Market Conditions: Crain’s: Chicago Downtown New Condo Sales Still in a Depression
According to Crain’s, new construction condo and townhouse sales downtown for the first half of the year were at their lowest since records began in 1998.
According to Appraisal Research Counselors, there were just 261 sales in the first 6 months of the year down from 406 in the first half of 2010.
“This is probably the new norm,” says Appraisal Research Vice-President Gail Lissner.
The firm’s numbers reflect sales contracts, not closed sales. Appraisal Research also tracks closings, which totaled just 385 units in the first half of 2011, down from 1,116 a year earlier.
There is one bright spot in an otherwise gloomy market: Developers continue to convert condo buildings into apartments amid booming rental demand, reducing the once-large supply of unsold condos.
Since 2008, eight downtown projects that were built as condos have gone rental. Developers are now sitting on just 1,911 unsold units, down from 7,689 in second-quarter 2007, according to Appraisal Research. It is the lowest supply since 1997, when the firm began tracking unsold condo inventories.
Most of the sold units were in developments that slashed prices like The Silver Tower, 757 N. Orleans and 200 N. Dearborn in the Loop.
But what about all those unsold units in the Museum Park Towers buildings, The Legacy, 60 E. Monroe and Aqua?
Don’t expect a “deal” anytime soon.
Many buyers expect a deal whether developers are advertising them or not. Magellan Development Group, the developer of the Aqua tower near Millennium Park, gets about four or five offers a week, one or two that are “pretty credible,” the rest from “bottom feeders,” says David Carlins, president of the Chicago-based firm.
“We still have got a whole lot of people who are looking for an unbelievable bargain, and it’s out there, but it’s just not us,” he says.
Prices at Aqua, an 82-story tower at 225 N. Columbus Drive, range from $306,000 for a studio up to almost $2 million for a penthouse, according to Appraisal Research.
Buyers have closed on 158, or 60%, or the 262 condos in the tower, which also includes apartments and a hotel. Magellan isn’t feeling any pressure yet to cut prices; the project’s construction loan doesn’t mature until the end of 2013, Mr. Carlin says.
Yet considering how hard it is for buyers to obtain financing, Magellan has set up loan programs with two lenders, MetLife Bank and Alliant Credit Union, to finance purchases in the building. Mr. Carlins is also optimistic that sales will pick up when a nearby grocery store and restaurants, along with a new Radisson Blu hotel in the tower, open this fall.
Longer term, he believes rising apartment rents will draw more buyers into the market as they compare the cost of renting vs. owning. But before that happens, the lending market has to open up, and buyers have to be confident that condo prices won’t fall further, he says.
“The condos in my mind are around the corner,” he says. “It’s just a long corner.”
How long will renting remain in vogue downtown and the condo market remain dormant?
First half condo sales fall even further [Crain’s Chicago Business, Alby Gallun, Aug 16, 2011]
Prices on downtown condos will be inching down this year and next. As a potential buyer I am leery of bad construction, inadequate reserves, deferred maint., and lawsuits-frankly I don’t want to waste my time or $$ on these type of condo activities. it would take quite a bit of decrease in condo prices to over ride the potential problems of owning.
WARNING: THIS ARTICLE IS FULL OF COMPLETELY FALSE AND MISLEADING DATA –
A quick check on redfin on closed sales “downtown” (60610, 60611, 60654 – for you sonies) reveals that there were over 1000 sales in the past 6 months – this isn’t counting the loop, south loop, etc.
If they meant downtown being just the loop then the article is completely stupid and misleading….. Idiotic rubbish from sensationalists (supported by sabrina to further her cause). honestly, why would you write an article on a tiny area that is not known for its housing (other to mislead readers into thinking they were talking about the entire downtown area – which, to many people includes streeterville, gold coast) – unfuckingbelievable.
“new construction condo and townhouse sales ”
Not you clio once _you_ take possession of the condo from the developer who created it, it becomes a used home because you are a filthy home re-seller and one of the unwashed masses. Reading comprehension helps.
oh yeah – god damn it.
but then again, why separate new construction condos from existing condos? there were fewer sales of newer condos because there were fewer new condos available. Actually, this makes this article even more stupid than I thought!!!! Ridiculous bullshit meant to scare people.
