Market Conditions: Rental Deals Galore in the Downtown Zip Codes
The Chicago Tribune had an article in Sunday’s Business section about all of the rental deals on condos and in luxury high rise apartment buildings in Chicago’s downtown.
We’ve been chattering about this phenomena for several months now.
Chicagoan Bob Balanoff has been among those on the prowl for a new place. Six months ago he investigated downtown rental possibilities and decided to wait, figuring prices would fall. A month ago, he again began scouring Web sites listing rentals and found he wielded a lot more negotiating power.
Last week, Balanoff spotted an ad for a $3,500-a-month one-bedroom condo on Lake Shore Drive in Streeterville. Sight unseen, Balanoff offered $3,000 a month, and the two sides settled on $3,025. But before signing a lease, he also toured three other condos in the year-old luxury building, including one unit, on the market for more than five months, whose rent had been cut by more than $1,000 a month.
Balanoff went with his first choice, which a year ago rented for $3,200 a month. Soon he’ll trade his $2,200-a-month apartment with linoleum floors and old cabinets for something with far more panache and style and located across the street from the beach.
“I’ll take a slight price bump, but it’s a whole new world,” he said. “I’ll be able to live in an $800,000 or $900,000 condo.”
It’s all about supply and demand. Not only are there dozens of condo high rises still going up in the downtown area but there are new construction apartment buildings as well.
Last year, almost 2,000 high-rise apartment units were added to the market. Meanwhile, in the 12-month period ended in October, 894 new apartments were rented, according to Appraisal Research Counselors.
More projects will come online this year. They include Streeter Place and Aqua, two amenity-filled buildings that will add nearly 1,000 more apartment units to downtown. Neither development has set its rents.
The current inventory of downtown apartments is similar to 1999, before the market shifted to condos and conversions.
“The unfortunate thing is it’s happening at a time when the job market is at the worst, according to economists, since the 1930s,” said Ron De Vries, a vice president at Appraisal Research Counselors.
“Jobs lead to changes in population and household growth. Without the jobs, people are going to be moving out, moving in with relatives, doubling up—and your demand for housing falls.”
Last month, M&R Development broke ground on Parc Huron, a 221-unit luxury apartment building in River North that originally was to be developed by Lennar Corp. as condos. Other buildings on tap, many in River North, are expected to add almost 2,500 rental units to the market next year.
The “Shadow” condo market adds even more supply.
Just along the Gold Coast there are 64 condo properties that have been on the rental market for at least 180 days.
In the nine ZIP codes that comprise the core of downtown Chicago, more than 950 condos, town houses and houses are listed as rentals, according to Midwest Real Estate Data LLC. That doesn’t include countless others advertised on Web sites like Craigslist.
“We don’t know how many [condo rentals] are out there and how many deals are being cut under the table,” said Tannie Schnell, managing director at Meridian Capital.
“It’s the curve ball in the numbers. I think it’s a problem that’s going to get worse.”
Appraisal Research Counselors estimates 4,000 condo units were rented between the third quarter of 2007 and 2008; that’s more than double the number in 2005.
And as we’ve chattered about, many of these “rents” aren’t coming close to covering the landlords costs. So these flipper/landlords are losing every month they own the property. How long can that go on?
In the South Loop, real estate agent Maria Sabatini is trying to find a tenant for a crisp-looking one-bedroom unit with a clear view of the museum campus. Originally marketed at $2,000, it’s been vacant for a month. Now the rent has been dropped to $1,800. At either price, the owner wouldn’t be covering the expense of the mortgage, taxes and the assessment.
“It’ll stop the bleeding and we’ll take the loss and see what we can do in the future,” said Sabatini, an agent at Rubloff Residential Properties.
“We’re trying to take renters who might take a 14-month lease or a 15-month lease or even a six-month lease. Because there is so much to choose from in the high-end market, investors are seeing they can’t get top dollar for their units any longer.”
Downtown deals and housing downturn allow renters to go upscale [Chicago Tribune, Jan 18, 2009]
And I just ran into a buyer yesterday that told me he wasn’t going to sell his current place because he was going to rent it out. Renting is still seen as the panacea for a soft resale market.
Seriously? $3000 for a 1/1? I can’t even imagine a 3K 1/1. it better have a happy ending maid/laundry/delivery service! $1800 for a 1br in S.Loop! Isn’t that Streeter material? I believe my friends who lived there paid 1600 a piece… At those prices I don’t think I can ever justify moving out of my current 1/1. I’m just “saving” too much money.
Well I was going to buy. Maybe I’ll just rent and see where this market goes from here.
