. Can you get out of those very easily if the money was needed? Would love to hear some responses on this topic as I am tired of the 1.1% interest rate on my ING account.
If you are willing to go through the hassle you can get higher returns on smaller amounts via rewards checking accounts.
You need to do things like do an ACH into/from the account each month, use 10-15 debit transactions and log in once a month and you can get up to 5% FDIC guaranteed rewards checking. The thing is each account is capped on that reward anywhere from 5-30k so its not feasible for a large amount. Also they can change the terms whenever but that’s not happening as often.
Definite paperwork shuffle, but the highest guaranteed rates I’ve seen.
“Not to get off topic”
Ha! Funny guy.
As DZ points out, they aren’t *really* 100% safe, but, as compared to a cash purchase of real estate yielding a 20-30% lower rate, they certainly are.
On the 30-yr (or any) Ts–you can get out of them, but you have a capital risk there, too–what’s your 450 bip yield going to be worth to someone if inflation is 10%?
Bob and anon, thanks for the replies.
Because of the low cap they put on them, all of those rewards checking accounts aren’t worth the hassle. And although a treasury bill won’t decrease in value like a stock, I’m going to have to pay the price if interest rates/inflation goes up. Considering the 30 yr t-bill floated between 5-9 for 25 years before the financial meltdown, locking in 4.5% doesn’t make a lot of sense. How about those inflation protected treasury bills? They make any more sense?
I guess the moral of the story may be there is no free lunch. If you want more return, you have to take more risk. Although I’d say any of these are better options than a RE investment yielding 3%.
PS I don’t get the “Ha! Funny guy” comment.
“Although I’d say any of these are better options than a RE investment yielding 3%”
Don’t say that too fast. You don’t realize that there is probably going to be at least 3% appreciation/year. Also, in the meantime you don’t pay capital gains tax on rent. All said and done, your yearly return conservatively will probably be about 6% (of course if appreciation is more than 3%, your yield will be much higher). I doubt that it will be anything less than 3% in the next 10 years.
when i used to be on here all the time before I made myself too busy I used to say R/E felt like a -40/+10 risk reward investment… Clio right now I would say -20/+5 risk/reward.. wouldn’t get so crazy dialing in that 3% a year so quickly , I just don’t see the upside short term, still way to much to clear.
“Bob – come on – you know what I am saying. Look at Manhattan – rents are astronomical yet people find a way to pay it (usually at the expense of going out/vacations, etc.). Rent just takes a bigger percentage of their paycheck. The same thing is going to happen in chicago. What other alternative is there?”
salaries are much higher in NY. come on, is this the best you have clio? i have lived in the same 2br/2ba gold coast place since college graduation in 2006. my rent was $2100+250 parking, then 2000+250 parking, then $1800+250 parking, then $1750 incl parking. my lease is up in April. if i dont buy, i will demand another reduction or walk. im a great tenant and my landloard, who owns the unit as a 2nd property, doesnt want it vacant. i hold the upper hand in the situation. this isnt Manhattan.
signed,
someone who has live in NY
*landlord
jfmii – I think you have a great deal going for you – but don’t think it is going to last. As I said, investors have been a little shaky since 2008 and have accepted whatever they could to keep their units rented (as the vast majority have money that was being lost in the stock market). Now that the stock market has come back and the economy is improving, the fear and panic these landlords/investors had is slowly disappearing. Now, they can afford to wait and leave the unit empty for a couple of months to get their price.
I really am not pulling this stuff out of my ass – I regularly meet with several real estate investors (as a group as well as separately) and this is what I am hearing. ALL of them are expecting to raise rents. The panic is over.
jfmii – if you’re not making it up, you’ve got quite the deal. it is nearly impossible to find a ‘nice’ gold coast 2 bedroom for 1750 with parking…i’m shocked the landlord went that low, i searched for nearly 5 weeks and settled on a 1 bedroom for 1750 with parking – and trust me, i’ve yet to see a place nicer than mine for any cheaper…
The conomy improved solely based on unsustainable gov’t spending. Remove gov’t spending and you are looking at a serious GDP contraction that has been occuring. Not factoring that in is no different than taking out a loan, putting the cash in the bank, not putting the liability on your balance sheet, and saying your equity went up.
Just not acceptable way to look at things.
I have a rather more nefarious theory on all this but it involves taking advantage of the general ignorance of the average American, the devaluation of US/Western currency vs Exotic currencies and forcing mean reversion of the wage arbitrage between developing countries by causing wage inflation in said countries but truth is I’m a piss poor writer and it’s kinda complicated and would come out all convoluted. Needless to say it’s the bet I put on so I’d be talkin my position too (which I never do).
