Crain’s Covers Foreclosures in American Invsco Buildings
Crain’s discusses the rate of foreclosure in many of the American Invsco buildings from 2001-2008 in this week’s issue.
Many of the issues are familiar to anyone who reads this blog: there are a lot of foreclosures in American Invsco buildings. We’re glad we weren’t the only ones noticing.
From Crain’s:
Eight downtown buildings developed by American Invsco since 2001 account for 57.7% of foreclosure cases on condos owned by original buyers in all 76 downtown condo projects of 175 units or more developed over the same period.
Lenders have filed 232 foreclosure complaints in Cook County Circuit Court against original owners of condos in the American Invsco buildings, compared with 170 suits on units in the other 68 buildings in the comparison group, according to the court clerk’s Web site. Expressed as a percentage of the number of condos developed by American Invsco, the rate of foreclosure cases at the developer’s buildings is 8.0%, far above the 0.9% rate for other downtown projects.
Part of the theory of why the rates are higher in these particular buildings goes to the incentive packages American Invsco has used to get buyers. In several buildings they had the “2-2-2” which was two years of free assessments, two years of free taxes, and two years guaranteed rent. Basically, if you were an investor, you only paid the mortgage and everything else was covered for the first two years.
But when the two year time period was up- what then?
We are seeing the results.
American Invsco, which has reviewed the foreclosure-suit data and conducted its own analysis, says in a statement released through its public relations firm that the Crain’s analysis creates “false and misleading impressions.” The statement says American Invsco’s analysis “presents a picture totally different from the one presented by Crain’s.”
For example, American Invsco argues that certain categories of lawsuits should be excluded and the rate of foreclosure suits should be calculated as a percentage of total units sold, excluding units developed but not yet sold. Using that approach, American Invsco counts only 147 foreclosure suits at its buildings, or 5.87% of total units sold.
Was it really too good to be true?
In January 2005, Mahesh Nair, 36, and his wife paid $398,500 for a two-bedroom unit and parking spot in a condo conversion at 440 N. Wabash Ave., borrowing the entire purchase price to finance their first investment in a downtown condo. American Invsco covered assessments and property taxes on the unit for three years and agreed to rent it back from the Nairs for $1,663 a month for the same length of time.
That wasn’t enough to cover the $2,700 monthly mortgage payment, but the American Invsco salesperson convinced the couple that they could flip the unit to another buyer or refinance it at a lower rate within weeks, Mr. Nair says.
It didn’t work out that way. The couple refinanced last year, lowering their monthly payment to $2,200. But their three years recently ran out, meaning they’re on the hook for condo assessments and property taxes and must find a tenant to rent the condo, which currently sits vacant. Now divorced, the couple put the unit and parking space back on the market at an asking price of $375,000, less than what’s owed on the properties. They haven’t made a mortgage payment since February and expect a foreclosure suit, Mr. Nair says.
“It was way too good to be true,” he says. “I should have detected this miles away.”
The article lists eight American Invsco buildings with Crain’s analysis of the foreclosure rates. We have chattered about all of these buildings:
- River City, 800 S. Wells, 58 foreclosed out of 448 units
- The Sterling, 345 N. LaSalle, 57 foreclosed out of 389 units
- Ontario Place, 10 E. Ontario, 50 foreclosed out of 468 units
- Millennium Centre, 33 W. Ontario, 22 foreclosed out of 457 units
- Plaza 440, 440 N. Wabash, 22 foreclosed out of 457 units
- Delaware Place, 33 W. Delaware, 14 foreclosed out 185 units
- Century Tower,182 W. Lake, 7 foreclosed out of 293 units
- 200 N. Dearborn, 0 foreclosed out of 309 units
Ontario Place started closings in 2005. I’ve been seeing a pick-up in the number of foreclosures on the auction lists in recent weeks.
200 N. Dearborn only started closings this year.
The article doesn’t include The New York, at 3660 N. Lake Shore Drive, in Lakeview, another American Invsco development where we have chattered about foreclosures and short sales. That building is not considered in the “downtown.”