ChiGuy: That’s what is also interesting about this rental market. Why would someone pay $1800 for a so-so building in the South Loop when they can pay the same amount and get the same unit (or nicer) in Streeterville/River North/Gold Coast?
The South Loop is overpriced in both rental rates AND the prices in the for sale units. But the problem is, the flippers can’t really rent out the 1-bedrooms for $1400 a month (or less) because they’re bleeding too much money.
By the way- you can rent a 1/1.1 in Trump Tower for far less than $3000.
“And I just ran into a buyer yesterday that told me he wasn’t going to sell his current place because he was going to rent it out. Renting is still seen as the panacea for a soft resale market.”
Gary: Does that mean he thinks he can rent his current place and cover the costs and at the same time buy a new place? So- two mortgages?
That’s a scary proposition in this market, don’t you think?
But I’ve heard this too. Everyone thinks “renting it out” will solve all their problems and they’ll be able to sell the property for more “in a year or two” if only they “wait it out.”
I thought $3,000 rent was normal!
I have seen several units in the 2,500- 3,500 for a one bedroom recently in Trump and the Palmolive. At that range you are paying for the building name and location. But these units are ALL still for rent and have been vacant for quite some time. I am sure that these rents will be falling. They all seem quite “motivated”
The Palmolive units are also for sale for the mid 600’s up to the low 700’s so even at 3,000 a month that is way cheaper than owning it (given the $850 a month assesments!)
I agree with Chiguy -3k/month for a 1bedroom?! Even if someone can easily afford to live in the Ritz or Trump, why pay that much for something you will never own?! Why not pay 1800 like the rest of us, save $1200/month and just walk over to the Trump to enjoy all it has to offer. Given the current state of the economy, I don’t think anyone is too rich to save money.
Being able to cover your mortgage, taxes and assessment by renting your unit downtown is not realisitc unless you bought the place 7-10 years ago. Anyone who is trying to save themself from a total disaster by renting their place that they purchased over the last 5 years should count their blessings if they are able to cover the mortgage.
Why the Bob in this article is paying $2,200/month for a place with linoleum floors is beyond me. You can rent a very nice place in this city for $2,200.
Bob, agree. Renting a 1250 sq feet, wood floors granite counter tops 2/2 on michigan ave. (the actual rent is 2400, but got a month free…)
Sartre, do you mind me asking where? I pay $1850 for a 1BD on LSD in the Gold Coast and I am starting to look around at cheaper alternatives so I can beef up my emergency fund.
oops hit send to fast. I do have a question about renting condos. Considering how much 1 BDs cost nowadays in any 312 area, how are so many people not drowning when they are renting these units out for under 2k even though mortgage+tax+assessments often touches $3500. Is there some benefit to this that I am missing? Are these people building that much equity, to the point where they don’t mind bleeding that much cash?
Lauren
you are not missing anything: these units are hemoraging cash, and will continue to do so, they have no equity, and are probably under water by this point. Renting is just an attempt to staunch the bleeding since they wont sell
What I am missing is why pay $3000 a month for anything you are renting when you can get really nice places all over the city for signifigantly less.
Haywood – When you can rent a $800K-$900K place for $3K/month….do it! Just check out your landlord first to make sure they don’t go into foreclosure and are paying their HOA fees. Rent for less than half the cost of owning with NO worries….almost priceless! Why ever buy????
$3,000 for an apartment? I pay less than $1,000 for a vintage apartment. 2/1 1000 sq. ft. I don’t plan on living there forever but it suits my needs until it’s time to buy a single family home. Now is not the time.
If ever a planned new neighborhood was DOA, it’s the South Loop. The place is a planned disaster as an urban neighborhood, a complete botch in the inception.
Watch for the next few years… that neighborhood will never, ever regain the fake value it had for the brief time of the debt-and-hysteria driven boom, even if all the glossy highrises didn’t have the monstrous construction problems that plague so many buildings in that neighborhood.
The South Loop is an instant “gray area”, an example of truly atrocious urban planning. A “gray area”, to use a term invented by Jane Jacobs, is an area that is neither truly urban or suburban, combines the worst aspects of both urban and suburban neighborhoods with the advantages of neither, and lacks the street life and vitality of a healthy urban neighborhood while possessing, by appearance, many urban characteristics.
Here you have a dense neighborhood of townhouses and massive high rises that is A. almost totally lacking in convenient public transit B. Unwalkable, in that there is almost no commercial development providing neighborhood necessities and amenities anywhere near-you need a car to shop for groceries, dine out, or access cultural amenities, and C. almost totally turns its back to the streets, resulting in desolate streets totally devoid of pedestrain traffic, and unsafe to be on because they are so isolated from most of the dwellings- no eyes on the street.
