Market Conditions: Edgewater Condo Association to Buy Foreclosures: 6301 N. Sheridan
The Chicago Tribune reports on the latest development in condominium buildings in the city: the buying of foreclosures by the association within the building.
Shoreline Towers, at 6301 N. Sheridan in Edgewater, a 378-unit 25 story building has seen its share of foreclosures. According to the article at any time there are 12 to 14 in the building.
But the association has a new way of handling the foreclosures, which can cause a decline in values in the building.
If they receive the required 66 2/3 percent majority approval needed from owners, the association will buy up to eight foreclosed condos during the next two years and rent them as apartments until the housing market improves. Then they’ll resell them.
The board’s plan was crafted over the past five months as the housing industry’s meltdown landed on its doorstep. According to board President Edward Frischholz, average sales prices of units that sold in the building this year have ranged from $95,000 to $135,000, down $15,000 to almost $44,000 from what similar units sold for, on average, during the past four years.
Foreclosed, empty units also mean lost assessments, at least initially. With an average monthly assessment of $500, Shoreline’s association is short at least $6,000 a month from a dozen foreclosures.
One of the foreclosed units the board seeks to buy, priced by the lender at $115,000, had a four-year average sales price of more than $217,000. Because that unit is listed on a multiple listing service, the association’s planned purchase would lower comparable sales in the building, a point Frischholz concedes. Likewise, other purchases also would affect the comparable sales figures.
“It does, but what other alternative do we have,” said Frischholz, who has owned in the building since 1989. “At least we’re acquiring an income-producing asset. If units start selling for 50 cents on the dollar, that means other units start selling for less too. This was an evolutionary process we undertook to protect our property values.”
So far, proxies are running 9-1 in favor of the board’s proposal.
The article states that the association has taken out a $2.5 million refinancing in order to make the cash purchases on the units. It also has $600,000 in reserves, about half the level it used to have.
The building was built in the 1960s.
Shoreline Towers condo association plans to be a buyer in foreclosure market [Chicago Tribune, Mary Ellen Podmolik, Aug 10, 2009]
Shoreline Towers Condominiums [website]
Wait – why can’t they just file a lawsuit to take possession of the condo & then rent it out to pay the back association fees? I can’t remember what it is called, but it wouldn’t require them to buy them.
“lost assessments, at least initially.”
They will get the fees when the foreclosure is unloaded on a knife-catcher.
This is absurd, which amuses the heck out of me. The FBs want to remake the condo association pin their image.
This will be great. The banks will know to raise their prices on REOs and the condo association will take it as a sign that their plan is working. What could go wrong?
“Foreclosed, empty units also mean lost assessments, at least initially. With an average monthly assessment of $500, Shoreline’s association is short at least $6,000 a month from a dozen foreclosures.”
LOL. So how exactly will purchasing the units solve this problem? The association is going to pay the assessments to itself? BRILLIANT!
ROFLMAO.. The problems with this are too numerous to mention. I would be selling immediately if I were in this place. Scary thing is I bet over 66% approve in order to not see those foreclosure prints against their comps. Ostrich head in the sand behavior!
ah 9:1 didnt see that. Genius!
Well it is a great way to get rid of excess reserves!
this is pure SOCIALISM! Don’t these people know if they do this, they are no better than the N. Koreans?
\wondering if the ass. prez has an under-the-table deal w/ a Realtor(R). it just ain’t capitalism unless someone at least TRYS to rip off someone else…
I’m not suggesting this is a good move by the condo assoc. but this is far from socialism.
This would work if the association actually knew what they were doing and could buy the units at a cash flow positive basis. The problem with most condos is that the HOA dues are so high that it is nearly impossible to buy units cheap enough to be cash flow positive. I don’t know much about this neighborhood, but I don’t think $115k is cheap enough to make sense from an investment standpoint, so the association will probably get screwed.
ChiGuy.. take your crazy pill this morning?
LOL stupid people!
This is why I’m going to be active in my condo association, so that they never do something as stupid as this!
Nice to see they have foxes on the beach…..
what are these units 1brs, what would they rent for in edgew. if 1k a month
(1000 – 500 * 12) – 2000 / .06
I would argue that they would have maintained losses on the association fees and from its perspective wouldn’t subtract the fees out. but even if; they would be at around 67K or BE rent around 1200-1300ish
I looked at a unit in this building a few years back, there were more issues with it than I can list and the assessments were the same back then, so they obviously haven’t addressed the issues and I’m sure that increases are coming…
That said, MJ is right, the assessment is so high for this area and the rents they can get are nothing close to the assessment and monthly nut on any of the units. I guess they are taking the lesser of two evils, lose the monthly assessment while the unit sits in foreclosure or buy it, rent it at a price that will offset at least some of the monthly costs. All while lowering the value of the units in the building… genius!
