Flipper Alert: Flippers in Pain at 1720 S. Michigan
1720 S. Michigan is the new CMK building in the South Loop. It looks like most of the other CMK buildings (white, modern, lots of glass.)
Units are still available from the developer but closings have begun.
That means the flippers are out to play! Craigslist has several units and several are on the MLS:
Unit #906: 2 bedroom, 1 bath, 836 square feet
- Currently listed at $279,000 plus $36,900 for parking
- Was originally listed for $284,000 on Craigslist a few weeks ago
- Sold for $279,500
Unit #812: 2 bedroom, 2 bath, 911 square feet (with 400 square foot terrace)
- Originally listed at $419,000 plus $35,000 for parking on Craigslist
- Already lowered to $399,000 plus $35,000 for parking
- Sold for $367,000
Many of the two bedrooms are very small. Craigslist has several of them for rent.
Looks like these investors are going to either barely going to break even or take a loss. It’s brual out there with the South Loop flips.
Large building with 498 units!
Sabrina, Quick Update… 72 Listings on the MLS right now. 33 of the 72 are listed as rentals… 1 Unit is at A/I status (so a new contract.) Man I feel bad for this person buying/realtor advising them to buy into this building right now.
City Agent: Thanks for the update. That’s about 15% of the building either for sale or for rent. Is the developer actually listing all of their available inventory on the MLS as well? I know the building isn’t sold out. Usually the developers do not list ALL of the available units on the MLS because it looks bad for the building.
I’m a freelance writer and am doing a story on Chicago flippers in current market for Chicago Magazine. Focus is on flippers who made large amounts of money flipping aggressively only to lose a significant amount,or something along those lines. Like to talk to a flipper or two in Chicago about their experience and to glean their insight. Thanks
Chuck Green
Can anyone help out Chuck?
I know some of you know “professional flippers”.
I have a listing from a would-be flipper, so I can attest to their pain in this building. However, a flipper’s pain could be a serious buyer’s gain by getting into a brand-new unit with upgrades for less than a developer’s bare-bones unit.
City Agent, I am a novice in this, so pardon my naivite. With 498 units total, 33 is less than 7% (I realize that 33 of 72 is a bit higher ). The agent I talked to claims that less than 10% is currently available, so apparently ~20 are for sale by current owners (a bit too much, right?). The assessment is reasonable (no fitness center, no pool), the price is lower than the ridiculous Museum Place. Can you give me a couple of reasons not to buy there? Plan to keep it 4-6 years – then who knows? Thanks for advice!
Victor, 1720 S. Michigan hasn’t closed on all the units yet. They are still closing on the building.
I haven’t seen the latest closing number. Anyone else? It might only be about 50% closed so far (if that.)
Victor, closer (though not perfect) math is 72 units for sale (either by flippers or the developer–doesn’t matter, they’re still not sold to residents) out of X closed units. Sabrina estimates 50% generously, so that means *approx* 30% of the building is not sold. Could be higher ultimately–we don’t know how many more will be “flipped” once sold, for instance–and could be lower. Many units that are not sold will become accidental-rentals as the owners in this market would rather get some money rather than no money. So the question for you is, do you want to buy into a building where there might be a very high percent of renters? (Or, if flippers are over their heads and can’t keep up, foreclosed units?)
All that being said, CMK is a good developer, the units are nice, and as you point out assessments are reasonable. I would love to see this building succeed. Still… and I hate to say it… why the rush? Prices will almost certainly drop. Why not just take advantage of the accidental-landlords (I suppose that sounded bad!) and just rent for a while? Do the math–you will probably pay less in rent there than you would pay in sunk (not equity-building) costs for mortgage interest, taxes, HOA. Flippers are counting on the prices rebounding; as such, they’re renting at a loss.
Sabrina and Kenworthey, thanks for the input! The word from the developer is that less than 10% are not closed, that’s why I am concerned about many units on sale. On the other hand, it is the association that sets the limits on renters (I am told not higher than 20%), so if the association is not formed yet, it may be free for all. How does the then-formed association get out of 30-40% renters to the required 20% level, especially in today’s market? (I assume that current renters will be grandfathered to the 20% rule, correct?) It may take many years before 1720 gets to the limit set by association.
I sure like the building, although it is on a “simpler” side than many in the neighborhood – no exercise room, and no bike room if I am correct.
Victor: The association can put the renter limit at whatever they want. There is no “requirement.”
The problem is- if a building has a lot of investors, why would they want the association to limit them to only 20% of the units being rented?
The owners have to vote on a change to the condo rules to put a limit on rentals. The odds of passing such a limit in a building with a lot of investor/owners is basically zero. It goes against their interests.
Sabrina, thanks! A very good point; oops, and I liked the building
Victor: You can get a really great rental in there right now. I counted 49 units for rent.
Sabrina, where do you look for rentals? Thanks!
Victor: Look on any of the realtor sites. Rubloff, for instance, has a link where you can look up the rentals in certain price ranges. Some of them have rentals by address.
There are a lot of rentals in that building right now. It’s also just a really big building so there are bound to be more rentals anyway.