Lauren,check out sky 55 and if you are serious, you can refer me, I get 500 bucks referral fee.
I dunno there is some beautiful architecture in the South Loop. No I would never live there for the reasons you mentioned, but I don’t think all S Loop highrises are or were created equal. Yes there are bad apples with problems, but there are some beautiful buildings as well.
Heck if prices were to fall far enough I might be lured there due to architecture alone. Hopefully there will be more commercial development there which does NOT include chains or box stores.
Bob, part of the reason the guy in this article is paying $2200 for a place with lino floors and cheap appliances might be because he signs leases on apartments “sight unseen.”
This guy ain’t too bright. He probably has a trust fund or something helping underwrite his rent costs.
If you are going to rent out a condo downtown, you need to make enough money to cover the gap and pay for your current living costs. The best you can hope for is someone to come along and reduce the hit you’re taking.
That said, John makes a good point. If you’re able to afford an $800 to $900k condo, why not rent it out for a few years at half the monthly cost, and save your money so that you can put down a bigger downpayment on a condo that’s currently listed in that range when it drops to $600 or $700k? If you can save up a big enough downpayment, you may even be able to do a 15 year fixed when the market bottoms out and starts recovering.
That is assuming a lot though, like assuming that the guy in the article has a brain to go along with his expensive tastes. He could just be doing the renters equivalent of living the HELOC lifestyle. Rent a place you can’t afford, and then coast through while the owner tries to figure out how to evict. Or the bank forecloses…
I’m thinking of moving to Chicago in April/May. Does anyone have suggestions on where I can find rental listings? I’ve looked on craigslist and Chicago Sun Times site but a lot of those are from property management companies. Any suggestions on where I can/should look would be appreciated!
“I’m thinking of moving to Chicago in April/May. Does anyone have suggestions on where I can find rental listings? I’ve looked on craigslist and Chicago Sun Times site but a lot of those are from property management companies. Any suggestions on where I can/should look would be appreciated!”
Kim: Craigslist is really the place most rentals are listed now in Chicago. Although, you can also find condo rentals on the MLS (check out any of the realtor websites such as Rubloff and Coldwell Banker that allow you to search by rentals.)
Additionally, many people have good results with the apartment companies (there are several- you’ll see their listings on craigslist) where they drive you around, for free, to look at apartments.
Anyone else with suggestions?
there are still some old-school people that will list in the Reader but not CL
Basically if you are looking to rent from a condo owner you have three options.
1. talk to one of the apartment companies, they get paid one month’s rent from the owner to find a tenant. They do not list on the MLS but most post on craigslist.
2. A realtor will have access to all the MLS listings. They also get paid one month’s rent by the owner but split the cost with the listing agent.
3. If an owner is trying to rent on their own to save the one month fee they will most likely post on craigslist or other rental websites (rent.com)
Exploring all the options will give you access to the most inventory.
“I do have a question about renting condos. Considering how much 1 BDs cost nowadays in any 312 area, how are so many people not drowning when they are renting these units out for under 2k even though mortgage+tax+assessments often touches $3500. Is there some benefit to this that I am missing? Are these people building that much equity, to the point where they don’t mind bleeding that much cash?”
I bought my condos all for around $200k. They rent for $1300-$1700 and cover expenses. Collectively, they all break even. You have to run the numbers before you buy, not after the market tanks.
I agree that the South Loop has a lot of wonderful architecture. In fact, the first impression you get is of a very, very pretty neighborhood. Number One Museum Place is one of the most beautiful and livable new high rises I’ve ever seen.
But when you start really studying the neighborhood, and consider how the buildings and townhouses relate to each other and to the street, you realize that the neighborhood is not workable as a city nabe. The worst part is the miles of townhouses and highrises that turn their backs to the street completely. There’s no commercial and no room to build any left. You have a solid mile of straight residential too far from the nearest train to walk to it, and too far removed from commercial and neighborhood services to accomplish the most common errand without getting into a car. It makes for really empty streets you feel strange walking on.
It’s too bad, because there is a lot of high quality housing there. But it has the same problem that was built into Rogers Park, which started out as an elite suburb, but morphed into a semi-urban neighborhood after it was annexed over 100 years ago. It’s a strange combo of suburban and urban elements that don’t work together terribly well, with no real commercial center that holds together, in spite of the beautiful architecture and wonderful buildings and “garden” atmosphere of the area.
Madfly: You’re making everyone’s point. You cannot be buying now and cover your costs. And it’s nearly impossible to buy a condo unit in “the green zone” (as someone calls it) for $200k right now (unless it’s a studio or a foreclosure.)
