Market Conditions: New Downtown Condo Sales Fall Year Over Year In Q2
Developers are still having trouble finding buyers for new construction condos in downtown Chicago as luxury rentals and distressed sales of cheaper, older units are proving to be tough competition.
From Crain’s:
Developers sold 182 downtown condos in the second quarter, up from 113 in the first quarter but down from 196 a year earlier, according to a report from Appraisal Research Counselors, a Chicago-based consulting firm.
“There are not only rental alternatives, there are excellent rental alternatives, newly finished with all the bells and whistles,” said Appraisal Research Vice-president Gail Lissner. “Anybody buying a residence right now really needs to want to stay there for a long time.”
Another drag may be level of distress driving the market, with 22 percent of all second-quarter downtown condo sales being sold by a lender or as a short sale, where a property trades for less than its level of debt, according to Appraisal Research. Distressed deals are more common in the resale market and drag down prices of neighboring properties, Ms. Lissner said.
The good news is that inventory is at its lowest in 12 years. It peaked in 2007 at nearly 6,000 units. Many of those have been converted to rental units.
In one encouraging sign, the supply of unsold new condos continues to shrink, to 1,529 units in the second quarter, down from 1,670 in the first quarter and 1,828 in the fourth quarter of 2011. Nearly 500 of those units are concentrated in three failed South Loop towers that will resume marketing next year.
Leading all projects in sales was 200 N. Dearborn St., a condo conversion that sold 37 units in the second quarter, said developer Nick Gouletas of American Invsco Corp. Aided by several price cuts and a discount for cash buyers, the project has particularly appealed to parents of students attending the downtown campus of Loyola University Chicago, Mr. Gouletas said.
Other sales leaders include CMK Development Corp., which sold 18 units in the 714-unit building at 235 W. Van Buren St., and Hinsdale-based Foxford City LLC, which sold 18 units at the Van Buren Lofts, 1224 W. Van Buren St., after buying 52 unsold condos in the struggling project last year and cutting prices.
The number of sales will be inflated in the second half of 2012 as the luxury Ritz Carlton begins closings on its units. I’m waiting to see how many of those actually close as, in some cases, contracts were signed many years ago.
We’ve seen new construction units flying off the shelf in some neighborhoods like Lakeview and Lincoln Park but that was in small and mid-rise buildings.
Are all the luxury rental buildings, where the finishes and amenities are similar to actually buying the condo, just too much to competition for developers downtown?
Why save for a down payment when you can get the same thing with just a few thousand down in a security deposit?
Downtown condo sales dip in the second quarter [Crain’s Chicago Business, David Lee Matthews, Aug 14, 2012]
In my personal and semi-professional opinion, these downtown condos have a “holier than thou” attitude and are refusing to lower prices to market levels, thus decreased YOY sales. My favorite 235 is a prime example. And the 500 units in the South Loop will be back on the market next year but the “new owner” has publicly vowed not to lower prices but to only market them better. In today’s digital age, I think marketing is such a small piece of the equation. As long as you have a semi-decent website with a few pictures, you’ll get business. And in today’s market, buyers want deals. We’re not stupid; we’ve seen the writing on the wall and developers need to pull their thumbs out of their you-know-what and lower their prices.
* I think this is more of an issue with highrise developments than midrise / flats. Those types of new developments are moving through the market fast; its the damn “holier than thou” highrises developers that are failing.
“Why save for a down payment when you can get the same thing with just a few thousand down in a security deposit?”
um because you can’t “get the same thing”
ownership and renting are two completely different lifestyles you can’t really compare them as apples to apples.
Of course if you want to save a little dough you rent!!!! Thats why most people with little money and poor credit scores do that. Thats why transient yuppies rent luxury apartments downtown before they go off to wherever when they hit it big. You still need a place to live, and dealing with security deposits (getting them back is always fun) and moving every year BLOWS GOATS and for most people with established lives, don’t want to deal with that crap.