More comparison:
During the time period studied for this story, American Invsco buildings led the market in foreclosure suits in all but one year, 2006. Lenders have filed seven foreclosure complaints against original buyers in a 249-unit condo project developed by CMK Development Corp. at 1620 S. Michigan Ave. that opened that year, for a 2.8% foreclosure-suit rate, compared with seven cases — a 2.4% rate — at 293-unit Century Tower, American Invsco’s only downtown project in 2006, at 182 W. Lake St.
At least one investor is suing American Invsco:
Richard Cohen, who bought 17 units in an American Invsco building at 10 E. Ontario St. in late 2005, has a different take. Mr. Cohen sued the developer in April charging that it rented his units back from him at an above-market rental rate, making the investment look better than it really was.
But when the incentive program expired earlier this year, Mr. Cohen started incurring losses exceeding $46,000 a month, or about $2,700 a unit, according to the complaint filed in Cook County Circuit Court.
The “scheme and deception was designed to enable Invsco to sell condominium units at Ontario Place at sales prices far in excess of their fair market value,” the suit says. American Invsco’s spokesman says the company doesn’t comment on pending litigation.
I urge all of you to read the excellent Crain’s article. There is great information on the foreclosure rates in the buildings and market conditions. As usual, it is Crain’s that has the best reporting on real estate in the city.
Trouble in the Towers [Crain’s June 2008]
What in the world possessed this guy to 17 units in the same building is beyond me.
The article discusses similar investor activity in River City (where one owner had a dozen or so units.)
Shocking! I can’t believe it! And to think I have always thought of American Invesco as cookies and apple pie.
American Invsco did a great job in marketing obviously. What scared me more than the “incredible deal” was that American Invsco buildings seemed more like hotels than residences.
Ethically sleazy (though not technically illegal) sellers + naive buyers reeking of innumeracy = housing mess.
Folks teach your relatives, kids, neighbors financial literacy.
I currently rent in 10 E. Ontario. Richard Cohen is an investor from Las Vegas and only bought units on the upper floors. I don’t know how all these people fell for this scam. I was approached several times by the hoards of American Invesco realtors about buying my unit. I said the math does not work and the only thing you have done is put marble and mirrors into the halls and flipped the units by by calling them “luxury condos”. These realtors knew exactly what they were doing but just looked at the investors as “food”.
On another note, the 2 bedroom/2 bath unit next to mine is on the market. It was purchased in January, 2006 for 542 K (parking included). He is currently trying to sell it for 645k with parking an additional 45k. Good luck.
This is all very funny to read from this distance. I guess I shouldn’t be incredulous that some Trump-wannabe from Vegas isn’t already buried deeply enough in Vegas stuff- he has to come here and help run the prices and later the bankruptcy and foreclsoure courts.
2005-2006 was the peak, so good luck to someone asking nearly 20% over the peak price. That 2bed2bath next to your rental will be lucky to fetch $400K.
This Las Vegas specuvestor is getting what he deserves. Did he do no research into local market rents? How anyone thinks they can become the next Donald Trump by renting out 17 condos for less than the holding costs is beyond me. And I don’t think he’ll have any luck with his lawsuit since the seller does not have any fiduciary responsibility to the buyer.
This IS funny from a distance. Like Hawthorne said families are always moving up and down in America. We’re a socially mobile society. Mr. Cohen is one of the ones on the way down quite quickly at 50k/month as well.
Thanks for running up our prices Mr. Cohen and ruining your net worth. This specuvestor/(investalator) is probably wealthy enough so that the bank won’t be left holding the hot potato here. He leverages himself to the wazoo and runs to the lawyers when the market turns against him. A judge is going to toss his lawsuit.
50k/month in losses? Sounds like Mr. Cohen should’ve hired a financial advisor at a fraction of this. Now instead hopefully he has enough left for a bankruptcy attorney.
