Market Conditions: Crain’s Reports on New Construction in the Loop
Crain’s has several articles out this week describing what is happening on the front lines of Chicago real estate.
I thought several comments made by the developers were worth chattering about.
On The Legacy, highly anticipated 72-story new high rise overlooking Millennium Park at 60 E. Monroe, the developer appears optimistic.
Developer James Hanson says the economy has to get better before the market does.
“We’re looking for a recovery in confidence,” says Mr. Hanson, a principal at Chicago-based Mesa Development LLC. “We need people to feel good about their life and the economy and spending their money on real estate.”
Mr. Hanson is preaching patience, even though he has no plans to halt sales or cut prices at his 72-story Legacy at Millennium Park high-rise, near Monroe Street and Wabash Avenue.
About 90% of the tower’s 356 units are under contract, and the first wave of closings began in September. As that process continues, Mesa expects to lose a few sales to would-be buyers who fail to obtain financing amid tighter credit markets or who lose their jobs and find they can’t afford a new condo.
Still, he is optimistic that the housing market is slowly crawling out of its hole and expects to sell out the Legacy by next summer, an ambitious but achievable goal if the market keeps improving.
Public records currently show only 2 units have closed in the building, both in early October. But sometimes developers take time in submitting closing information. Stay tuned.
Things aren’t as positive at Metropolitan Tower, at 310 S. Michigan, right down the street.
The developer of the East Loop’s Metropolitan Tower credits discounts of at least 25% on selected units with boosting sales at the 30-story project. Buyers have now purchased about 80% of the 242 condos at the two-year-old development at 310 S. Michigan Ave., says Louis D’Angelo, president of Metropolitan Properties of Chicago LLC.
While Mr. D’Angelo is still trying to sell about a dozen discounted units, he may opt to take all of the tower’s unsold condos, even the discounted ones, off the market if the economy doesn’t improve.
“It’s not an easy decision to make,” he says. But by mothballing sales, “you’re betting on where the market will be in 12 to 18 months.”
Real estate on brink: reviving the faith [Crain’s Chicago Business, Andrew Schroedter, Oct 26, 2009]
Hmmm…Vetro was over 50% “sold” pre-construction. I was told there were only a “few” units left at 1400 S Michigan when I looked there in mid-2008. Trump Tower was the hottest property in Chicago until closings began. Unless public records prove that units have been sold, I would take developers statements with a large grain of salt.
Mr Hanson seems to think that the luxury market in general and his building in particular are immune to the current economic conditions. Time will tell, but I bet that we will see a CC thread titled “Price Reductions at The Legacy…Is This a Deal” somewhere around 1 year from now.
Why is the pricing at Metropolitan tower so inconsistent? IE give or take $300/sq ft for an identical unit. How did that happen?
I just can’t imagine buying a place like this pre-construction. Think of all the unknowns. You’re going off of models, brochures, and the reputation of the developer. I did have the opportunity to go up to some of the floors in The Legacy while under construction (only after my clients had put down a $5K deposit) and some of the views were fantastic. But all we could see was a concrete shell at that point and in the end my clients just weren’t comfortable that they knew what they would be getting and I don’t blame them.
The interiors of the Legacy = the interiors of the Heritage = cheap and banal. This is no luxury building.
As I sit at work looking into the Metropolitan Tower, here’s what I see:
1. 2 posters for Chicago 2016 Olympics,
2. Vertical blinds,
3. Some Asian fan that covers almost the entire bottom of the window,
4. A direct view into someone’s bathroom,
5. Empty unit,
6. Empty unit,
7. Some feaux-cherry wood blinds,
8. A Halloween-inspired window display of pumpkins,
9. A torch-halogen lamp like the one I had in my dorm room,
10. A recliner, yes, a recliner.
You get the point. Who in the hell lives here?
Far from luxury from my vantage point.
Did Mesa ever resolve its partnership problems?
I’m surprised no one has commented yet on the Case Shiller index being up 1.7% in August. I stand by my assertion. Yeah, I know the tax credit effect – but still.
It will be interesting to see how closings go at the legacy and aqua. Similar price points and both were 90% sold pre-construction.
The Mesa Developer is dead on about the impact of confidence on sales. Psychology has a huge impact on commerce. This explains why behavioral science has become so popular at B-schools.
On Aqua, I am not a huge fan of the exterior or build out, but the location is excellent in my humble opinion. Regarding Legacy, I have noticed that luxury buyers seem to like new construction more than conversions (Metropolitan).
All of this discussion is mute though until the government stops playing captain of the economy. We will not see true growth and recovery IMHO until people can literally tabulate the cost of national health care, cap and trade, and card check on the financial statement. Until then, the cash reserve building continues.