But money isn’t everything! If you want good finishes, done your way, familty stability and perhaps some personality in your home you must own. I just don’t see how buying is such financial suicide, it is forced savings and if you plan to live there for an extremely long time it works out just fine. Yes there are bagholders from the bubble, but I think if you’re buying now and plan to live there for at least 6 years you’ll do just fine and won’t be committing financial suicide if you stick to 3x your income as a purchase price.
“Why save for a down payment when you can get the same thing with just a few thousand down in a security deposit?”
Examples?
“dealing with security deposits (getting them back is always fun)”
Have never had a problem with that. My current landlord actually sent my deposit back bc he didn’t want to deal with it. Ok, one time, a long time ago, in a different city, had a problem with it, until we let the landlord know that we knew the local ordinance and he was liable for treble damages for failing to return our deposit or provide us with notification in specified time.
“moving every year BLOWS GOATS”
Why do you need to move every year? If you’re renting in e.g. a river north apt building why would you ever need to move unless you want to? If you’re not renting in an apt building, it’s pretty easy to have a sense of whether the landlord is renting long term. We haven’t moved in 7 years.
“In my personal and semi-professional opinion, these downtown condos have a “holier than thou” attitude and are refusing to lower prices to market levels, thus decreased YOY sales.”
1. What are the current market levels? In your semi-professional opinion? Let’s say for a 2/2 downtown?
2. If the Developer is happy enough with their current sales levels, at current pricing – why do they need to lower them?
3. The YOY decrease is only 8 units, hardly earth-shattering decline, and considering 2 quarter increases.
I think the one and two bedrooms are suffering b/c many of the luxury rental high-rises have the same finishes, with less hassle. Larger 3 bedroom or over 2000 square feet condos are moving b/c you really can’t rent those. And, if you can, they are not usually as nice as ones for sale or only rent for few years and then you have to move, often with a family and kids who need to stay in stable schools.
I had to move last year bc the landlord sold his house and wanted to move back to the city. It did blow, and was stressful. though the stressful part was finding the new place. the actual move sucked too but that was over quick. Price you sometimes pay for flexibility, it’s worked out fine.
Opinions?
http://www.chicagomag.com/Radar/Deal-Estate/August-2012/The-Return-of-the-Richelieu/
‘I just don’t see how buying is such financial suicide, it is forced savings and if you plan to live there for an extremely long time it works out just fine.’
Forced savings… I like that. The only problem with that concept is that forced savings via one-home ownership is a *long* term goal, and Americans tend not to think in the long term. I can’t think of one acquaintance, not one, who bought and sold and then bought and sold again (most exceeded the 3x income/house rule, and all bought based on their housing wants not needs), who’s now financially sound. Nor can I think of a renter who has rented their place for the last 20+ years who’s now ahead of the game.
I think a good example of long term ‘savings’ is yesterdays house on Geneva Terrace. They bought in the 80’s probably in the upper $300K (20% down and at around 14% interest at the time), renovated to fit their needs, raised a family there, were underwater by probably 20% in the early 90’s as we all were in this area but stayed the course, and are now ready to move on. Even if they sold below $1MM… they will do just fine.
DZ – “Why do you need to move every year? If you’re renting in e.g. a river north apt building why would you ever need to move unless you want to? ”
There is a large variety of factors, but what if your landlord wants to raise your rent an unreasonable amount? What if your landlord just doesn’t want you there (because he found another sucker to pay an outrageous amount in rent)? I moved on average every 1-2 years when I was renting because i was upwardly mobile in my work and wanted a nicer place and had trouble finding a nice place at a good price, especially as a person with dogs, really hurts your search for “deals”.
“i was upwardly mobile in my work and wanted a nicer place”
Would it have made more sense to have bought instead at that time (setting bubble issues aside)? How home mobile would you have been?
“What if your landlord just doesn’t want you there (because he found another sucker to pay an outrageous amount in rent)?”
Since this post was about the downtown new condo sales (which I believe the Appraisal Research describes as from Roosevelt to North Avenue but I don’t remember the western boundary), we’re basically talking about high rise condos v. high rise rentals.