I visited three of these buildings in search of a rental. I met with their rental staff, toured several units in each of the buildings. Told them I would be making a decision soon, and I would be in touch.
Well, I emailed or telephoned these agents, and I must say, for people sitting on vacant units, I’ve never seen such unresponsiveness. They don’t return emails asking for updated information on vacancies. They send incomplete information about floor plans and pricing. Of 10 emails sent, I received replies to three.
Their rental office agents do a horrible job. If I was an investor in one of those buildings, I would be raising hell.
“Richard Cohen, who bought 17 units in an American Invsco building at 10 E. Ontario St. in late 2005…”
But, but I was told that Chicago wasn’t driven by specuvestors? Was I lied to?
Of course there are no specuvestors in Chicago, Ken.
There also isn’t any HELOC abuse in Chicago.
I want to meet the guy who has the money to buy 17 units, but not the brains to say “hey…wait a minute…they might be inflating these rental rates!” It’s one thing if you bought one unit and screwed yourself – but to buy 17 and not do some research? I want to know the bank that approved this.
17 units at $0 down is about as costly as 1 unit at $0 down (and the set might be cheaper on a per-unit basis). You’ll get 17 times the profit when you flip in a few years! Plus, you need to diversify your Las Vegas empire — they have so few condo towers.
Robert,
The “rental agency” doesn’t care about renting. They are mostly used by American Invesco to get what rent they can during the two year incentive program and to show prospective investors that someone will be around to help rent their condo for them when their two year incentive package is over. Their major function is to help “close the deal”. I believe that when most of the incentive packages are over, the American Invesco Rental Agency” will fold up shop.
It isn’t that hard to pop over to craigslist and find out what apartments in a given area are renting for. You’d think someone would at least do that much before deciding to buy 17 places to rent out!
I have no sympathy for someone who makes a multi-million dollar financial decision and runs into a huge problem that would have easily been prevented by 15 minutes of research. You know what they say about a fool and his money.
I currently live in an American Invesco building as a renter. The employees here are lazy, dont care about you, and worst of all VIOLATE TENANT LAWS!
A little off topic, i was looking to rent in Millennium Centre, they have a $700 move in fee and a $500 move out fee. it was recently approved by the board, i guess they’re trying to deter renters.
i find it incredible that this company has been getting away with it for so long. obviously, they prey on unrepresented and inexperienced investors, but i’d like to ask any agents who represented buyers at one of these developments whether they feel they were worth their 2.5% commission.
Alex,
If you look back on this blog to a discussion about 10 E. Ontario held on March 18, 2008, you will find ” A lot of people were brought into these deals by agents who were attracted by the 3 or even 3.5% commission that they gave to the buyers agent”.
This should answer your question on what moivated the buyers’ agents.
Interesting about the move-in and move-out fees. What might that do to selling prices as the investors are no longer able to lure renters? Or will rents in those buildings fall proportionately?
The specuvestor might have to cover the move in/out costs for the renter as an “incentive” to get the place rented.
Didn’t Invsco also have the Loft project on Madison and Ashland that took forever to sell out?
You might be thinking of Loftminium World.
Invsco handled the sales on the conversion of about five or six loft properties (the majority were in the west loop but one was 1020 S. Wabash in the South Loop.)
These were converted in 1999-2001 or so. They sold quickly because they were original loft buildings that had been converted to apartments in the 1980s and 1990s and Invsco left all the original features.
In fact, many of those units still sport the original early 1990s bathrooms- as Invsco offered a kitchen “upgrade” (which was the same in every unit) but I don’t remember there being a bathroom upgrade available.
I worked for AI several years ago on a project. I did enjoy it there but once I realized what was really going on, I left.
The agents onsite did not receive much of the commission at all. Back then we received .5% of the 2.5%-3.5% and we were all independent so we still had to take out taxes and expenses and so on. I still keep in touch with some of my clients that bought and luckily some were able to sell prior to everything going down hill. Some are still stuck with these properties.
