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]