The rent versus own equation is still skewed which means either rents have to go up dramatically or for sale prices have to come down.
It doesn’t take a genius to figure out which of those scenarios is going to happen in the next few years.
Needless to say MADFLY bought his condos before the boom, as there aren’t any $200,000 condos for sale in this market that could realistically be rented for $1300-$1700. I’m sure pricing will return to this point in the not too distant future. Maybe then it will be a good time to buy.
Sabrina, you assumed I was arguing? These condo owners are screwed, I concur. But they f*cked up when they bought, not because the market tanked. They were negative cf regardless of what happened.
It’s amazing how some people can look at the same set of facts and come to vastly different conclusions. When I look at the south loop, my first impression is lots of vacant overpriced properties and empty, overpriced high rise buildings. But upon closer inspection, I see the opportunity for a viable neighborhood b/c it’s close a lot of what the city has to offer, primarily the lakefront and a handful of public transportation options. However, there are just too many units available and not nearly enough demand for that neighborhood.. It has the potential to become a living, breathing, viable neighborhood but right now it’s too anesthetic.
I think the west loop and south loop are no brainers in terms of long term appreciation. But what the hell do I know?
“Sabrina, you assumed I was arguing? These condo owners are screwed, I concur. But they f*cked up when they bought, not because the market tanked. They were negative cf regardless of what happened.”
Yes- I concur. It was a bad “investment” even if the market didn’t tank. But they were banking solely on future appreciation, right? So it didn’t matter what they’d be able to charge a renter because the property would only go up in price (and this wasn’t just an assumption in Chicago- as we know. That was the assumption nationwide.)
It’s back to real estate investing fundamentals in the future!
I am renting a studio in River North/Gold Coast for about $600 per month and I am about to lease a Jr. 1 bedroom condo from an owner in the heart of the Gold Coast for less than $1000 per month. It is vintage but it has real hardwood floors and a fireplace, so I can’t complain. I’m getting all the benefits of living the Gold Coast life, without breaking the bank. I think that is the only way to do it. That way you have some money left to actually enjoy what the area has to offer!
I combed Craiglist several times a day for both of my “finds”, and called as soon as I saw a good deal. You have to be paying attention and be ready to act quickly. The roommate/sub lease section is a good place to look for deals on Craigslist too because there are a lot of people trying to get out of leases that can’t handle because of job transfers, job losses, etc. I agree that Craigslist is the best way to find the most current listings. I just ignore the listings from the rental companies;I find that their listings are marked up $100-$250 more than private owner listings.
I enjoyed that article, too, because it is so true that the typical person would think that a premium ‘hood would be out of their reach. But with the economy being what it is and the near impossibility of getting a home loan save for those with stellar credit scores (not me),it opens up possiblities that would not have existed just a few years ago.
I am currently looking at rental properties. While craigslist can’t be beat for shear volume, I have had the most success with hotpads, because it is an apartment aggregator and seriously easy to use.
By the way, never-ever compare West Loop and South Loop. West Loop has been planned and continues to grow steadily, with a good crop of elementary schools, the best public high school in the city (Whitney Young), the Chicago Police Academy (cadets can be sen jogging in packs at 5am), 4 major grocery stores and countless restaurants (Randolph street ain’t what it used to be, but it still is more than servicable) and hot bars (Publican anyone?). Also the residents seem to be a bit more mature (second time owners and young families).
South Loop has 3 things that come to mind when I hear the name:
1. Way small spaces for completely unrealistic prices. I truly believe their problems go well beyond THIS economic downturn.
2. The mayor. I cannot think of another prominent resident, or truly Chicago institution in that neighborhood (Prairie Avenue Historic District does not count, as HH Richardson would take a wrecking ball to the whole lot of the architecture there (Gary Cooper’s spectacular ending in The Fountainhead comes to mind.
3. Dog poop on every square inch of sidewalk. Pray it’s summer because when it snows the contrast will grow that pebble in the back of your throat into a melon, requiring instant purging.
If it’s not Sky 55 or the new building at Roosevelt and Prairie, with units facing NNE to take advantage of the fireworks and amazing sunrises. I could never live north of Roosevelt.
“Gary: Does that mean he thinks he can rent his current place and cover the costs and at the same time buy a new place? So- two mortgages?
That’s a scary proposition in this market, don’t you think?”
Yes. yes, and yes. On the other hand maybe he thinks this is the road to becoming another Donald Trump.