Riz – I have to agree with you – something doesn’t make sense. I have 4, 2/2s which rent for between 2500-3300 (w/o parking). These are in full service buildings – but I did a quick search of 60611 and 60610 and couldn’t find any decent 2/2 for less than 2000 w/o parking.
Clio, in agreeance. I took a gander myself and found nothing in the gold coast in that price range.. Even my friends renting in crappy apartment buildings on Dearborn are paying ~2200 with parking.. And there places are awful.
Jfmii if u walk, your landlord should be able to rent a 2/2 with parking for 2k/month easy if it’s not a dump. I’d stay put if u was you.,
i really think the reason ive been a ble to get a good deal is 1) they dont want to carry the vacant apt; 2) theyve never had to put money into while i was there for maintenance, etc; 3) my rent has never been late, im basically a landlord’s wet dream. there are other people trying to rent similar units in the building for 1900 w/o parking with no bites. the key is renting from someone who is carrying two mortgages and isnt a “professional landlord.”
i don’t think paying rent on time and the landlord not having to make any maintenance is anything special..let alone a wet dream. i qualify for those categories too but my landlord would probably crack up if i asked for a 250 dollar reduction each year.
jfmii – how do you know your landlord isn’t just stringing you along, pocketing your money and not paying the mortgage? Your landlord is likely hemorrhaging money (given the 2 mortgages and continued rent reduction) – Something sounds very fishy – I wouldn’t get too comfortable or used to paying such a low amount. Don’t mean to spoil your evening- it is just better to have your eyes open to what is happening.
i know what he paid, what his likely monthly nut is after taxes and assessments. im not in an Astor st mansion but it is a decent place. it is a case of an average joe who bought in the early 2000s, moved up and rented out the old unit. since the mkt has gone way down, he cant sell. he continues to rent it out and any month it is vacant is a check he has to write. before my last lease was up, he had the place im in on the mkt for rent and only got a couple bites. there are other units for rent in the building and he would be competing with all them. so if the apt sits on the mkt for 2-3 months is giving up $3500-5250 out of his pocket. even if my rent goes down by 3k, he is still coming ahead. i know this is how he was thinking when he finally agree to my price.
jmfii – how much money is he losing per month? how do you know he isn’t advertising it now as available in April? I don’t know any investor who, at the current time is going to continue to lower rents. Again, in the past 3 years, things have been shaky and many investor/landlords didn’t want to take the risk of leaving a place empty (job and stock and real estate market uncertainty) – but those days are gone (or going), investors are more confident and more people are renting. I wouldn’t push your luck or you will be out on your ass.
Im looking forward to browsing the mls in April for a new apartment. Can anyone recommend a good website for this that will help me get a jump on new listings?
I actually agree with Clio on this one. Don’t get greedy with your current landlord or you will be moving.
Clio,
I still see prices dropping another 12-18 months in Chicago.
I actually just upped my rents in Humboldt Park by 50 per unit in January. I am underwater on the mortgage by about 25k (put 20 percent down in 2006) but still have slightly positive cashflow. I wish I had not bought but like many others I am making the best of a bad situation as selling in this current market or walking away are not options for me.
I actually like 33w ontario and looked at a couple of units 2 years ago but the assessments are a killer. Pretty soon the prices will be like 10e ontario, another american invesco property.
Does anyone see a time coming when assessments and taxes for these 2/2 units are at or more than the rents? This would make the units nearly worthless to me.
“Pretty soon the prices will be like 10e ontario, another american invesco property.”
I think there are 2 important differences between the buildings:
1. 33 w ontario is a much much newer and nicer building
2. 10e has mostly 1 bed/1 bath units – never a good thing. Very few 2/2s while 33 w ontario has only a few studios and 1 beds but has many 2/2 , some 3/2 and 3/3s and townhouses.
“Does anyone see a time coming when assessments and taxes for these 2/2 units are at or more than the rents”
No – rents will increase accordingly and if people want to live in that area then they will have to pay the increased rents. It actually is amazing how much money people can come up with when given a choice of living in a really nice rental vs a crappy one. I have been surprised. Again, look at NY – people just have to adjust their expense ratios (and spend a little more on housing) – no landlord or business is going to consistently keep rents low and lose money – maybe for a year or two, but the buck DOES get passed on to the renter.
