Chicago Market Conditions: Will Starter Condos Ever Again Be Built in the GreenZone?
In the decade before the 2008 housing bust, thousands of “starter” condos were built in the GreenZone neighborhoods of Chicago.
By “starter”, I mean they were condos ranging in prices from $150k to $400k and ranged in size from studios to 2-bedrooms.
Since the bottom of the bust in 2012, nearly all the new construction in the GreenZone has been “luxury” including new brick 3-flats in Lincoln Park and Lakeview where 2/2s start at $500,000 to 3-bedroom and 4-bedroom family units in River North, Streeterville and Gold Coast high rises.
Even new townhouses are priced above $500,000 now.
And while new construction luxury buildings keep getting announced, today, Crain’s reported that one of the new condo developments that had been a condo building at 2 W. Delaware in the Gold Coast, then went to apartments, then were being sold again, are now going back to apartments.
From Crain’s:
A venture led by Letchinger bought more than 150 rented condos last year in the high-rise at 2 W. Delaware Place, a project that stalled after the crash. With the condo market rebounding, Letchinger planned to renovate the building and sell the unsold units at prices ranging from $715,000 to $4.4 million.
Now, after selling just nine units, he’s changing course. With tenants willing to pay sky-high rents to live in the building, Letchinger plans to keep renting out the remaining 144 unsold units, some at more than $10,000 a month.
“While we would love to sell them, it’s just the path of least resistance,” said Letchinger, president of JDL Development. “From a pure economic standpoint, it doesn’t make sense to sell them.”
Though the downtown condo market is healthy, it’s not booming, and JDL and its partners, Norridge-based Harlem Irving and New York-based Angelo Gordon, ultimately decided it made more sense to swim with the tide than against it.
“There’s just not a lot of velocity” in the condo market, Letchinger said. Though traffic at 2 W. Delaware’s sales center was good, “there’s not a lot of depth to the market.”
Letchinger’s JDL is the developer behind the nearly sold out 70-unit No. 9 Walton that is going up next door to this building. That’s also a luxury building.
There are also numerous other luxury high rises currently being built including One Bennett Place and the Wanda Vista.
The Vista has 406 units and is, I’ve been told, about 45% sold. But even with that sales rate, that still leaves over 200 units that are priced at $1 million+.
2 W. Delaware has 198 total units. Some will remain condos while the others will be apartments (again).
But for those hoping that the over building in the apartment market would ultimately result in some apartment to condo conversions, hopefully at lower prices than the $1 million price point, are their hopes now dashed?
Are the days of starter condos in the GreenZone over?
And is that just a normal development as Chicago becomes a more successful city?
Developer aborts condo sales at Gold Coast tower [Crain’s Chicago Business, Alby Gallun, October 18, 2017]
There were a few new condos listed in the south loop in the past year that were starter condos. I think it was 1333 Wabash or something similar. That said, increased land prices and construction costs, rabid NIMBYISM that forces developers to delay and Shrink their plans, along with much higher property taxes have forced developers to cater towards the luxury market to score a profit.
2 W Walton is a very bad example of the luxury condo market for $1M+ condos. I toured a few of these condos about 2 months ago. I wouldn’t spend the money on a condo in this building. The hallway floors are not level there are slight slopes and bubbles that you can feel under the carpeted hallway. Albeit, you can’t really tell inside the units since it is overlaid with hardwood flooring. The layouts of some of the units are weird since some of the larger units were made by combining two smaller units. The amenity pool area was still under construction when i visited. Most of the units were still under rehab, taking out the rental-grade cabinents, repainting, redoing floors, re-configuring units/walls. In this state and at this price point (very over-priced, rehabbed 2-bedrooms were $1.5M to $2M), and with the more luxurious and new condo under construction right next door for about 20%-25% more in price, i would rather just buy next door.
Yeah I was wondering if those condos at 1345 s wabash ever sold, I’m sure they did they were pretty affordable… but when you make something new and affordable people bitch about “oh the floorplan sucks” “oh the finishes are basic” “oh the location isn’t pristine” so people want their cake and to eat it too, no wonder these attention span deficient millennials are renters
A condo purchase requires a stable life. Stable job. Stable relationships. Stable finances.
Millennials don’t have that life.