The landlord in any of the high rise rentals doesn’t even know who you are (unless you’re renting a condo.) But if you rent in one of the shiny new buildings you’re just a faceless renter using the pool and exercise room.
Sonies- have you been in any of the new rental towers? Many are much nicer than the newer condo buildings. One renter described one building to me as “living on a cruise ship” because of all the amenities, activities etc. Hey- that might not be for everyone but the rental towers have great gyms, pools etc. The units have granite and stainless steel. Many have hardwood floors (at least in the living areas.) You can paint the walls.
So why buy the 2/2 in a downtown high rise when you can rent? That was my original question. I’m NOT talking about the family of 4 who is looking to buy the suburban house or the newlyweds looking for that Lakeview townhouse.
A side by side comparison of the downtown rentals versus the condos makes the rentals very attractive- even if they ARE priced higher on a monthly basis. You don’t have to come up with a big downpayment (in some buildings $1000 or $2000 will move you in.) You don’t have to worry about rising assessments. Sure- they could raise your rent again next year and the year after. But same with assessments and property taxes.
The point of the quote in the article about rentals from Appraisal Institute is- are people really going to live for 10 years in a River North high rise? Probably not. So why not just rent it instead? Same exact lifestyle.
Interesting how we still worship the “stability” of home-ownership and the “forced savings” of the 30-year mortgage … At a time when $any of not most marriages won’t last 30 years, and even the “stable” American family moves about every 5 years or so.
In light of these realities about contemporary American family life, the 5-year ARM makes a lot more sense as the “default” financing plan.
“Would it have made more sense to have bought instead at that time?”
no, prices were quite ridiculous and the fact that some of my deadbeat friends were buying places (even one with 3 houses worth a million bucks) with 0% down set off alarm bells to stay away. shoudl I have stayed away longer? yeah obviously in hindsight, but I’m happy where I’m at and my monthly nut has decreased every year since i moved in. This year, significantly since i refinanced. Would I like to be in the buyers market now with a huge pile of cash? Sure, but I have had a great standard of life over the last 3+ years too and I am not sure where i could have lived instead in this area just as nice with 2 dogs.
“Sonies- have you been in any of the new rental towers? Many are much nicer than the newer condo buildings. One renter described one building to me as “living on a cruise ship” because of all the amenities, activities etc.”
This makes me think of the rental bldg. that attached to the East Bank Club, east of the river (or is it tracks), versus the condo building just west. The rental building is taller, cooler looking, and has a better location.
Urban Mommy – Actually some families might prefer to stay in a 3-bedroom rental downtown if it means the kids can go to “stable” schools. Several years ago I was an office assistant/rental consultant for a Gold Coast hi-rise with 1- and 2-bedroom “luxury” apartments. Several families with school-age kids lived in the 2/2s because the building is in the Ogden/Payton district. If they were to move to a house whose monthly payment equaled the rent on the apartment, they would have ended up in a less glamorous neighborhood with a less prestigious CPS school so they’d have to go the “private” route.
Plus, of course, there was closeness to Mom and Dad’s work places, shopping, restaurants, the lake, etc.
“the building is in the … Payton district”
Stop. Just STOP. Please. Stop spreading your ignorance about selective enrollment high schools.
Roseland is as much in the Payton “district” as Atrium Village (spitting distance from Payton) is.
lolz tfo. she threw you a softball. wonder how many realtors have used that payton district line. it’s gold!
I’m gonna use that when i sell my place… Payton District… GOLD JERRY GOLD
“lolz tfo. she threw you a softball”
CTG/LL/BB all do it all the time. “That’s a great location b/c kids can just attend Lane” and “the Payton district” are the same as “Cambridge is great because your kids can attend Harvard” and “Berkeley is in the Cal attendance area”.
Still remember the one on here where the realtard listed Northside as the HS for a house in LV (iirc).
“Would I like to be in the buyers market now with a huge pile of cash?”
My only point was it seemed odd to be describing the problems with renting from wanting to move all the time bc of your mobility, based on a time when it made no sense for you to buy (even aside from bubble).