Any commercial property managers lurking? I ran some numbers years ago on Class B,C Loop office buildings and RE Taxes and OpExpenses (similar to assessments) were combined near $18 psf and NNN rents weren’t much higher, say $20 psf, then subtract Capex (TIs, Leasing commissions) and your weren’t netting much. I wonder how office building proforma today? are lowered rents nearing (increasing) RE taxes and expenses again?
“Does anyone see a time coming when assessments and taxes for these 2/2 units are at or more than the rents? This would make the units nearly worthless to me.”
Is 2bd Unit 41F currently at 299K still available?
“Does anyone see a time coming when assessments and taxes for these 2/2 units are at or more than the rents? This would make the units nearly worthless to me.”
Oh if I only had $1 for everytime I tried to explain to someone that your cost basis is not a floor for pricing, how far it can be violated, and for how long it can stay there. Oh if I only had another $1 for everytime they refused to listen.
“I ran some numbers years ago on Class B,C Loop office buildings and RE Taxes and OpExpenses (similar to assessments) were combined near $18 psf and NNN rents weren’t much higher, say $20 psf, then subtract Capex (TIs, Leasing commissions) and your weren’t netting much.”
You do realize that NNN means *net* of taxes and most other expenses, right? That if NNN rent is $20, and taxes/utilities/etc is $18, then the Tenant is paying effective total rent of $38? So, before capex, the net rent is $20 psf in your hypo.
Also, I highly doubt that a Loop C-building was getting NNN rent of over $20 psf for office space for anything other than a *very* brief period–retail is a different issue.
“PS I don’t get the “Ha! Funny guy” comment.”
I hadn’t noticed that we’d stayed “on” topic, so I found it funny you were apolgizing for going “off”.
“Oh if I only had $1 for everytime I tried to explain to someone that your cost basis is not a floor for pricing, how far it can be violated, and for how long it can stay there. Oh if I only had another $1 for everytime they refused to listen.”
Boy, you’re out of it ze–there are *literally* 1000s of people just *dying* to spend 40% of their gross income to rent in prestigious buildings like 33 W Ontario, and so the LLs have all of the pricing power going forward.
Really, if any of the junior Trumps here want a reality check on Ze’s point, seek out folks who run small-time, class-b/c *commercial* real estate companies and ask them if prospective tenants will pay more *simply* because their costs have gone up, and whether costs *ever* serve as a floor for market rent. You will find that there are times (rare-ish, yeah) when a LL will cut a deal that results in net rent (between TI and free rent allowances) being less than zero, just to get a good tenant into a space and have them paying most of the taxes, etc.
“I hadn’t noticed that we’d stayed “on” topic, so I found it funny you were apolgizing for going ‘off’.”
Got it, good point.
anon.. or go to Miami… now I’m off to play cowboy for 3-4 days!
Peace to all!
“anon.. or go to Miami”
But that’s just an aberration compared to the long and repeating track record of such things with commercial/industrial space.
Speaking of commercial RE, I was talking to someone who claimed that the commercial RE market is going like gangbusters, and I wondered about that. The catch (to me) was that they said that most of the business was done w/ non-US buyers (which made me think this wasn’t exactly a reason to cheer; seems like selling off the USA piece by piece to me.)
What’s “commercial RE”, anyway? In a nutshell? I’m seeing above “Class B” and so on. I assume that’s different “use” designations?
“Speaking of commercial RE, I was talking to someone who claimed that the commercial RE market is going like gangbusters, and I wondered about that..”
Wow – I know nothing of commercial real estate but I DID hear that it was the next bubble to burst (1-2 years). I have not idea. Anyone?
“I highly doubt that a Loop C-building was gettin NNN rent of over $20 psf for office space for anything other than a *very* brief period.”
Call it gross and it’s still true, effectively speaking. Decent C bldgs today go begging at $16 gross ($7-9 net.) My recent 3 yr renewal is 25% less than prior 5 yr, which was 33% off the renewal proposal from the previous B+ a couple bldgs away.
Commercial RE is dead, just like residential. It just busted later.
We are still laying off CRE lenders and those who are left are mostly working as workout officers. And we are a conservative bank, much better off than most.
CRE is becoming a situation where SBA is one of the few games in town as they will be next month able to refinace property up to 90 percent LTV. I look for 75 percent LTV when I finance stuff conventionally. CRE is way off from 2007 values (the peak) and I expect it to bottom in another year after dropping another 10 percent. Many values are off 40 percent from 2007 highs.
I had lunch yesterday with a large plumbing contractor and he said they are bidding a lot of work on apartment buildings but does not expect much new construction on condos for years.
I am meeting the principal of large structural engineering firm this morning at 10am. They are really hurting as work is really down. I used to bank these guys a few years back but my guess is once I see there numbers the best I will be able to do is “keep in touch.”
