Market Conditions: New Construction Sales Continue Near Decade Lows in Downtown Chicago
Crain’s is reporting that according to a new report by the Appraisal Research Counselors just 56 condos and townhomes sold in the third quarter of 2009 compared to 160 in the year ago period.
It’s also down from 313 condos in the prior quarter (second quarter of 2009).
Appraisal Research is expecting just 600 units to sell this year which is about the same as 2008. 2008 was the worst year for sales since Appraisal started tracking them in 1997.
At the current sales pace, that would mean there will still be 6 years worth of new construction inventory.
After completing 4,155 units in 2008 and 4,061 units this year, downtown condo and townhome developers will finish just 900 in 2010, a 78% drop, according to Appraisal Research. Just 86 units are due to be completed in 2011.
“2010’s going to be a better year than 2009,” says Alan Lev, CEO of Chicago-based residential developer Belgravia Group Ltd. “Nothing new is getting built. It seems as though things are stabilizing.”
Sales topped 8,000 a year near the peak of the market in 2005.
Appraisal also believes the $8,000 first time home buyers credit and the $6500 move up credit could stir up a few more sales.
What about those walking away from contracts?
According to Appraisal Research, 23% of new downtown condo developments reported a net loss of sales in the third quarter as buyers walked away from signed contracts. The firm tracks sales contracts, not completed sales. Fifty-two percent of projects reported a sales increase and 25% reported no change.
When will demand return to the downtown housing market?
Downtown condos: Sales dismal, but development winds down [Crain’s Chicago Business, Alby Gallun, Nov 9, 2009]
It would be interesting to see what portion of those numbers are south loop vs. everywhere else.
I still think developers have their heads buried in sand. Excluding S Loop which is development hell, most developers seem to be trying to hold the line on new construction at $500 per sq ft (and in many cases still pricing higher). Until that barrier is broken down with authority, I don’t see the market clearing up.
I am still wait for the fire sale at OMP! it should have happened already, but greed and stubbornness still think they can sell a 1br for 300k in the south loop 🙁
OMP is still in the $500 per sq ft category.
” Until that barrier is broken down with authority, I don’t see the market clearing up.”
Until construction loans come due, I really don’t see them budging much on price either. But they’ll get the hint eventually.
The south loops reminds me of Brickell Ave in Miami, in that these developers built so many poorly designed condos in such a bad location. There really aren’t very many good reasons to live on Brickell Ave. The area lacks everything that a neighborhood should have like grocery stores, public trans, jobs, easy access to downtown, parking, etc; but it has high rise towers in abundance. Condo towers in other locations around the city seem to be doing better because the location is better but the south loop is just miserable.
It’s an endurance contest between buyers and developers/banks. My money is on the buyers. There has already been some capitulation (Vetro, 1400 S Michigan, Motor Row) and rental conversions (Roosevelt Collection, Burnham Pointe). More auctions/reductions are coming.
The CTA should really open up some EL stops at 18th st. Having a red line and an orange or green line stop there would help out the hood a LOT. The michigan and state st. buses SUCK and are always packed to the brim.
“The CTA should really open up some EL stops at 18th st.”
You buying? I’m not really up for another $100mm+ CTA project right now.
I agree w/Sonies.
I was down there with the wife around 18th/19th and Michigan and we talked about how the area would probably open up if there were a train stop nearby.
The area seems like it’s just barely sustaining a level above Ghost Town.
OH yeah I forget we’re wasting all that money on the Block 35 project… what a massive fail that place is
i hope to god block 37 doesn’t fail. a few nice places to eat along with a movie theater would be nice for afterwork and walking distance from my office.
i liked it better as an ice rink
To answer your question…
When prices come down further.
Hats off to the Vetro for being ahead of the curve. Still overpriced but they successfully picked off some low hanging fruit (knife catchers).
Every development is unique, but there are very few foolish buyers left out there who aren’t already underwater on what they have. Therefore you need to sell to non-foolish buyers, for the most part.
In this case, prices are still MUCH too high in most of the city. And in the nicest areas where I would argue high prices are more justified, there just aren’t enough qualified people to soak up the inventory. Too much building and too high unemployment. Best case scenario is 5-10 years of sideways, more likely that price declines resume.
