Get a 3/2 Loft Overlooking Grant Park For Less than the 2002 Price: 910 S. Michigan
This 3-bedroom loft in the Michigan Avenue Lofts at 910 S. Michigan in the South Loop recently came on the market.
This building was constructed in 1910 and has 267 units and parking. It has a doorman and exercise room and sits directly across from Grant Park.
This loft has the high ceilings and large windows with some exposed duct work which is painted white. There’s no other authentic loft features such as exposed brick or beams, however.
The listing says it is east facing and that the second bedroom faces east, which is of Grant Park and the Lake.
But what’s the other exposure?
The new Helmet Jahn tower at 1000 S Michigan is being built nearby.
The listing says there’s an updated kitchen with new white cabinets, quartz counter tops, a stone backsplash and stainless steel appliances.
The master bedroom has a bath with dual vanity and walk-in-closet.
The listing says the third bedroom could also be an office. It doesn’t appear to have a window but there’s no floor plan with the listing so it’s unclear.
The loft has a side-by-side washer/dryer, central air and parking is included in the price.
It’s listed at $630,000 which is $70,000 under the 2002 purchase price of $700,000.
Is this a deal?
Alysa Peterson at Redfin has the listing. See the pictures here.
Unit #1001: 3 bedrooms, 2 baths, 1600 square feet
- Sold in April 1999 for $326,000
- Sold in June 2002 for $495,000
- Sold in October 2002 for $700,000
- Currently listed at $630,000 (includes the parking)
- Assessments of $1000 a month (includes heat, a/c, gas, parking, doorman, cable, exercise room, exterior maintenance, lawn care, scavenger, snow removal)
- Taxes of $10,936
- Central Air
- Washer/dryer in the unit
- Gas fireplace
- Bedroom #1: 13×16
- Bedroom #2: 14×11
- Bedroom #3: 8×11
- Living room: 13×27
- Kitchen: 12×17
- Laundry room: 6×6
- Walk-in-closet: 10×7
There’s a 3D tour that shows no exterior window in the 3rd Br. Look like there are transom windows on the inside
Lots of wasted space, place will live like 1200sf. Should be a rental for recent Grads
if the owners are taking a 10% haircut from 2002, does that mean the market is HAWT!?
“Sold in October 2002 for $700,000
Currently listed at $630,000”
sizzle!
The other exposure looks to be south. There is some east view, but mostly southern views, which are of newer buildings.
What qualifies this as a “loft” – – at least one room with no windows?
Other fails: No hood vent, toilets adjacent to bathtubs (especially in the master where that was AVOIDABLE!!)
Given you could conceivably rent a comparable unit for $4500/mo or less without tying up a huge chunk of change as a down-payment, this makes no sense. Until rents rise above the cost of ownership, none of these fairly average condos make sense.
Mean to say “these fairly average condos make NO sense.” Ooops
“What qualifies this as a “loft” – – at least one room with no windows?”
maybe the exposed ductwork?
“Other fails: No hood vent, toilets adjacent to bathtubs (especially in the master where that was AVOIDABLE!!)”
where else would you put the toilet. this is pretty common practice, no?. most condos aren’t big enough for a separate alcove or toilet closet. I’d rather have a toilet next to the tub, which probably doesn’t get used often, then next to the vanity.
Rents have already risen above costs of ownership. It’s why there’s so many conversions. The issue comes from institutions being fine with low yields that don’t make sense for many individuals tying up cash.
4,500 seems a little low for this rent wise. But working off of that you have $23k in yearly expenses. 54k a year of imputed rent. So 31k in cash flow. Ball park 5% yield for cash buyer. 30 year US treasury of 1.9%. So 3.1% risks premium.
If Chicago as a city was doing better and you could count on normal 3% yoy rent increases and didn’t have to bake in above inflation property tax hikes then this yields 8% to a cash buyer.
I remember going to concerts in Grant Park in the 1970’s when the old band shell was across from the Field Museum. As a kid at the time, this particular building caught my attention because it had a giant, lit-up Standard Oil sign on top. Anyone else remember that?
“Rents have already risen above costs of ownership. It’s why there’s so many conversions. The issue comes from institutions being fine with low yields that don’t make sense for many individuals tying up cash.”