Back in August I did a review of new condo construction over the previous 12 months. I broke it out by community area and then mapped them all with color codes by price. Yes, the new starter condo is dead in the green zone. Here is the analysis: http://www.chicagonow.com/getting-real/2017/08/new-condo-construction-in-chicago-hottest-neighborhoods-of-2017/
This post REALLY hits home. Yes many millennials are not stable, nor have the funds for a deposit, but enough do that this conversation is relevant. I’m looking to spend $350K and my options are quite limited for a large 1BR with a highrise balcony view, living room space for an office setup or den, and either no gym or a kick-ass one… of course in the greenzone.
Living in a 70-80ss style building is not appealing to me and spending 750K is unreasonable. After much analysis I’ve decided on a 10-tier unit at Grand Plaza over a 12-tier at 340 Superior. Most have shit finishes, but that’s great as I want a blank canvas. You can upgrade your unit, but you cannot upgrade your location / view.
It’s interesting that the developers are finding renting more profitable than selling. Speaking as someone in the market for a higher amenity 500-600 thousand condo or coop, renting is better than buying for most of the units I’ve considered in the Green Zone. I use the New York Times rent vs. buy calculator that lets me play with a lot of variables, including opportunity costs. Even being extremely conservative with all variables (4% investment return, 1% value appreciation of unit, 1% rent growth) it always turns out better to rent, unless I’m planning to live in the unit for 20 years. If I were willing to put down a smaller down payment, the results would be a little different, but not enough to make buying a significantly better option. It does seem like, at this end of the market, condos and coops are overpriced compared to renting right now. Could that be why 2 Del isn’t selling? And is this situation sustainable?
I believe that if you assumed a higher appreciation of prices and rent you’d see that buying makes sense with a shorter and shorter horizon. We’ve actually been getting 3 -4% and we’re at the bottom of 20 metro areas.
There could also be an asymmetry between landlords and renters/ buyers if the landlord’s time horizon is longer.
“Will Starter Condos Ever Again Be Built in the GreenZone?”
Only if GenZ wants to buy them.
By its very definition the “GreenZone” will never include “affordable” housing.
“A condo purchase requires a stable life. Stable job. Stable relationships. Stable finances.”
Really? The Millennials aren’t stable?
A big chunk of them have started work in one of the best job markets in 20 years. It’s so good some are demanding $20,000 raises and if they don’t get it they’re walking.
They have never known a down stock market.
They have never known falling housing prices.
Except for those who graduated high school or college directly into the recession, which would make them about 32 years old, the rest of them have had it really good.
I don’t think the majority are asking for and getting large raises. That may be confined to a small subset of fields, but not to people as a whole. Average office workers in sales/marketing/operations/design/general management/IT (non-developers) are not getting large raises. I’ve noticed that it’s really easy to get interviews in this market, but a lot less easy to get an offer. I’m told that I interview well and that the hiring managers are impressed, but so far, I haven’t gotten an offer. From what I’ve seen, companies give in-person interviews for 5-8 people. The whittle it down to 2-3 people and then ask those people to give a presentation. So far, someone has always beaten me out and the feedback I get is that I was fantastic, but the person they chose had X experience that I didn’t have.
Some of my older friends are having trouble getting interviews at all or aren’t asked back for a second interview. Workers with specific technical skills are doing very well because there are shortages of those workers. There are no shortages people such as teachers (I know several who had to go into other fields because they couldn’t get a teaching job), lawyers (I know some who desperately want to go in-house and can’t find anything), managers (I know several, like me, who just want to move to a different company), graphic designers (most I know make very little money and were grateful to find anything), and HR workers (I had one friend who was unemployed for over a year and had to take a pay cut and a title cut to get back into working).
“A big chunk of them have started work in one of the best job markets in 20 years. It’s so good some are demanding $20,000 raises and if they don’t get it they’re walking.”
^ this is horse shit
“From what I’ve seen, companies give in-person interviews for 5-8 people. The whittle it down to 2-3 people and then ask those people to give a presentation. So far, someone has always beaten me out and the feedback I get is that I was fantastic, but the person they chose had X experience that I didn’t have.”
A few of my friends have gone through this same tedious process only to be told that the company decided to hire an internal candidate. I think companies have to protect themselves these days by going through the charade of interviewing external candidates just to show that they were being fair when all along they have someone in mind for the job.
