Crain’s Confirms: Burnham Pointe To Go Rental
As we talked about earlier this week, it appears that Terrapin is trying to convert Burnham Pointe in Printers Row into a rental tower.
At Burnham Pointe, the question is whether a buyer will be willing to pay more than the roughly $98 million, or about $327,000 a unit, that Terrapin borrowed to finance the project. HFF has not set an asking price, but sources say the broker is aiming to sell the property for about $110 million, or $369,000 a unit.
The building will have high-end finishes for a rental property, including granite countertops and stainless steel appliances, which could allow a new owner to charge high rents. But the only pure downtown apartment building to sell for more than $300,000 a unit last year was the Streeter, a luxury high-rise in Streeterville that sold for $210 million, or $437,000 a unit. And the real estate investment market has gone south since then, as skittish lenders have curtailed their lending.
“If they’re going to get a deal done in today’s environment, it’s going to take a lot of creativity from both the buyer and seller,” says Mark Stern, senior vice-president of acquisitions at Waterton Associates LLC, a Chicago-based apartment investor. Mr. Stern says he doesn’t plan to bid on the property.
How high of rents do you think someone can charge for this South Loop location?
Many investors are renting out similar units in nearby buildings, including The Vetro. I’ve seen one bedrooms renting in that building for $1600 a month– which is far below what The Streeter charges in Streeterville.
Terrapin Seeks To Sell Condo Project to an Apartment Investor [Crain’s]
For this location my guess is for studios: $1250, 1brs: $1400, for 2/1s: $1800, for 2/2s: $2000. Add another $200 per car for indoor, heated parking.
Already 1620 S Michigan shows cheaper rents than that all over craigslist, however this is a better location.
There are no studios in the building. Of the twelve units per floor, it breaks down to this:
Four 2-bed 2-bath
Two 1-bed 1.5 bath w/den
Four 1-bed 1.5 bath
And only two 1-bed 1-bath.
All the units are above average on finishes. There are only two units below 900 sq ft per floor.
I could never understand why this building didn’t do well… The finishes were very nice, the prices were very reasonable and the location is fantastic. One block from the heart of Printers Row. There was a lot of bang for the buck here… (Which is why I bought into it.) I hust hope a renter enjoys the upgraded electrical I fought (and paid) so hard for.
see you in bankruptcy court.
***I could never understand why this building didn’t do well… ***
only so many singles/childless couples/empty nesters want to live in the River North/South Loop condo belt.
classic case of too much supply making it tough even for better developments.
maybe if their sales center was open, they could sell condos in the building. the sales center on polk has had a stop work order on it for months.
Trepidatious:
What percent of the units were sold? If the units were such a great deal (and I tend to agree with you, the prices here were pretty attractive), it seems plausible the developer underpriced them and thus blew the financials for the whole project by eliminating the profit margin – even if it sold well, an aggressively underpriced project will fail unless the developer is basically building it with cold hard cash.
The sales office opened in March of 2006. when I signed my contract in July of 2006, they were at 40% sold. As of this past month, they were only at 55% sold. So they sold only an additional 15% in 21 months. The prices had risen appropriately in comparison to the surrounding market (about 15-20% in two years), yet were still priced attractively. (Granted, its not likely that prices in the area will remain level when the huge stock of units becomes available this year and next.)
I think it was their failed marketing from the beginning. They never seemed to have a consistant message. Their print ads in the Trib kept changing and were often mashed together with their other projects in the same ad and had gimicky themes (because candy eqates ‘home sweet home’?), their website had two incarnations (the first version was pretty lame, the second one still has inacuracies) and lacked cohesion, and they were always moving their sales office making it hard to find them.
I am no expert at marketing, but if they had done a better job, I believe they could have had 75-80% under contract in the first year as so many other buildings in the area that began sales in 2006 did, then they would have been fine.
“blew the financials for the whole project by eliminating the profit margin” v. “building it with cold hard cash”
I don’t see how using cash would help w/r/t problems arising out of a 0% return construction project. The lender doesn’t care about the developer’s profit margin, only about repayment of the full amount of the loan. Lenders require pricing sheets that will pay back the loan and prohibit signing contracts (with very limited exceptions) for less than the pricing.
Only way I see a fundamental problem arising out a building that’s selling well is if the developer is violating his loan agreement somehow–one way would be throwing in lots of free upgrades to get contracts and misallocating loan proceeds (rather than add’l equity) to pay for the upgrades.
Well, looking at the bigger picture with Terrapin, it seems like the real problem was they had personally guaranteed a loan on a project that foreclosed in WI, so they had to come up with revenue quick. In this market, going rental is probably one of the only ways to do that.
I would imagine that with very few exceptions, many of the new buildings in the S. Loop are similarly stalled simply because buyers are waiting to see how things shake out with the condo market in general. (That said, I think that downtown Chicago is a different market than almost anywhere else in the country that saw a similar building boom, and will weather this pretty well, relatively speaking. I wish I could afford to get in on more of it.)
The building will have high-end finishes for a rental property, including granite countertops and stainless steel appliances, which could allow a new owner to charge high rents.
My rental building has granite counter tops and white appliances. Occupancy was 90%+. New owners came in and are “renovating” units when a tenant moves out – and adding stainless steel appliances. And raising rents. I would be surprised if occupancy were above 80% now. Three of the units on my floor have been vacant for more than 4 months now that the new renovation policy is in place. I’ve been in this building for 3 years now and it’s never been this empty before.
I think that developers need to come to the realization that when push comes to shove and people have to spend their own money on a place to live, granite and stainless are not worth as much as they (developers) think it’s worth.
Well at least the building will get built to spec. Its definitely nice looking and I will be one of the prospective tenets. Also this going rental will definitely add to the pain of flippers holding on in the area hoping to ride out the storm as it will put downward pressure on rents.
Look on the bright side Trep: you can have your cake and eat it, too. Why not rent your unit and count your blessings?