John
“The area lacks everything that a neighborhood should have like grocery stores, public trans, jobs, easy access to downtown, parking, etc;”
You talking bout Miami? Because the South Loop has all of these things…, except for jobs perhaps, but that’s what downtown is for.
Oh that’s right. Everyone wants to live in the south loop. I forgot. It has all the amenities and neighborhood feel that one could ever want. Bienvenidos a Miami.
““The area lacks everything that a neighborhood should have like grocery stores, public trans, jobs, easy access to downtown, parking, etc;”
The report says that at current sales pace (which is estimated to be 600 units this year) that there will be 6 years of new construction on the market. However, they completed 4000 units this year alone. So 4000-600=3600. The 3600 being the 6 years of new construction condos on the market, but what about 2008, which had 4100 new construction units built and only 900 sold, which would mean that there already is 4-6 years of unsold new construction on the market. In my view that means there is about 10 years of unsold units, on top of people who will be forced out due to loss of jobs or fear of losing more money…PRICES GOING DOWN DOWN DOWN!!!
oops 3400
HD, I think your Brickell/S. Loop comparison is actually a pretty good one– I love Chicago, and love Miami, but I hate the S. Loop and Brickell, for all these obvious reasons.
Not apples to apples though. There is no section of Brickell where you can walk to downtown or the beach. . . or anywhere.
But if you go to the part of the “south loop” that is actually in the south loop, you do have an ok location for amentities, transportation, etc.
I think that’s what’s going to happen in the “south loop”– the part of it that’s actually conveniently located will be fine.
Unfortunately, there’s a ton of major development that tried to “stretch” the ‘hood S and E. Those developers are going to be the ones to pay.
Because if you’re looking at a place at 18th and michigan, you’re going to feel like Sonies– “where’s all this convenient urban living I’ve heard about,” and “where’s my L stop.”
(Unfortunately if all these places do sell someday, we’ll have a population density issue that will be just as bad to that quality of life).
So glad to be out of this neighborhood, RE-wise. . .
What you neglect to mention in your comparison between the South Loop and Brickell is that South Floridians…actually all of Florida, rely heavily on their own cars for transportation. Since the whole metro area is spread over a large area with a nearly ineffective Public transportation system (the transit system there is basically used only by lower income individuals) you have to own at least one vehicle to get around the city.
Those who live in all those high end highrises don’t care about a lack of amenities near their condos as they simply call valet, ride down their private elevators and drive to where they need to go. Granted the area is suffering and many a building is sitting only partially sold, it was built targeting high end buyers.
The South Loop was not built with a focus on the upper income buyers like Brickell is, but rather it seems it is focused on a younger, less established and lower income group. Correct me if I am wrong on that observation, but it is what I found while looking that area. I might not know the S Loop like many here to, but I am very familiar with the Brickell corridor I do know very well as it is where my home is located and where I have several investment properties.
HD –
you are wrong about the south loop. i work downtown and love being able to walk to work in the summer. there are all of the suburban big box stores on roosevelt and you can hop on the lakeshore path and hit both north and south. on this one you are dead wrong. don’t confuse the area with some of the developments. having rented in tower iv of museum park yes it is overpriced but it will come down and the building i was in was well constructed and maintained.
“many a building is sitting only partially sold”
…Should have read ‘many buildings are sitting only’….
I agree with Stuart, I don’t see how anyone could say there are no amenities near the new construction buildings in the S Loop. Roosevelt is packed with everything one needs.
Oh so maybe I’m exaggerating a bit but a Target, Best Buy and Whole Foods alone don’t make a neighborhood, at least not one I want to live in. Yes the neighborhood has changed a bit in the last 10 years since the mission moved and the professionals started moving in, but, but the comparisons to Brickell Ave (ground Zero of the housing boom) are too glaring. It’s not a perfect comparison by any means but there are some similarities. Lots of towers, concentrated in a new area, not previously developed, etc.
“Roosevelt is packed with everything one needs.”
“but a Target, Best Buy and Whole Foods alone don’t make a neighborhood, at least not one I want to live in.”
no, they don’t make a hood, thankfully the south loop has much more to offer than that and lots of people enjoy calling it home. If it’s not for you, great, but no need to make up lies like there ain’t no grocery stores when Jewel has been around forever. Fyi, there are also 3 smaller grocery/convenience stores now on Michigan between roosevelt and 18th. They all opened up within the last year or so. The hood is new and changing rapidly.