You know…I don’t understand how they can make those deconversions work unless they’ve figured out how to get an incredible return on renovating the units. Every time I look at a condo as an investment I see like a 5% cap rate, which sucks. These guys deconverting these buildings are paying a premium over market rate too. So, either they like crappy returns or they really know how to do renovations that pay off in spades.
“Every time I look at a condo as an investment I see like a 5% cap rate, which sucks.”
They’re buying in bulk so they’re getting them cheaper than you are. And after they do the renovation, they can charge whatever they want in the entire building that the market will bare.
You are competing against other rentals in other buildings as well as other condo rentals in the same building which may, or may not, have better finishes and might even be lower in price. They control pricing in their entire tower.
They also don’t HAVE to rent the unit immediately, but you, as a 1-condo owner, DO have to. Are you willing to let it sit empty for 3 to 5 months to get your $2500 a month? Because the big landlord is.
“if the owners are taking a 10% haircut from 2002, does that mean the market is HAWT!?”
Apparently not for this building. And probably not until that new high rise is built next door so that buyers can see what kind of impacts it will have (IF it actually gets built.)
Gary REITs are viewed as equity-lite by the market and sort of like high yielding bonds with treasury inflation protected security like characteristics.
Buying at a 5% cap rate if you can pencil in 3% rental growth rate translates to a long term unleavered 8% return. If you go 50% leverage and they can likely borrow at that leverage ratio at around 4% then you are talking about turning a 5% cap rate into a 12% yield. You can line up pension funds and insurance companies all day long at those returns.
Sabrina – in multi family these guys aren’t waiting around for the perfect rent. They need cash flow too to cover financing costs and stabilize the building. There also usually one year leases so be empty for 3-5 months won’t compensate them for total yield. They definitely NEED to rent it. Though sg and a they have advantages.
Commercial or retail it can make sense to try and find the right tenant since those are often longer term leases with often significant tenant improvement costs.
“Sabrina – in multi family these guys aren’t waiting around for the perfect rent.”
Sure they are. If they can’t rent at their preferred price, they do the incentives just to get someone in. Their size allows this. Right now, the market is hot enough, that most aren’t staying empty for 3 to 5 months. But when they do, they put out 2 months free rent to get them filled. Is the mom and pop landlord with one or two units doing 2 months free and low (or none) move-in fees?
No.
The big landlords have tons of advantages that their sheer size gives them versus the owner with just a condo in some random building. Heck, they throw in parking, or, in some cases, give an “entertainment package” when they get desperate (which includes streaming services, Internet etc.)
But it’s been about 2 years since there were real incentives in the Chicago market. The apartment market remains really hot. No room to negotiate much.
“Buying at a 5% cap rate if you can pencil in 3% rental growth rate translates to a long term unleavered 8% return. If you go 50% leverage and they can likely borrow at that leverage ratio at around 4% then you are talking about turning a 5% cap rate into a 12% yield. You can line up pension funds and insurance companies all day long at those returns.”
Yeah, I’ve had these discussions with the individual investor before. It doesn’t float their boat. On the other side of the equation is maintenance, periodic renovation, management, and vacancy.
“They’re buying in bulk so they’re getting them cheaper than you are.”
No. They are paying a premium over market value typically.
“And after they do the renovation, they can charge whatever they want in the entire building that the market will bare.”
Which is no different than what an individual investor could charge if they did the renovation. The only possible economy of scale is in the renovation and the management.
“They control pricing in their entire tower.”
They still have to compete with units in other buildings.
“They also don’t HAVE to rent the unit immediately, but you, as a 1-condo owner, DO have to. Are you willing to let it sit empty for 3 to 5 months to get your $2500 a month? Because the big landlord is.”
Vacancy is vacancy whether you are an individual investor or a big company. It reduces your return. No economy of scale there.
Yep vacancy is vacancy. Their paying the same cost of holding as an individual. Scale doesn’t let you not pay property taxes or not pay your mortgage. Incentives aren’t great for them because it’s basically a shell game. Discounting rent today in the hope the persons too lazy to move later and you get higher rent, but comes at the risks of having a tenant who can’t afford full rent so more turnover. It’s primarily a tool to be used in recessions when you can’t rent at full price.
“they can charge whatever they want in the entire building that the market will bare.”
—————————-
A bare market. That’s a brothel, isn’t it?
Gary! I figured it out1 THAT’s how the deconversions pencil out!
