Crain’s discusses the rate of foreclosure in many of the American Invsco buildings from 2001-2008 in this week’s issue.
Many of the issues are familiar to anyone who reads this blog: there are a lot of foreclosures in American Invsco buildings. We’re glad we weren’t the only ones noticing.
From Crain’s:
Eight downtown buildings developed by American Invsco since 2001 account for 57.7% of foreclosure cases on condos owned by original buyers in all 76 downtown condo projects of 175 units or more developed over the same period.
Lenders have filed 232 foreclosure complaints in Cook County Circuit Court against original owners of condos in the American Invsco buildings, compared with 170 suits on units in the other 68 buildings in the comparison group, according to the court clerk’s Web site. Expressed as a percentage of the number of condos developed by American Invsco, the rate of foreclosure cases at the developer’s buildings is 8.0%, far above the 0.9% rate for other downtown projects.
Part of the theory of why the rates are higher in these particular buildings goes to the incentive packages American Invsco has used to get buyers. In several buildings they had the “2-2-2” which was two years of free assessments, two years of free taxes, and two years guaranteed rent. Basically, if you were an investor, you only paid the mortgage and everything else was covered for the first two years.
But when the two year time period was up- what then?
We are seeing the results.
American Invsco, which has reviewed the foreclosure-suit data and conducted its own analysis, says in a statement released through its public relations firm that the Crain’s analysis creates “false and misleading impressions.” The statement says American Invsco’s analysis “presents a picture totally different from the one presented by Crain’s.”
For example, American Invsco argues that certain categories of lawsuits should be excluded and the rate of foreclosure suits should be calculated as a percentage of total units sold, excluding units developed but not yet sold. Using that approach, American Invsco counts only 147 foreclosure suits at its buildings, or 5.87% of total units sold.
Was it really too good to be true?
In January 2005, Mahesh Nair, 36, and his wife paid $398,500 for a two-bedroom unit and parking spot in a condo conversion at 440 N. Wabash Ave., borrowing the entire purchase price to finance their first investment in a downtown condo. American Invsco covered assessments and property taxes on the unit for three years and agreed to rent it back from the Nairs for $1,663 a month for the same length of time.
That wasn’t enough to cover the $2,700 monthly mortgage payment, but the American Invsco salesperson convinced the couple that they could flip the unit to another buyer or refinance it at a lower rate within weeks, Mr. Nair says.
It didn’t work out that way. The couple refinanced last year, lowering their monthly payment to $2,200. But their three years recently ran out, meaning they’re on the hook for condo assessments and property taxes and must find a tenant to rent the condo, which currently sits vacant. Now divorced, the couple put the unit and parking space back on the market at an asking price of $375,000, less than what’s owed on the properties. They haven’t made a mortgage payment since February and expect a foreclosure suit, Mr. Nair says.
“It was way too good to be true,” he says. “I should have detected this miles away.”
The article lists eight American Invsco buildings with Crain’s analysis of the foreclosure rates. We have chattered about all of these buildings:
- River City, 800 S. Wells, 58 foreclosed out of 448 units
- The Sterling, 345 N. LaSalle, 57 foreclosed out of 389 units
- Ontario Place, 10 E. Ontario, 50 foreclosed out of 468 units
- Millennium Centre, 33 W. Ontario, 22 foreclosed out of 457 units
- Plaza 440, 440 N. Wabash, 22 foreclosed out of 457 units
- Delaware Place, 33 W. Delaware, 14 foreclosed out 185 units
- Century Tower,182 W. Lake, 7 foreclosed out of 293 units
- 200 N. Dearborn, 0 foreclosed out of 309 units
Ontario Place started closings in 2005. I’ve been seeing a pick-up in the number of foreclosures on the auction lists in recent weeks.
200 N. Dearborn only started closings this year.
The article doesn’t include The New York, at 3660 N. Lake Shore Drive, in Lakeview, another American Invsco development where we have chattered about foreclosures and short sales. That building is not considered in the “downtown.”
More comparison:
During the time period studied for this story, American Invsco buildings led the market in foreclosure suits in all but one year, 2006. Lenders have filed seven foreclosure complaints against original buyers in a 249-unit condo project developed by CMK Development Corp. at 1620 S. Michigan Ave. that opened that year, for a 2.8% foreclosure-suit rate, compared with seven cases — a 2.4% rate — at 293-unit Century Tower, American Invsco’s only downtown project in 2006, at 182 W. Lake St.
At least one investor is suing American Invsco:
Richard Cohen, who bought 17 units in an American Invsco building at 10 E. Ontario St. in late 2005, has a different take. Mr. Cohen sued the developer in April charging that it rented his units back from him at an above-market rental rate, making the investment look better than it really was.
But when the incentive program expired earlier this year, Mr. Cohen started incurring losses exceeding $46,000 a month, or about $2,700 a unit, according to the complaint filed in Cook County Circuit Court.
The “scheme and deception was designed to enable Invsco to sell condominium units at Ontario Place at sales prices far in excess of their fair market value,” the suit says. American Invsco’s spokesman says the company doesn’t comment on pending litigation.
I urge all of you to read the excellent Crain’s article. There is great information on the foreclosure rates in the buildings and market conditions. As usual, it is Crain’s that has the best reporting on real estate in the city.
Trouble in the Towers [Crain’s June 2008]