“this discussion is mute”
Moot. The question is moot.*
*yes, that’s a specific reference I expect those over 35 to get.
^^^one of my biggest pet peeves… the misspelling of ‘moot’ and the misspelling of ‘role’ really annoy the @#$! out of me.
But lest anyone fail to appreciate anon’s funny:
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&VideoID=10783207
“The question is moot!”
You’re right Paulj & Jon, neither of these buildings are really ‘luxury’, and I can think only a handful of buildings in the city that would truly qualify as having lux apartments. But I don’t think the developer can be blamed in many cases for building cheap and banal interiors, as it isn’t a Chicagoan’s trait to actually pay for such interior luxuries as lets say for the classic looking Metropolitan, Smallbone kitchens and paneled rooms. Developers of so called luxury buildings give us sh*t as that’s all we’ll pay for… sh*t.
Just got back from central London (maybe a bad example but fresh in my mind), and I’m amazed at the amount of chic cheese/bread/soap/perfume whatever shops still packed with buying young locals even in this economy; they’re having a tough economic go at it too. True London has 8 million people compared to our not even 3 million, but having lived there too, I can tell you there’s a lot more true luxury apartments (and goods) per capita there compared to here, because they’ll actually pay top dollar for something small but very nice (same case in New York).
Frustrating thing about living here in Chicago is that it’s such a damn beautiful city, but never lives up to the ‘urban expectations’ you’d expect from such a large place. There are very few luxury buyers here.
“Frustrating thing about living here in Chicago is that it’s such a damn beautiful city, but never lives up to the ‘urban expectations’ you’d expect from such a large place. There are very few luxury buyers here.”
Your “Urban Expectations” are classist. Perhaps you belong in a North Shore suburb?
“Frustrating thing about living here in Chicago is that it’s such a damn beautiful city, but never lives up to the ‘urban expectations’ you’d expect from such a large place. There are very few luxury buyers here.”
Jay, this city cannot shake its meat packing, 2nd city mentality. I could not agree with you more. Geographically, it could be that Chicago is too far either Europe compared to New York for example. This isolation may result in cultural inbreeding.
“I’m surprised no one has commented yet on the Case Shiller index being up 1.7% in August. I stand by my assertion. Yeah, I know the tax credit effect – but still.”
Seasonality + tax credit effect. Remember 3/08 – 8/08 prices held steady, then resumed their decline.
Looks like the tax credit is being reduced to $7,290 but will be expanded to all people and extended to April 30, 2010. The intervention continues.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5QROYtebjYc
Re the Case-Shiller…….. I’m with Bob. Tax credit + seasonality + FHA 3.5% down-payment loans with tax credit applied to downpayment.
Loans are being made for 4X the borrowers income. I was told by one lender that I could use the $8000 toward the down payment at closing, and could on those terms buy a condo for $260,000. That means a $252K mortgage.
The FHA is also doing adjustable EQUITY EXTRACTION loans.
What will happen to prices, especially on low-to-middle-bracket housing, when these loans start to default? Combined default and delinquency rates on FHA loans (most loans these days) are running 20%-24%, depending on the year they were generated. And we still have 7 million foreclosures nationwide already in the pipeline, in front of us.
Our pols finally figured out we can’t afford the additional debt load from an extension of the housing credit.
I believe we still have a lot of economic pain in front of us.
“Our pols finally figured out we can’t afford the additional debt load from an extension of the housing credit. ”
No they are currently debating two different proposals and will vote on it tonight. One of the two is expected to pass.
Both expand the credit to all buyers. One is as I described above the other is a 13 month extension keeping the full credit through 3/31/10 then dropping by 2k per quarter and expiring on 12/31/10.
The one I listed above (7,290) is more poisonous as we know the housing industry is going to COME BACK in March and push for another extension and maybe reduce it a token amount.
With the phaseout version it will be much harder for them to return to the taxpayer trough.
I look at long term trends. I see that the bubble has totally popped and prices have gone well below the trend line. Granted, the chaos created by the bubble popping could result in a much bigger dip than we’ve seen but prices are actually lower than they would have been if the bubble had never occurred. So if the government is determined to mitigate the chaos by throwing tax dollars at the problem they could actually succeed in getting things back on trend without a further drop below the April “bottom”. There are positive signs. Chicago employment levels have recovered and so has the stock market.
Jon,
Your 10 point theory was awesome.
‘Your ‘Urban Expectations’ are classist. Perhaps you belong in a North Shore suburb?’ Lets see, 27 years living in LP since I was a teenager, check. 20 years living in the same 130 year old house I restored, check. Preaching the countless evils of the burbs to anyone who will listen, check. Your right wtf, sounds like I’m fodder for the North Shore any day now.