“but [fill in the blank] alone don’t make a neighborhood, at least not one I want to live in.”
Yeah, that’s about right. I think we all can say that about one place or another. “Good schools, cul de sacs and e-z Metra and freeway access” for some, “boutiques, restaurants/bars and walking distance to work” for others.
““2010’s going to be a better year than 2009,” says Alan Lev, CEO of Chicago-based residential developer Belgravia Group Ltd. “Nothing new is getting built.”
Well if 800 units are expected to sell this year and next year is anything like this year and 900 will be added, 2010 is going to be rough too. I don’t see stabilization in the south loop until inventory drops substantially and that won’t even start happening until 2011.
roosevelt road has turned into north and clybourn south. to me that sucks but if you live in museum park its probably nice to have all those big boxes close by. plus eppels is still there, and mannys.
you want cool neighborhood feel in the sloop you get it best in printers row imho.
The drop in annual downtown condo sales from 8,000 to 600 is pretty damn drastic. And stomach turning.
Does this mean there are still about 6800 new condos on the market? (2008&2009 finished)-(2008&2009 sold)
4000+4000-600-600. Stopping new construction for a year or two is not really going to help without prices going down. How many of those 1200 sold in the last 2 years were actually people betting on the Olympics?
A guestion I thought about every time I see a place has been sold whether or not it was in the Loop.
“How many of those 1200 sold in the last 2 years were actually people betting on the Olympics?”
Neighborhood feel in Printer’s Row? Yes compared to other parts of S Loop but no compared to other parts of the city.
I guess it’s worth asking. Any short sales or foreclosures noted in any of the more notable recently developed downtown condos: 340 on the Park, Aqua, The Heritage, One Museum Park, Trump, etc.?
At least in the dead of winter you can walk to work downtown from Printers Row. I wouldn’t venture that from 1800 S Michigan/Wabash.
“Does this mean there are still about 6800 new condos on the market? (2008&2009 finished)-(2008&2009 sold)”
I didn’t read the article carefully (and w/o re-reading it), weren’t they tracking net contracts rather than actual closed sales?
Bob,
Trust me I know. I do that hike every day (from Harrison/Dearborn area).
South Loop is cool, I’m there now, renting at 100 E. 14th, a pretty nice building. Several groceries, taverns, restaurants and coffee places around and it’s only a 10 minute drive to Bridgeport and all the old school Chicago stuff there like Schaller’s, Sheehan’s, Freddie’s, Ramova Grill, Mexico Steak House, Let’s Boogie records, Phil’s pizza and all that.
And I walk up to the Fine Arts Building every Thursday for my piano lessons. Never too old to take up a new instrument.
But I wouldn’t buy there, no siree Bob. But renting is good. But check the unit owner’s credit and situation.
On another note I’ve noticed that mortgage rates are back at record lows again..it will be interesting to see whether this helps to stimulate sales this time around or not.
Long term I see the South Loop as still a good place. It will take a while but its close to downtown, the lake, parks and will fill in with shops and bars. Im thinking of moving from my cramped Gold Coast place to a much larger unit, with balcony, views and high ceilings. Same price for 2x the space seems a good enough deal for me.
“Any short sales or foreclosures noted in any of the more notable recently developed downtown condos: 340 on the Park, Aqua, The Heritage, One Museum Park, Trump, etc.?”
Aqua just started closings a month or so ago.
No short sales or foreclosures in 340 OTP (that I’ve seen.)
No short sales or foreclosures in Trump but there are people selling for under what they paid a year or two ago including Rex Grossman (who, according to the Tribune, bought for $2.68 million last year and is now listed at $2.35 million.)
The Heritage has had several distressed sales.
The Palmolive has had at least one distressed sale (which we chattered about).
The Park Tower has had one foreclosure (which we chattered about.)
I see Printer’s Row as a source of some great bargains eventually. This area will be viable long-term since it is so close to the Loop, but the developments in the more desolate parts of the South Loop might never be worth much. The only part of the South Loop I’d consider is either Printer’s Row or the Museum Park area.