“^ this is horse shit”
Nope. One of my 33 year old colleagues just got a new job. It pays her $20,000 more a year. She went to her boss, said, “I’ll stay if you match it” – he could not so she left. Worked with us for 5 years. Is on the tech side (where the job market is super hot.)
Look around at the job openings. Morningstar is trying to hire dozens of techies. It can’t find enough people. That means only one thing: they have to pay more to get them. And who are they getting? Millennials as they are aged 20-36.
“There are no shortages people such as teachers (I know several who had to go into other fields because they couldn’t get a teaching job), lawyers (I know some who desperately want to go in-house and can’t find anything), managers (I know several, like me, who just want to move to a different company), graphic designers (most I know make very little money and were grateful to find anything), and HR workers (I had one friend who was unemployed for over a year and had to take a pay cut and a title cut to get back into working).”
Jenny- your examples are hilarious.
I know some teachers too. They left Illinois and got a job instantly in the cities/states where thousands of people a month are moving (Florida, Texas, Arizona etc.) They couldn’t even get job interviews in Chicago or the suburbs. Too many teachers here.
As for lawyers who want to go in-house. That cracks me up. It has been like that for 50 years. In house gigs are rare. I knew a lawyer who literally would have a google alert on “general counsel” and “death” so that she could apply for inhouse jobs across the country (yes- you’re not likely to get one in Chicago. You have to be willing to move to, say, Bentonville, Arkansas to work for Walmart.)
Graphic design IS a tough field. Depends on your city.
For instance, it’s nearly impossible to get a job in social media in New Orleans or Denver. There aren’t enough of those jobs there. But move to NYC, Chicago, San Francisco or LA and your odds go way up.
It’s the best job market in 20 years. The number of quits is at its highest level since 2007. That means they’re able to leave and go somewhere else. Millennials have their choice. Heck, many companies can’t even get interns, even though its paid, because competition is so fierce.
But yes, the hot job market isn’t the same in every profession and in every city. It has never been, even in 1999.
“A big chunk of them have started work in one of the best job markets in 20 years. It’s so good some are demanding $20,000 raises and if they don’t get it they’re walking.”
“Nope. One of my 33 year old colleagues just got a new job. It pays her $20,000 more a year. She went to her boss, said, “I’ll stay if you match it” – he could not so she left.”
Maybe this is very specific to the utra-competitive tech industry, but it would seem the work relationship would be extremely strained if a boss was ‘forced’ to match offers all the time–very odd. In general, most of my friends have been moving ship every 2-3 years (mostly in finance) to get a $10K jump.
“Except for those who graduated high school or college directly into the recession, which would make them about 32 years old, the rest of them have had it really good.”
Agreed that there is a vast difference between a 30+ yo Millennial & a 22 yo one. I recall interviewing at PwC the day of the 700B bailout. That year EY, one of the B4 firms, didn’t hire for any entry positions in Chicago.
Currently as the market is strong it makes sense to look for new roles all the time just in case something clicks.
“most of my friends have been moving ship every 2-3 years ”
Exactly what I see – Millennials who have never held a job more than a 2-3 years. That’s not stable. Those people are not buying condos.
“Exactly what I see – Millennials who have never held a job more than a 2-3 years. That’s not stable. Those people are not buying condos.”
Are they switching cities? Then yes, they aren’t buying condos (and shouldn’t be.)
But if they’re staying in Chicago, this is actually quite common. Haven’t they said the average worker will change jobs like 8 times in their lifetime? So I’m not surprised if someone is 25, works somewhere for 3 years, is now 28 and leaves for something better etc. etc.
Especially in a really hot job market, like we have now. The quit rate was equally as high in the late 1990s.
“Maybe this is very specific to the utra-competitive tech industry, but it would seem the work relationship would be extremely strained if a boss was ‘forced’ to match offers all the time–very odd.”
Not really. Not at all.
We had another tech guy, but he was in a really hot area about 6 years ago, who used to go in and ask for a raise every 2 weeks. Literally. Every 2 weeks. He threatened to leave if he didn’t get them. The company gave him some of them but eventually it became outrageous so they told him, “good luck out there” and he left to make more money somewhere else.
One of the big law firms just gave associates big bonuses to stay at the firm and not leave with a group of partners who was trying to take them. These are in addition to their regular bonuses. These were “don’t leave us” bonuses. I haven’t heard of anything like that in 20 years. There have been too many lawyers for decades but maybe that is ending.