Don’t confuse classism with years of observation of the Chicago real estate market; if my eyes weren’t open back in the 80s, I never would have known to buy here in the first place. What these buildings are, especially the Metropolitan, are more examples of good buildings gone bad, or maybe bland. Who doesn’t recognize the fantastic blue beehive on Michigan Avenue? Wouldn’t it be great if the interior had the same architectural integrity as the exterior has? Wouldn’t it be a feather in Chicago’s architectural cap if some of the Metropolitan’s new ‘luxury’ interiors were featured in the books offered at the top right-hand side of this screen? Bad greedy developer right? But then again, why would the developer want to sweat over sourcing and installing all the millwork, tile, plaster, cabinets,etc., that make a space truly unique, if he’s only going to make an additional, say, $4 per sq ft? Who wants a smaller but well done apartment (narrow and dark… that’s a favorite description for vintage townhouses on this site, even though they sell for millions here and in other large cities), when the typical Chicago ‘luxury’ buyer wants a soulless McMansion in some fake fringe neighborhood for the same price? Like the creators of the Olive Garden, they know their market.
In regards to the Metropolitan Club building (aka building with the bright blue light on the top). How disappointing are those units. I was a prospective buyer of a 1-BR unit in there….until I got to the floor it was on. The lighting, carpet color, and the layout was reminiscent of a doctor’s office. Sterile, bland, and cold. Inside, the kitchen was tiny and looked directly into an office building, the bedroom had just sliding doors and there was wasted space / odd configuration on a weird laundry room/office/boiler. The way you winded around the building to get to the gym was ridiculous – you’re better off in a corn farm funhouse maze.
Only props would be the proximity to the park and the small rooftop deck…if you do not mind giant air conditioning units and fans humming right next to your wine glass.
The bottom is not in, not by a long shot. What we are experiencing is a dead cat bounce, the eye of the storm, so to speak. There are most definitely millions of more foreclosures in the pipeline. I have dozens of clients who have been living in their homes without paying their mortgages for months, if not years.
For one thing, accepting a loan mod (and not paying on it) and/or filing bankruptcy puts your foreclosure at the bottom of the pile; and it seems to be taking months if not years for the bank to revisit your case. I’ve heard through the grapevine that Bank of America has over 3,000,000 loan mod applications in the pipeline. Countrywide now owned by B of A is the most flagrant, you can stop paying your mortgage and it’s a given that it will take up to a year for them to even file a foreclosure and then months on top of that to work it’s way through the court system.
Using previously supplied statistics, over half of all loan mods will fail within 6 months. I got one ex-client calling me for the paperwork from her first loan mod so that she can apply for a second – and she’s currently in Chap 13 bankruptcy (I didn’t file her case)!
Just yesterday a client told me she stopped paying her mortgage in June and no foreclosure, no lis pendens, nothing, she still gets statements from Wells as if her mortgage is current and everything is hunky-dory. She wants to give up the place and plans to move out and rent somewhere cheaper when Wells tells her to leave but they keep sending her statements!
I have another client where countrywide dismissed the foreclosure after 2 years for no apparent reason. No bk, no loan mod, nothing. Client hasn’t made a mortgage payment since July of ’07. It’s like he can live there for free, forever, but if he tries to sell it he has to pay off BofA.
These are just my anecdotal stories from a very small sliver of society (and no the sliver is not exclusively bankruptcy clients); on the flipside I work on foreclosure cases from small regional banks that are basically the same. Stop paying, live for free for years, file on hold for any variety of reasons….
These properties will hit the market. I don’t see how they cannot, unless the government strips the mortgages and gives it to the homeowners free and clear. The banks want their money and they’ll get it. They can’t hold back the deluge of properties forever.
So in closing, beware, don’t say you haven’t been warned, this lull we have right now is merely the eye of the storm, and the second half of the storm has yet to hit…..
“So in closing, beware, don’t say you haven’t been warned, this lull we have right now is merely the eye of the storm, and the second half of the storm has yet to hit…..”
No this implies we’re halfway through the storm. But the government keeps postponing the storm with its interventionist tactics.
Whats going to happen when: 1) Fed stops buying treasuries to keep interest rates artificially low (quantitative easing to end 3/31/10), 2) Option-ARMs continue to RECAST (through 2012), 3) Homebuyer tax credit expires (between 11/1/09-12/31/10), 4) FHA no longer can provide a significant percentage of mortgage originations or needs a bailout (2011-2013)?
All of these are going to happen and its not going to be pretty.