I’m hoping the editor does an update on “The Aqua”. Being that such a larg portion of that tower is rentals, what advantage does a “buyer” get? Aqua may have curves, but the lobby/entry is one of the most underwhelming spaces of any large tower in the city, and the actual for-sale units are pedestrian low grade rental quality units.
And as long as I am on a rant, there are an astonishing number of dog-owners in the building and I have been curious if there are any restrictions at all on pets in the rentals. Viewing the entry area of Aqua in the early evening one gets the misunderstanding that the place must be a kennel or pet boarding facility. (I live nearby Aqua so these are only my observations as a neighbor)
It’s not just downtown and it’s not just condos and it’s not just new stuff. Activity is really low across the board. When the IAR releases their stats tomorrow it’s going to show July around a 4.6% increase from last year and they are going to make a big deal out of that: http://www.chicagonow.com/getting-real/2011/08/july-chicago-home-sales-the-lowest-in-14-years-sorta/
But last year at this time really sucked. By my estimate, and G will provide the real data, other than last year it will probably be the worst since 1997.
The article touches on the issue. Buyers are holding out for deals and sellers are reluctant to give them. It’s a classic bid/ask spread problem. Eventually one side capitulates. Global recession can cause sellers to capitulate or rising rents can cause buyers to capitulate. Who knows – other than the Cribchatter cognoscenti?
Gary: closings are abysmally slow (ask any real estate lawyer, realtor or mortgage broker!) but properties seem to be going under contract at a brisk pace, its just that they’re not closing as of yet. But when they do close in the next few months, that’s going to provide, what I suspect, is a double digit boost to the sold figures officially marking the bottom.
Now if ALL houses would be listed at/sell for the ‘bottom’ prices, we’d have a much much much more active market, I’d buy a house, and probably never post here again!
I toured Aqua too and was disappointed by the finishes. 110 W. Superior for instance had truly superior finishes. Also while the amenities rock in Aqua, they are shared with the hotel clients. I wonder how crowded the place will become once the hotel opens up so over all, I am not that much into Aqua any more.
Legacy is very nice and has great views. The killer is electric heating for me.
MPW has great views and great finishes, but is so empty, you’d think you are on a space mission
MPE has superb views and good amenities. Finishes vary from unit to unit, but over all is my favorite building considering everything.
60E Monroe has nice finishes, but pathetic floor plans (think windowless bedrooms) so it is a no go for me.
Clio, in fact the article is only talking about the downtown area of the City, Loop area.
“closings are abysmally slow (ask any real estate lawyer, realtor or mortgage broker!) but properties seem to be going under contract at a brisk pace, its just that they’re not closing as of yet.”
But that’s not what the data shows. If you look at my charts you see that contract activity is running below 2008 and 2009 (after I allow for a 15% cancellation factor).
Clio the study was done by ARC which is probably funded by developers. Its not some academic study. Think more for the stock analysts of the building sector.
curous what the condo supply is at? Probably also very very low
oh jesus I need to learn to read
HD-
RE: “But when they do close in the next few months, that’s going to provide, what I suspect, is a double digit boost to the sold figures officially marking the bottom” Are you being serious, or facetious?
As someone who bought 3 months ago (estate sale, late 90’s pricing, Green Zone), I hope you’re right. I’m thinking we may be approaching a rocky bottom that may last a couple of years.
My reasons for thinking this are fairly unscientific: More housing bears than bulls. Everyone’s a bear. Renting is smart! Buying is stupid! So say the masses. This, despite the fact that many transactional prices are 40% or more below bubble peak, rents are getting more expensive, and it’s getting more difficult to find rental gems. Call me a contrarian. Time will tell if I’m a fool 🙂
TB, where are you looking? Loop rental prices are getting ridiculous, but condo pricing isn’t getting much better except for 1BR & studios.
Look at 345 N LaSalle. There is one 3BR for sale and they are asking well over $300 per sq ft. No way. Not in that building. Yet.
tipster-
Lakeview is where I landed. For the first time in my adult life it became affordable to me.
“curous what the condo supply is at? Probably also very very low”
On a months of supply basis condo inventory is very low. Here is the data for the Loop but it doesn’t include a lot of the new development inventory that is probably not on the MLS: http://lucidrealty.com/loop_market.htm
Oh…and condo inventory is low across the board right now – but I’m only looking at 2 -3 bedrooms.