Laura,
I like your taste in vintage buildings so I was very surprised when your impression of the South Loop was so different from mine. Regarding your points, (A) I think the South Loop is excellent from a transportation point of view, lacking only a Brown Line hookup. There are two Red Line stops, one Orange, one Green. Midway is very close. Loop office buildings are walkable. Even travel to Hyde Park is easy on the Jackson Park bus. (B) The lack of restaurants and retail remains a mystery to me. People in the neighborhood say, “It just needs time.” But the present incarnation of the South Loop is not that young. Something else must be going on. (C) Some areas match this description but not most. Are you think of the stretch along Indiana where Daley lives? Or the townhomes south of Roosevelt on Clark?
One Museum Park doesn’t do anything for me architecturally, but that’s just my personal taste. A bigger problem is that the floor plans make puzzle pieces look square. I’ve heard there are only one or two units on each floor that are workable.
If you are a professional who works too much to have a very exciting night life, I think the South Loop makes a lot of sense. Unfortunately, many people fitting that description won’t give up so easily and will pick a place in Streeterville instead.
Kim, if you know where you want to live, and it’s in an older, established neighborhood, Lake View, Edgewater, etc, walk the streets looking for “For Rent” signs, there are still people who don’t list on Craigslist, the Reader or an agency. And even places that do list through agencies will often have cheaper deals posted on their doors. Also check management company websites – I was shown somewhere by like Apartment People (I know people who’ve sworn by them, at least they charge the landlord, not tenant, unlike a lot of other cities) which was cheaper via the management company.
On Sky 55 Website.
LEASE AND MOVE IN THE MONTH OF JANUARY, RECEIVE UP TO FOUR MONTHS FREE
hmm… 2 yr lease?
chris, im going to have to disagree with you about the transportation in the south loop.
the gap between the roosevelt and cermak stops are just way too big. they really need to add another red stop near 16th and maybe a green/orange at 18th. course there are parts in the northside that could use more stops as well, but neither here nor there.
“By the way, never-ever compare West Loop and South Loop.”
Bi-owner, If you are talking to me, you aren’t listening. I’ll say it agian, the West Loop and South Loop are no-brainers for long term appreciation. There difference between me and you is that as a renter you are thinking about livability and while I as an investor am thinking about profit potential. It’s based mostly on proximity to the Loop. Can’t go east, north is already developed, so west and south are naturally where people will go.
Pardon my ignorance, but just how much long term appreciation do you expect from bubble priced 2 bedroom condos? Will those $399k condos sell for $599 in 10 years and if they do, who exactly will buy them?
bunt, agreed on the gap. And I think maybe the South Loop Laura had in mind was south of 16th. But most of the neighborhood is not that far south. In fact, I thought the nabe south of Roosevelt was supposed to be called “South of Roosevelt,” or something. *shrug*
Pardon my math, but using your figures, if a $399k condo today grew by inflation for 10 years, it would be around $540k. If it appreciates by more than inflation, then $599k is actually within reach, isn’t it? In 10 years I’d expect the west/south loop to be still less attractive than the north, but “comparable” as bi-owner said not to do.
“Pardon my math, but using your figures, if a $399k condo today grew by inflation for 10 years, it would be around $540k.”
True, but if you use a 1995 baseline price and grow by inflation, that $399k-in-2006 condo probably sgould have been only $250-280k in 2006.
That’s HD’s point (whether you agree or not); arguing that $599 isn’t so much more than $399 + 10-year’s inflation ignores that main point.
I’d expect at least inflation on property everywhere from sea to shining sea. But I believe you are going to do better the rate of inflation on these areas.
MADFLY:
From what baseline? Saying you’d expect growth on anything all depends on your basis. Do you think that a generic 2/2 in a generic West Loop biulding is worth $399k today?
It doesn’t matter, pick one and run some numbers. Let’s use your figure of $280k in 2006, over 12 years. If you use a 3% rate, that results in $399k. If you use 6%, that results in $563k. Seems reasonable to me.
I think south/west loop will be playing catch up to the north loop over the next decade, so 6% isn’t so incredible. But what do I know?
“It doesn’t matter, pick one and run some numbers.”
Are you actually responding thus to my question about baseline pricing? Or is this to the prior? Because if you think that RE values are going to go up at the rate of inflation ***regardless of how much you pay***, I have my answer to your last question.
If you’re just dodging the question, then whatever.
I’m confused, anon. I am responding to you. Dude I’m using YOUR baseline of $280k and 2006, which you said is the “should have been” price. I ran the figures to show that $599k, a number Homedelete threw out there, in 12 years was not totally unrealistic.
My generalized statement was that long term appreciation in south/west loop is a no-brainer. All the math comes from you guys.
Madfly:
Reading too fast. Got you now. I’m dubious, but that’s what makes a market, eh?