Employers get desperate if they have a skilled employee that will be hard to replace tries to leave.
“Exactly what I see – Millennials who have never held a job more than a 2-3 years. That’s not stable. Those people are not buying condos.”
Agree with what Sabrina noted. You are NOT stable when you’re forced to switch jobs (fired, etc.); however, if you decide to in order to advance faster, you are both stable and smart. The issue is committing to a city. Two years ago I looked at jobs in NYC, London, etc. but at this point (unless a unicorn job appears) I will be staying here and will thus invest.
On another note, most people here would scoff at my choice (a 900sqft 1BR in Grand Plaza), but would not understand how well it fits in lifestyle (best location, top gym, $$ in free parties, and arguably the most important–a great group of owners / renters alike). My comparison spreadsheets of 50+ places (even out of the Greenzone) are laughable at this point, but I love data gathering and analysis haha.
…
“Employers get desperate if they have a skilled employee that will be hard to replace tries to leave.”
Very interesting. On the other hand, I also know people that got laid off from their 200K jobs and have been looking for 9 months.
Coming in every too weeks asking for more is quite brazen, I love it. The legal one makes a bit more sense to prevent a spinoff meltdown.
I think the biggest issues that 28-32yo’s that make 100K+ aren’t buying not is more so due to the shit inventory. It’s either 1M units or old units. With $2500 in rent you can pick about a dozen buildings built in the last year or so in RN with kick ass amenities (most better than every condo highrise in the city, unless you want to overpay for Aqua).
Hence what are your options in RN let’s say,
1 Ontario (solid gym, dated buy okay pool deck, no in-unit, lots of renters, investco finishes)
Sterling (also investco, much nicer deck now, shit shit gym, zero social scene)
400 LaSalle (similar to Sterling, but with a better pool deck and party room, even closer to the Moe’s puke-fest)
Silver Tower (overpriced now, too close to highway, laughable gym)
225 Huron (deck view sucks now, almost no in-units, odd layouts, low light)
757 Orleans (worse location, joke pool, very joke gym, overpriced now)
150 Superior (no amenities with high HOA, minmal views)
30E Huron (no balcony, old-school ac, no in-unit)
340W Superior (my second choice, amazing SE views, high ceilings, great 1+den layout in ’12 tier’, girl-level gym which would still require an FFC membership though, and a small but beautiful sundeck… I heard they also have a chunk of subsidized housing which impacted my decision)
Also looked at 2E Erie, 200 & 300W Grand, 630 Franklin, 400 Ontario, 435 Erie, 451 Huron, hell even the Sexton or w/e). Ugh, sounds like a ramble, but it is frustrating to see such an ‘options gap’ in the second largest urban core in the country.
Does Rob spend more or less time in the gym than Brad F on the tennis court? And how do they compare in other respects?
“managers (I know several, like me, who just want to move to a different company)”
jenny, what do you manage? I know a couple of people quite well who are project managers, or maybe part time project managers. I really have not idea what they do.
” I also know people that got laid off from their 200K jobs and have been looking for 9 months. ”
This is because $200,000 jobs are difficult to replace in any economy; and there’s always some other candidate who currently earns less and wants that promotion. Heck, only 1 in 20 households in the entire state earn $200k combined (https://statisticalatlas.com/place/Illinois/Chicago/Household-Income for you who want to check my fake news sources).
I know a guy who interviewed extensively for a job that should have paid $150-$175k a year. That’s what the position and title pays at other comparable companies. So, after the final interview, after flying him to the east coast, for a job in the sunbelt, they offered him 10% above what he was currently earning, which was tens of thousands less than his current salary and would require a move. Heck no he said. And now the company is back to spinning its wheels looking for over-qualified talent that will work for less than market price! Good luck with that search.
IT in Chicago has always been short on people. In my field jobs can linger unfilled for well over a year. I got an offer from Citadel and the total comp came to around $300k. Every time I switch jobs, I’ve been able to get $20,000+ jumps between them.
And yes, just when we think we’ve finally found someone to fill the job. They email us the day they’re scheduled to start saying that they accepted a better offer elsewhere.
In NYC I’ve been tempted by total comp as high as $750k.