“How long will renting remain in vogue downtown and the condo market remain dormant?”
I wouldn’t quite put it that way, but instead will go with the first quote you include: “This is probably the new norm.” The idea of buying 1 or 2 bedroom condos downtown only makes sense for most people
in a market where real estate prices are steadily rising, and so the condo functions as both an investment and a place to live. In normal markets where overall real estate prices increase slowly and fitfully, buying downtown condos doesn’t make much sense given the closing costs, mortgage schedules, etc. And the market we have today likely will have a lot of people who prefer renting to buying for a decade or two to come, meaning buying downtown condos will make even less sense.
Thus, the number of new condos built and the number of new condos sold in downtown will remain low indefinitely, and may continue to fall as the last condo buildings started during the boom are finished off. I’d also expect the number of downtown rental units will continue to rise.
TB estate sale typically means pricing pretty close to distressed so you likely have some downward price cushion. Its the people paying full MSRP these days I call fools.
I find it shocking that volume is down too. It seems most of the properties I follow are under K these days. But that’s the problem with using anecdotal information as opposed to hard data, there can be a discrepancy between the two.
“in fact the article is only talking about the downtown area of the City, Loop area.”
vlahos, when ARC uses “downtown” they mean the Near North, Near South, Near West and Loop Community Areas.
“But last year at this time really sucked. By my estimate, and G will provide the real data, other than last year it will probably be the worst since 1997.”
I put the July data in the June “Market Conditions” thread last week:
http://cribchatter.com/?p=11020#comment-177013
Barely keeping pace with last year’s post-D4D sales collapse is a good indicator of increasing housing affordability.
So what happens when resales (Foreclosuree/short sales) at Aqua start undercutting the developer?
“In normal markets where overall real estate prices increase slowly and fitfully, buying downtown condos doesn’t make much sense”
I wouldn’t necessarily agree with that. Obviously we aren’t returning to bubble levels, but you have a lot of suburbanites downsizing from their mansions and moving to the city and downtown condos are also fueled by young professionals who won’t want to move out until they have school aged children. As the census showed, the urban core has grown tremendously. Personally I don’t see a reversal of that trend in the near future.
Sure, holding a condo for 5-7 years probably won’t compare favorably to renting, but luckily a lot of people are really bad at math and take pride in home ownership.
well rents increasing over time is a good thing for me because I probably won’t be able to sell my place for what I want in another 3-5 years when I move i’ll rent it out and have some other chump pay my mortgage
Bob-
I agree RE estate sales. Talk about a motivated sellers!: the owner is dead, and the heirs need to settle quickly.
Dealing with other owners was difficult for me. I felt like the guy in the old Meineke muffler commercial who kept saying: “I’m not going to pay alot for this muffler!”
Thanks, G. Missed that post. Just what I thought. Back to 1997 levels. Now if we could just get back to the 1997 level of realtors 🙂
Plus TB think about: with estate sales if you swoop in & act quick the heirs are likely emotionally vulnerable and not in the mood to bargain hard.
“There is one bright spot in an otherwise gloomy market: Developers continue to convert condo buildings into apartments amid booming rental demand, reducing the once-large supply of unsold condos.”
Spin, spin, spin…
“Developers are now sitting on just 1,911 unsold units, down from 7,689 in second-quarter 2007, according to Appraisal Research. It is the lowest supply since 1997, when the firm began tracking unsold condo inventories.”
Sure, but wouldn’t months of inventory be a better comparison? Not many thought that 2Q07 inventory was terrible since 04-06 sales averaged just under 7,000 per year. The 1H07 pace slowed to ~4,000 annually when Gail Lissner of ARC was calling bottom in volume. So, basically, at worst, less than 2 years supply back then for the “experts.” However, there are currently 1900 unsold and 2011 is “on pace to sell fewer than 600 condominiums for the fourth straight year.” Considering that there are also still thousands in the hands of stuck flippers who bought at the peak, there will be movement towards more affordable downtown condo pricing into the forseeable future.
Also TB one of the short sales I’m following the previous owner died (young too-tragic). So I’m expecting it to go into foreclosure. As dead people don’t care about their FICO its mind boggling to me its listed as a short sale. Methinks the bank is trying to get a higher price than REO from it via asymmetric information regarding the situation. But we have Google now and sad stories make the news.