I’m not sure they apply, but aren’t most condo associations set up as “not for profit”. if that is the case here, how can they start getting into the RE game in this way?
“I’m not sure they apply, but aren’t most condo associations set up as “not for profit”. if that is the case here, how can they start getting into the RE game in this way?”
Actually Jason R there are literally thousands of “not for profit” real estate owners these days. All it takes is purchasing a unit that isn’t cash flow positive.
A: Purchase a unit at an inflated price, thats how.
by the way, my previous comment about socialism was sarcasm… I don’t know enough about this Edgewater property to comment on the property. I thought i would comment on the 9 unit owners deciding to drain the reserves and specu-vest for the entire building…
I can tell you that the windows on this building need serious attention.
am I missing something, won’t these units eventually become comps at a lower price?
*anyways
The Next Fannie Mae
Ginnie Mae and FHA are becoming $1 trillion subprime guarantors
http://online.wsj.com/article/SB10001424052970204908604574334662183078806.html
“FHA now insures $560 billion of mortgages—quadruple the amount in 2006.”
“The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud.”
“FHA’s default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days.”
“Is anyone on Capitol Hill or the White House paying attention? Evidently not, because on both sides of Pennsylvania Avenue policy makers are busy giving the FHA even more business while easing its already loosy-goosy underwriting standards.”
Enjoy the popcorn people. Its going to be a long slog..
Its the absolute definition of insanity what our government is doing these days. Repeating the exact same mistakes as at FNM & FRE at the FHA and expecting a different result.
“He’s a power hungry, corrupt, shady, liar with no regard to the well being of his constituents or peers.”
Um, who in Congress isn’t? Seriously.
After reading the article it really is clear the housing lobby is in control of our legislators and they are going to attempt to maintain lofty RE valuations for as long as possible, at any cost. But we know our government doesn’t have an endless stream of money even if it appears so in the short term.
I eagerly await the day when I wake up and the headline reads: “China decides to start dumping US treasuries” and the house of cards all comes crumbling down.
“I eagerly await the day when I wake up and the headline reads: “China decides to start dumping US treasuries” and the house of cards all comes crumbling down.”
I think this has already started happening.
“I eagerly await the day when I wake up and the headline reads: “China decides to start dumping US treasuries” and the house of cards all comes crumbling down.”
China can’t really do this as they are completely in bed with us. Everyone was talking about “decoupling” but it never happened. If China dumps treasuries, the dollar will get crushed and China will not be able to export nearly as many goods to the U.S. as they have in the past. So at least in the short to mid term, China will not massively sell treauries to keep their economy going.
If not China then other foreign debtholders then..maybe petrostates.
I don’t see how we can avoid big problems with the deficit next year and the treasury tries to issue $2T worth of bonds. No way interest rates will remain low. There can’t be that much additional demand out there at today’s low rates.
“I don’t see how we can avoid big problems with the deficit next year”
Yeah, we’re f’d. What coming is going to make the Jimmy Carter days look like mild contained inflation.
The Board is acting in a responsible way. Malibu East Condominium just down the street buys every under-priced or distressed unit in their building and has always made a profit later on. It’s nice these two building have the financial resources to do this.
It’s a good idea, but I believe they should be using the association’s right of first refusal to do this (assuming they have it). IIRC, this keeps the sale from being usable as a comp thus ‘saving’ the property values. Only problem I can see will come in when somebody goes to sell and the buyer’s lender wants to know the percentage of owner occupiers. Greater than 25% renters = no more Freddie / Fannie loans = also bad for the property value.
“There can’t be that much additional demand out there at today’s low rates.”
the only ones stupid enough to buy treasuries at these yields is our own government and the fed
“the only ones stupid enough to buy treasuries at these yields is our own government and the fed”
Sonies.. took a few months to come up with that reply? Btw… I said it a few months ago, halfheartedly, now I’ll say it with much more conviction and significantly shorten my time frame for occurring. The market really wants to go take a walk on the wild side…. And of course “the colored girls go doo do doo do doo do do doo- hey babe take a walk on the wild side”
btw.. shouldn’t y’all be talkin carnaval instead of all this silly unhappy political-economy stuff?