Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Developments' Category
After slogging through two years of sluggish sales, many local developers seem to be finally getting the message and deeply cutting prices on downtown Chicago condos. The downtown area was rapidly overbuilt during the boom with thousands of new condo units hitting the market each year, and when demand suddenly stalled developers were left with huge numbers of spanking new, but unsold, condos.
The Chicago Tribune ran a story about the trend this weekend, pointing out that from 2008 to 2009 there were 7,750 condo units built downtown, an area that includes the Gold Coast, River North, Streeterville, Loop, West Loop and South Loop. About 2,200 new-construction units are still available for sale by developers. And that doesn’t count the 3,000 or so downtown condos on the market that aren’t brand new, but are resales.
“The market presents an excellent buying opportunity, certainly unmatched by anything we’ve seen recently,” Gail Lissner, vice president at Appraisal Research Counselors, told the Tribune. “For anyone with a job, who feels good about their employment, this is a great time to buy. There are some outstanding values in the market.”
Many downtown developers have recently cut prices by up to 30%, leaving Chicago condo buyers with plenty of bargains to choose from. These properties include 565 Quincy, where prices on a 1-bed/1-bath condo dropped from $312,900 to $219,000, including indoor parking.
But, as always, buyers must be careful! No matter how awesome the “Dramatic Price Reductions!!!” trumpeted on the sales brochures seem, your realtor needs to do her/his homework and research how many short sales and foreclosures are already cropping up in any given building. The massive price cuts do have a dark side, since they chop the legs out from under any early buyers who may have paid much more for a similar unit in the same building. Those buyers — the ones who paid $150,000 more than today’s lucky buyers — are in trouble.
And if there are too many of them in any given building, soon the building is going to be in trouble, too. Do you want to live in a development that will soon be filled with dozens of short sales and foreclosures as those owners try to get out?
I’m not saying that these downtown condos aren’t great deals — many of them are. I just want buyers to remember that however sparkling the sales pitch, they should make sure the building they buy into is stable before signing that contract.
As I’ve noted in past posts, we are now seeing more short sales and foreclosures in areas like Edgewater, Andersonville, Uptown, Lakeview and Lincon Park. While this has been the norm for more than a year in some distressed South side and West side neighborhoods, it’s a recent — and growing — problem in the more affluent neighborhoods up north.
WBEZ, the Chicago public radio station, interviewed me about the trend and broadcast the story this morning. As I tried to point out, buyers should be careful about buying in condo projects where prices have been deeply slashed. I used Catalpa Gardens in Edgewater as an example; there are already 14 short sales and 6 foreclosure filings underway at this nearly new 126-unit building.
Unfortunately, dramatic price cuts by a desperate developer often spell financial ruin for the existing owners. These folks who bought the first units in the building end up so deeply underwater — having paid perhaps 50-100% more than the units now cost — that most of them will be forced into short sales or foreclosures if they need to sell anytime soon. They simply won’t have any other way to repay their loan, with prices so decimated.
That’s not going to be pretty for the newer buyers either, the ones who thought they got a great deal when the developer cut prices. Short sales and foreclosures throughout the building can lead to even lower sales prices if too many units are distressed, and the condo association may also run into trouble if some cash-strapped owners stop paying their monthly assessments.
So be careful out there, all you hungry condo buyers! And call me before you make a move, so we can check out the health of the building first.
Even the Gold Coast is showing a little tarnish these days. Prices have fallen sharply at 1400 Lake Shore Drive, a 391-unit condo conversion project where many units remain unsold despite the sales team’s prediction back in February that they would “close it out” by the end of 2009.
Well, here we are in December 2009, and buyers still have plenty to choose from here. “Massive Price Reductions @ Prime Lake Shore Drive Location,” promises a recent 1-bedroom listing in the building. Massive, indeed. This second-floor unit was originally priced at $261,400 — in February 2006, when the market was much healthier. Now it’s listed at $159,900. Another 1-bedroom (touted on the MLS as a “highly upgraded ultra luxury unit” on the 20th floor) has gone from $299,900 in early 2008 to $189,900 today, a 37% price cut. A 2-bedroom on the 3rd floor is now priced at $299,900, down from $360,900 in March 2007.
Meanwhile, owners in the building also appear to be hurting. A 2-bedroom unit that sold for $417,900 in early 2006 is now for sale at $374,900. It’s been on the market since June. There are also two short sales in the building, including a 21st-floor unit now listed at $275,900. That one has been on and off the market for two years, starting at $398,800.
There have only been 6 sales in the building in the last 6 months, according to the MLS. This is a pretty poor track record for a building this large, especially considering that the $8,000 first-time buyer’s tax credit pushed up sales in Chicago during this period and most units at 1400 N Lake Shore are in a price range that appeals to first-timers.
Then again, this is a golden opportunity for buyers looking to spend under $150,000 for a Gold Coast location. There are now 9 units at 1400 N Lake Shore that meet that criteria.