I’ve said it many times before, but any rent increases currently happening downtown will be temporary. They are due to inaction on a huge supply of vacant condo units causing a temporary inventory constraint. In addition, industry shills are still serving their masters’ desires to build, build, build – but now it is apartments. Stay tuned for the coming rental crash…you might even get to pay for some of it if your pension fund is not careful.
“Stay tuned for the coming rental crash…”
That’s been my thought for a while. From one extreme to another, and once rents crash they’ll start converting back to condos again. It’ll be an interesting next 10 years.
“Dealing with other owners was difficult for me. I felt like the guy in the old Meineke muffler commercial who kept saying: “I’m not going to pay alot for this muffler!””
The Wolfman and his dad looked at a Sheridan Road short sale condo awhile back. The seller was a very angry, very crazy Albanian dude. He had HELOC’d and overimproved the place. Wolfman was like “there’s no way i’m dealing with that psychopath.” I was like “we don’t have to. we just have to deal with his lender.” Wolfman was like “yeah, but that’s only one step removed. not far enough for us!”
“we are in a rental boom”
Nearly every boom is followed by a bust.
“Stay tuned for the coming rental crash”
Why didn’t rents crash when the RE market crashed?
yeah yeah the world is ending, the old pension liability hobby horse, good thing those liabilities don’t need to be paid all at once, but big numbers sure sound cool on the news!
Chicago is a great place to live and its only getting better and more affordable as the job market improves and infrastructure is rebuilt and maintaned
I am curious to hear what your thesis of the coming rental crash is and also am curious if rents have ever “crashed” before in Chicago’s history? Even when the city totally sucked and practically every white person fled to the burbs?
Bob-
Maybe your short sale ‘owner’ passed away after filing for short sale?? Banks are clueless and may have no idea he’s dead!
The estate sale process was great. No back and forth. No emotion from the seller. It probaly helped that the late owner was a 30 year owner with plenty of equity.
As someone noted on a different thread, many established neighborhoods and suburbs have long time owners with real equity. Thank God, because dealing with someone who bought in 2002 or later is brutal: No equity, lots of emotion, etc.
“yeah yeah the world is ending, the old pension liability hobby horse, good thing those liabilities don’t need to be paid all at once, but big numbers sure sound cool on the news!”
What are you talking about here? My only pension reference was to the eventual bagholders of the current apartment “boom.”
“curious if rents have ever “crashed” before in Chicago’s history?”
2001-03 saw a 13% decline in net class A rents. Heck, 4Q08 saw a 6.6% decline in one quarter.
if i were a renter, i’d be lookin to change that real soon.
As the job market improves lol. Even if you thought the 1% increase in employment from the recession’s trough were sustainable & a trend the labor market is not improving fast enough to save these developers nor their financier’s. These rental buildings are mostly all going distressed except all units at once vs. piecemeal. Remember they were all built using faulty bubble assumptions. Bubble assumptions so differ from today’s reality that I don’t think something like apt vs condo can save them.
Corus is already gone but some bank or fund bought their garbage and I’d bet they didn’t yet take sufficient haircuts on it. mark to fantasy is alive & well. but no more FDIC backed debt for these bankers after 12/31/2012. 2013 will be interesting for so many reasons
So is Related’s deal with the old Waterview building going to go bust?
What happens in 2013 when aqua’s construction loan matures and 25% of the building remains unsold? My neighbor employed the same strategy – the ‘im not lowering my price and i only want top dollar” – and he went into foreclosure and got nothing.
More than likely. FDIC & govt did a huge 4yr punt at the end of 2008 after Lehman. Govt backed the bonds of a lot of banks allowing construction loan due dates to be deferred in a bid to bide time. Probably is its not enough time at current sales levels. They need at least 3 more years & I don’t see that happening. A vulture investor will get good deals on sales of bulk units from the foreclosing bank where they cashflow and it will be like the vetro auction for valuations all over again. And remember what happened to the vetro developer.
“What happens in 2013..”
More bottom calling, just like 2008-2012.
“What happens in 2013 when aqua’s construction loan matures and 25% of the building remains unsold?”
extend and pretend! ZIRP policy will have gone negative and the borrower will have a market rate of zero and therefore no interest expense.