Any inducement cost, like free rent, is going to lower the net effective rent. There is no economy of scale in that. The companies with large rental inventories are no less desperate to rent then an individual.
“Any inducement cost, like free rent, is going to lower the net effective rent.”
Lose money on every lease, but make it up on volume!!
What’s the big difference between a mom&pop buyer and a REIT?
Cost of capital.
RE: difference between a mom&pop buyer and a REIT? Cost of capital.
Yes.
Public REITs have investors who purchase their stock. Mom&pop buyers seek debt holders who will issue loans.
REITs typically have years of returns that demonstrated the investment risk. Mom&pop buyers will always be higher risk.
REITs have a lower cost capital source and lower risk. That favors REIT’s acquisition costs. But I don’t see a huge REIT advantage on operational costs.
I’m not sure a reit has much of a cost of capital advantage. The agencies suppport mom and pop and we have a lot of national policy on home ownership with mom and pop can take advantage of.
REITs also have the cost of being a public company which is expensive. And I do believe at least in Chicago property taxes are higher on apartments buildings than condos.
The bigger advantage I see is lower transaction costs of scale and better able to plan capital investment cycles. Tough for a condo to do necessary work to maximize value as people hate specials etc (or tying up a ton of cash with condo board at essentially 1.5%).
One thing we didn’t discuss is building management – as in the assessments. If the association is inefficient in their building management it would be possible for a large investor to come in and effectively cut that associated cost.
Regarding this building…it’s been a while since I’ve been in there but it always struck me as a lot of space for the money but something was a bit off with it. The original finishes were pretty cheap (and this unit has some of the original finishes) and there was this peculiar thing in the bathrooms where the tub/ toilet/ shower area was elevated about 6 inches from the rest of the bathroom. I always assumed it had to do with the plumbing and possibly not enough room in the floor to achieve the right pitch otherwise. I think you can barely see this in one of the photos at the very edge by the shower where it looks like a discontinuity in the lines.
“I do believe at least in Chicago property taxes are higher on apartments buildings than condos”
Maybe after the next re-ass cycle, but not historically, no.
Which is largely down to institutional investors being better able to lie about…I mean, re-allocate the purchase price from taxable real estate to refrigerators or whatever. See, for example, 175 N Harbor. Sold in May-16 for a reported $237m ($0 transfer tax paid), sold again in Jun-18, reportedly for $240m (transfer tax paid on $80m value) and it is assessed as if worth $104m (they appealed, and that was the post-appeal final). There’s a $170m+ mortgage on the property–it ain’t worth only $104m.
Not a lot of condos being assessed at 43% of a recent sale price.
Isn’t commercial taxes at double the mileage rate or something about that than residential? So even if assessment is low their still paying fair or at a higher rate than residential.
Not an expert but didn’t they base a lot of commercial off of noi and just throw a cap rate on it instead of market value. Knew assessments are using cap rates closer to market rates.
Agree that operations should be better in apartments buildings than residential. Condo boards always seem to have management issues. Governance is much better with institutional assets as you have one guy whose likely getting paid a performance bonus as opposed to a hundred condo owners making decisions. If it weren’t for the tax benefits with condo ownerships and deductibility that use to exists then I’d think rental structures are far more efficient.
“Isn’t commercial taxes at double the mileage rate or something about that than residential?”
No.
Commercial and industrial are *assessed* at a higher percentage of actual value (25 v 10). Residential apartments are NOT treated as commercial, they are treated as residential.
If it were the case that apartments were assessed as commercial, for my example, that would mean that 175 Harbor was assessed as if worth about $42m. Which is just even more absurd.
Relevant article just now
“Origin is assuming taxes will nearly double at Monroe Aberdeen, a two-building complex at 1050 and 1060 W. Monroe St. Its property taxes today work out to about $4,000 per unit, or about $480,000 total, Episcope said in his presentation. But Origin estimates they will jump to $7,650 per unit, or $918,000—up 91 percent—by year three of its investment.”
What are taxes on a condo that sells for $550k? Ain’t $4k, nor even $7,650. Fair valuation seems to be 85-90% of a recent sale, and taxes are just about 2% of AMV–so $9-10k for a condo.
https://www.chicagobusiness.com/commercial-real-estate/why-these-west-loop-apartments-are-selling-just-66-million?utm_source=breaking-news&utm_medium=email&utm_campaign=20200225&utm_content=hero-readmore