The market for new construction condos is dead. I think people looking to buy should be wary of skyhigh assessments.
For 33w ontario you need 1700 rent (taxes, insurance, assessments) just to break even if you are paying cash.
Clio,
You are getting 2550 rent for your unit and you net 800 by my math. I do think values will go up over the next 10 years but not until falling another 10-15 percent over the next 12-18 months.
At bottom, I think your 386k priced d unit may be worth 275k (this unit is going for 320k). It will be 2015 before your unit is worth what you paid for it in 2003.
humboldt1 – I think that is pretty accurate – which is why I won’t sell for another 5-10 years.
“1) they dont want to carry the vacant apt; 2) theyve never had to put money into while i was there for maintenance, etc; 3) my rent has never been late, im basically a landlord’s wet dream.”
sorry i qualified for that title when i rented. i actually did all my own maintenance on my apartment and at times wouldnt even charge my Landlord for materials.
one apartment i was bored one winter and updated the vanity, water closet, lights and only gave him the receipts for the big stuff. he never had to worry about me calling at 3am about a leaky pipe because if it was easy i would just do it my self and if it was in the wall hard im smart enough to just shut off the water and call him on my way to work.
and when my lease was up, i think i told the stories before, my LL would offer my crazy azz shyte to stay. tickets to shows/games offering to pay my util’s and keep the rent the same, offer me a bigger unit in another building for the same price and with util’s included.
but i would move anyways not because i didnt like the guy/gal or the place i would just want a change of scenery.
Assessments are one reason why town homes and single family homes are just more attractive to me or at least why I stay way from high rises. The general monthly maintenance on my home can’t be much more than $500 between internet, utilities, and lawncare.
The assessments on a unit with the same square footage as my house in a highrise would probably come close to exceeding my mortgage payment.
The upkeep on these large buildings is very very expensive and way too many people don’t factor in assessment increases when thinking about the carrying costs of their unit. Pools, doormen, business centers, entertainment rooms, etc all sound nice, but someone has to pay for that stuff. The reality is that most people rarely use them.
“Call it gross and it’s still true, effectively speaking.”
Just solidifying the point.
“What’s “commercial RE”, anyway? In a nutshell? I’m seeing above “Class B” and so on. I assume that’s different “use” designations?”
Anything that no one lives in. Some stuff that people live in, depending on who’s talking. Nothing that is owned by the people who live in it. Anything from a McDonalds, to a strip mall, to the Sears Tower, to a nuclear power plant.
“Class B” *typically* refers to office space. The brokers will tell you it has a specific meaning–that’s crap, as I’ve officed in “Class A” buildings that were overall worse than some “Class C” buildings I’ve been in. Mainly, it’s a function of the type of tenant and the market rent for the space–I think the sub-$15 psf effective rent that the Amoco Building has drawn from certain tenants at certain times in the past 2 decades belies it’s status as a Class A building, but I don’t have *that* much company.
“Oh if I only had $1 for everytime I tried to explain to someone that your cost basis is not a floor for pricing, how far it can be violated, and for how long it can stay there. Oh if I only had another $1 for everytime they refused to listen.”
“The market can remain irrational far longer than you can remain solvent”*
*Unless your clio
Thanks anon- i learn something new every day on here!!!!
Clio, can you deduct assesments from income taxes if its an investment property? While high assesments are definitely a big killer for owners I was under the impression they dont affect investors as much
“can you deduct assesments from income taxes if its an investment property?”
Only from your passive activity income, not your OI from wages. And, that is considered in the “cashflow” anyway, either you have (in clio’s example) $800/month of income, net of deductions, or you have $2550 of income, with deductions for the taxes and assessments, making the taxable income $800; can’t double count.
I meant $20 gross rents.
So, if the NOI is $5 psf, how can they pay debt service????
“You do realize that NNN means *net* of taxes and most other expenses, right? That if NNN rent is $20, and taxes/utilities/etc is $18, then the Tenant is paying effective total rent of $38? So, before capex, the net rent is $20 psf in your hypo.
Also, I highly doubt that a Loop C-building was getting NNN rent of over $20 psf for office space for anything other than a *very* brief period–retail is a different issue.”
“So, if the NOI is $5 psf, how can they pay debt service????”
x (say) 200,000 sf = $1mm. If they paid over ~$10mm for that building, they just mail in the keys/file BK the day after the personal guarantee expires. Or, more likely, they work out a DiL and get a release of the guarantee, possibly along with giving the bank some $$.