PS I drove by the failed condo building gone rental, the Mondrian in River West, and it has plenty of units with lights on at night.
Some db was on here a few weeks ago saying he was about to pull the trigger on an aqua condo at 500$ psf. I told him to instead put the gun to his temple and pull the trigger on that instead.
I’ve seen several big price drops on some aqua units. Still expensive though.
I don’t understand what they think is going to change in the next 2 years. Lower real estate taxes? Lower interest rates? Easier credit? The thinking is just bizarre. I can’t imagine a worse investment right now. You are buying into something that is basically completely illiquid. Unless the Ben Bernank brings us to hyper-inflation in the next 24 mos. this strategy just seems bizarre.
This is only tangentially related, but Chicago mag’s Deal Estate has an article with a theme that I’ve seen repeated elsewhere a few times – a lot of the market in true “downtown”, loop, what have you is being aimed at high end rentals.
I know some buildings are being built for that purpose but it also seems like a shift for sale properties as well.
Either way, it’s a glut. Shifting an item from one column to another just delays its eventual crash and burn…..
ED-
Some of the best long-term oppotunities in one’s life may be somewhat illiquid. Those with capital, patience, and a plan can be very well rewarded for the lack of liquidity.
sorry, EB, not ED
Yo all, I have heard from pretty reliable resources that nothing is closing in MPW and there will almost surely be a bank take over and conversion to rentals as the bank believes once the market bounces back, it will be a prime building.
Also financing seems to be tight or impossible for Aqua and the sales agents as mentioned here are not accepting low balls which makes me think Aqua might end up becoming pretty much rentals too.
“and infrastructure is rebuilt and maintaned”
Let me know when they do this. I don’t think the city budget can keep up with entropy.
“2001-03 saw a 13% decline in net class A rents. Heck, 4Q08 saw a 6.6% decline in one quarter.”
did that have anything to do with 9/11 and people not wanting to live in high rises as much (where most type A props are located)? maybe
4q08 doesn’t surprise me however
and yeah yeah call me an optimist but I just don’t see Chicago living as unappealing in the future as some of you guys do. I don’t think Rahm will fuck things up too poorly (I actually like what he has done so far) and he has even said that infrastructure is the most important aspect of the town, so hopefully we can get enough federal funds from the DC machine to smartly pay for some improvements here that will have a positive net effect on the town, although i’m not holding my breath for anything drastic, if things stay the same, I’d be ok with that.
I see lower prices making it more appealing, so call me an optimist, too.
“So what happens when resales (Foreclosuree/short sales) at Aqua start undercutting the developer?”
You may have to wait awhile for this to happen. I’ve seen some flips in the building successfully sold for more than they purchased them for (those who, I’m assuming, had pre-construction contracts.) But it’s interesting that some of the re-sales ARE selling.
How can rents rise while condo/home prices fall?
Answer – condo/home prices became so disconnected from rents that prices still aren’t even vaguely connected to incomes or any rational examination of affordability.
Every dollar of rent is gone, never coming back. However, many of the dollars of ownership are also gone, never coming back. You keep principal and tax deductions but interest, taxes, insurance, opportunity costs, non-improvement maintenance, etc… those are all GONE! POOF!
If you take one of these place for sale in Aqua and honestly add up the ‘never coming back’ monthly dollars, owning is still WAY higher than renting.
Example – they list the 2br/2ba 1160sqft “from” $3,237/mo for rent
Same sqft 2/2 for sale “from” 705k. Lets assume $1k/mo condo fees and 11k/yr taxes (both probably higher).
I see the “never coming back” monthly dollars to own this place at ~$4,400.
Once you take out the stupid-easy mortgage money and the stupid assumption that home prices should outpace incomes indefinitely, prices STILL don’t make any sense. Downtown condos are the most egregious example.
realtors are usually as big as liars as used car salesman
AS the government interferes again and again, the market will NEVER SETTLE DOWN TO THE LEVEL IT SHOULD BE
THEREBY DENYING THE SAVERS OUT THERE A CHANCE TO GET A GOOD DEAL
And other collateral damage
I think maybe Aqua is coasting on fumes generated by all those stories about its winning an architecture award a few years ago.