There are only a few units approx 5% that still haven’t closed from the developer. Remember this is a very large building (500 units so 5% is about 25 units. This has got to be one of the largest number of units in the past 15 years.
As for limiting percentage of renters, it will require 75% of the owners to change the condo declaration. That will not happen!!!! In other buildings just getting 30% of the owners to a meeting is hard enough. Also why would investors who probably make up 50-60% of the units want to limit their possibilities. By limiting the number of rental units you would cause a larger number of units to go on sale and drive the prices lower.
Typically restricting the percentage of renters is done by owners in non-luxury apartments and buildings to limit the amount of trashing that goes on with the property. With regular (lower priced) properties renters can be college kids, young people or just generally people that don’t make as much. These people tend to party more/break stuff when they party and invite friends over that do the same and generally abuse the property (think of what you did to your college dorm as a good example).
These provisions don’t make sense in luxury buildings for the reasons that people that pay a higher price for a luxury apartment can afford to and likely appreciate it and the economic reason Condo Investor explained above.
In terms of your neighbors in luxury buildings renters might be a little younger than owners in todays price run-ups, but thats about it. I don’t see a restrictive limitation being enacted or enforced.
What do you think about developers advertising units for rent? Looks strange…
Victor
CMK has two components/corporations, the Develoment side and the Realty side. While they work together they also function independently. So a lot of the units that you may see for sale that have CMK Realty as the listing agent are actually resales and not directly from the developer but resales from individuals. As a service the realty side will also market your unit as a rental as well. I think it is smart for them to do this as they already have sales people on site 7 days a week and can easily show units. This also creates a good relationship with many of the investors whom they would target for their next project.
There was a time not long ago when lenders required no more than 30% rentals in order to make conforming loans in a building. Lower priced buildings established limits in order to facilitate resales. This was irrelevant in high-end buildings because all loans were non-conforming (jumbo) anyway. The non-conforming designation results in higher interest rates and down payments, as well as more stringent qualifying standards.
The “project owner-occupancy” requirement is returning to the mortgage market, along with income/asset verification, down payments and good to excellent credit scores. Some lenders have even skipped this step and gone straight to “blacklisting” (making no loans in) certain condo buildings where defaults are numerous and values have declined.
We ain’t seen nothing yet.
Not sure where everyone is getting all the info. Currently for any projects that are brand new construction there are people trying to flip and rent (check out craigslist to get a better idea).
Square footage and floorplan wise…1720 is, I believe better than some of the Enterprise properties that I’ve looked into (with 1720 you get more bang for the buck).
With the South Loop booming like it is with construction…there are bound to be tons of people looking to invest and get in early to either flip or rent to make money and there are bound to be more when more of the buildings are completed.
With 1720 being one of the top 5 selling in 2007…see sample link:
http://www.cmkcompanies.com/site/files/532/46742/183884/253834/1720_-_Yo_Chicago_-_02-07-07.pdf
400 out of 500 sold at time the above article was publised in Feb. 2007 (that’s a year ago so I’m sure some of the remaining 100 have sold in the last year). For the price of a 2 bedroom 1 bath unit in 1720 you could buy a 1 bed 1 bath in Museum Park Place II.
I think 1720 is a good buy for the up and coming South Loop and could be a possible better investment that some of the other projects being built in the area for higher prices.
I called 1720’s homeowner associations ,The Fourth Group, and they confirmed that 50% of the units are rentals !
http://www.forthgrp.com/
FYI, if you buy a parking spot you have to pay an addtional $50 a month assessment ! What a joke.
That said,another 1,000 units are going to come online within the 12 months: Eco18, Glashaus, 1000 S Michigan Ave,X/O Condominiums, and 1712 S Prairie Ave.
Flippers and ‘investors’ will be looking at massive losses. This looks Miami bad.
John S.:
Most of the buildings you list are proposed buildings. I don’t think many of them have started construction (1000 S. Michigan is facing a foreclosure lawsuit.)
But there are a bunch of other buildings down in that neighborhood that ARE already under construction and will be closing in the next year.
There will be plenty of inventory either way- as you indicated.
55% TO 65% RENTAL
Not somewhere you would call “home”. Not a long term place – bad floor plans – no dining rooms and only a kitchen – no real living room area. All units are cookie cutter – all look the same. What was once $400,000.00 is now $250,000.00 but still not a bargain – because you would have to ask yourself – can I actually live in a unit with no dining room/area and bedrooms as big as walk in closets and a building with no lobby or amenities in a crime ridden neighborhood.
Lower income homeowners who fight with the board of executives (stopped in at a board mtg to see what goes on when I thought about buying after prices hit the floor) over controlling the building and are rude when you share an elevator or pass them in the hallway.
A disaster. A low assessment building because there is no staff, no amenities, no lobby, and no choice of heat and a/c (2 pipe system)…also filled with renters( 60%) because because original buyers thought they were going to be investors (????) and now have to rent out their “investment”….INVESTMENT….I think not….Not even for those who think that since units are taking a $100,000.00 hit each that they are getting in on a sweet deal…..think again….really think again. The location in the South Loop turned out to be too close to CHA, run down or empty buildings and gang related crimes.
Man, that 900 square foot CMK 2/2 special for $367k must be looking like a helluva deal right about now.