Agents that brought buyers to the buildings were the ones making the money 2.5%-3.5% and then some. I’m sure not of which was worth it now that the clients are probably crawling back to them begging them to help sell their units that probably will not sell for what they purchased them for.
I am so glad I left when I did.
Ha Richard Cohen did diversify. He bought about 20 or so in AmInvsco
Meridian Project in Vegas.
Cohen owns 20 units at the meridian, is true. The Trump wanna-be is Nick Gouletas from American Invsco.
Check out what is going on at his condo conversion in Vegas.
http://www.lvrj.com:80/news/29875789.html
I’ve been reading comments on this site for sometime and have been learning a lot and enjoying getting to know some of you. I have a few questions that I’d appreciate the regulars to answer.
1) How do you find out who developed a building?
2) How do you find out if a building was owned by American Invsco or a similarly run company?
3) When it comes to buying an REO, how will property tax calculations be made? Based on the new purchase price, the previous exorbitant purchase price, or some other basis?
A lot of the information on developers you pick up from when the building was first marketed – when that information was broadly known. Like the American Invsco Web site lists their current developments. Afterwards, you get the information from remnants left on the Web or from talking to people.
There is no formulaic way to determine what your property taxes will be. It’s a bit of a crap shoot. They only reassess properties every 3 years but you can appeal. So, if you think your taxes are too high you appeal it and if you can provide the evidence then you should be successful. If you pay substantially less than a property previously sold for and the current assessment is based upon the previous sale price then there is a decent chance you can win the appeal.
Thanks for the response about researching developers.
Regarding what property taxes are based on, does that mean that the REO price becomes the new value upon which property taxes will be based? I have my eyes on an REO unit, but I don’t want to pay much more than its 2007 taxes. At least not for a few years. For example, the unit was purchased in 2006 for 700K and its taxes were around 8K per annum. If I were to buy the unit at 500K, would the taxes be around 8K, lower (because of the lower REO purchase price), or higher (based on what similarly built and located places are listing for)?
Also, what do people think REOs mean for the market and property taxes?
“For example, the unit was purchased in 2006 for 700K and its taxes were around 8K per annum. If I were to buy the unit at 500K, would the taxes be around 8K, lower (because of the lower REO purchase price), or higher (based on what similarly built and located places are listing for)?”
No matter what, property taxes–in general–are going up. You’d need a reduction in assessed value that overcomes the general increase (likely in your sceanario). However, you’d have to do it thru an appeal, and the next re-assessment cycle after your appeal (less than 3 years later), you’d get re-assessed based on what similar properties are assessed at (which is not entirely based on actual sales prices).
So, short answer–if everything worked perfectly in your favor, you’d get 3 years taxes based on your purchase price, and thereafter it would be based on nearby comps. I would not count on perfect.
But, never forget, property taxes are determined by the $$ requested by the gov’t and divided over all of the property within the jurisdiction. If *everyone’s* assessed values are cut 50%, *everyone* would get the same tax bill as the previous year. It’s all about having your assessed value drop more than average.
I believe that to be precise, you would have your taxes based upon your purchase price only if you used that purchase price to appeal your current taxes. It’s not going to happen automatically.
“you would have your taxes based upon your purchase price only if you used that purchase price to appeal your current taxes”
Yeah, that got left out of my “short answer” somehow.
I will never forget the brief conversation I had with an Invsco exec in the late 90s. It went something like this.
“So what does Invsco do? It seems like all of a sudden you’re one of the busiest businesses in town, but I’m not sure what you do.”
“We’re the ones bringing all the new condos to downtown. We have a bunch of buildings like River City that are pioneering the new movement of people living downtown.”
*Pause. . . as I, who lived in the S Loop at the time recalled my overwhelmingly negative feelings about River City*
“River City is an interesting building. When I’m there it seems really empty and out of the way, but I have to admit it’s pretty cool that it has the docks and the space for retail to move in.”
“People are buying everything right now.”
Most of the above is paraphrased, but I’ve never forgotton that last line– “People are buying everything right now.”