It seems like just yesterday that we were watching that colorful new mid-rise development go up east of Broadway and Catalpa in Edgewater, promising modern kitchens and green rooftops, a cool urban oasis just a few blocks from the lake. Built in 2007, this 126-unit complex is already faltering, with some initial buyers clamoring to get out even as the developer struggles to sell the remaining units.
In the course of researching short sales in the neighborhood, I came across 13 units at 1122 W Catalpa (Catalpa Gardens) where the owner is attempting to sell for less than what he/she owes on the mortgage. There’s a 4th-floor, 1-bedroom condo, which that owner bought in January 2008 for $155,900, now being offered for $129,500. Or a 2-bedroom, 2-bath unit on the 7th floor that went for nearly $440,000 in July 2008 — and is now for sale for $192,000, according to the MLS.
This is a shocking, sad destruction of equity in a very short amount of time! No wonder the building’s developer, Catalpa Partners LLC, recently slashed prices by $50,000 to $150,000 to sell the remaining 14 units. But selling at such steep reductions badly hurts the value for existing owners, probably pushing more of them into short sales or foreclosures.
If you are a buyer, I would be extremely cautious about buying in a troubled building with so many short sales, even if the price seems sweet. Unfortunately, some buyers today are winging it themselves without realtors, negotiating directly with developers (or other sellers) without any information about what similar properties have sold for, how long they have been on the market, what the seller paid for the home, how many short sales or foreclosures there have been in the building, etc.
They may think they are getting a great deal, but they can easily wind up owning something that quickly loses value, making it nearly impossible to sell. Condos can be risky investments, because your fate is linked to that of your fellow residents. If too many of them start to sell short, or fall into foreclosure, it can rapidly wipe out the value of your investment as well.
Please visit Sue Fox’s other blog posts at www.hometochicago.com!
The bursting of the real estate bubble sounds more like a balloon slowly deflating in the South Loop. Condo developers badly overbuilt this area, and in the last three years we’ve seen many projects — once hyped with glossy promises of sophisticated urban living — fade into half-occupied shells as prices fell so sharply that many units were converted into rentals.
After failing to find buyers through the usual channels, some developers are now hauling their leftover condos to the auction block. This week, two auctions involving condo developments in the South Loop and Near South Side produced dramatic discounts for buyers, according to Crain’s Chicago Business.
In a 269-unit condo tower at 1400 S. Michigan Ave., known as Michigan Avenue II, 43 units were auctioned off at prices 27% off the previous list price. And at Motor Row, a 51-unit loft conversion project at 2301 S. Michigan Ave., 19 units were sold at a 45% price reduction.
The fire sale comes after a similar auction in March at the Vetro condo project, 31-story tower at 611 S. Wells St. that was built two years ago.
And now, with Chicago’s Olympic bid crushed and Illinois foreclosures and unemployment on the rise, I think it could be many years before the South Loop becomes the trendy destination its backers are hoping for. Lenders on other stalled downtown condo projects may also force developers to hold auctions, clearing out the overbuilt inventory by taking an axe to condo prices.
As summer draws to an end, we are seeing more large developers cut prices in an effort to spur sales. The latest example is an FHA-approved building at 2930 N Sheridan, a rehabbed tower that looks a bit drab from the outside. Sales here have been sluggish for two years, and this week the sales center is announcing substantial price cuts.
One-bedroom units now start at $209,900, rather than $249,900. Two-bedroom condos are $229,900 (a $40,000 drop) and three bedrooms can be had for $299,900 (a $50,000 cut).
A new three-bedroom condo in Lakeview for under $300,000? This really is a buyer’s market. Inside the building, the units are bright and modern. But they don’t have balconies, and the brownish mid-century facade outside doesn’t offer much curb appeal. Still, FHA approval means that buyers only have to put 3.5% down, and if they close before Nov. 30 first-time buyers can take advantage of the government’s $8000 tax credit.
Developers around town are slashing prices this summer in an effort to move their inventory before the sluggish winter months return. Even brand-new highrise buildings with modern finishes can now be found in the bargain bin, at prices significantly lower than they stood just a month ago.
At SoNo, a stylish pair of new towers near North and Halsted developed by Smithfield Properties, prices plunged this week. One-bedroom units originally priced at $316,750 are now being sold at $275,900. Spacious two-bedroom units, with 1650 square feet, have dropped more than $100,000 — from $579,900 to $475,900. Even parking spaces are now on sale, for $9,000 rather than the $30,000 they once cost. The new prices are certain to irritate exisiting owners who spent more, but it’s a good deal for newcomers. Sales have reportedly been brisk, with at least ten units going under contract over the weekend. (Disclosure: The property is being marketed by @properties, but I have nothing to do with it.)
While SoNo is a particulary visible example, the story is much the same all over Chicago. Developers who planned projects two or three years ago are hurting, facing tough lending climates and far fewer qualified buyers than they expected. With profit margins shrinking — and many of them pressed to pay back their construction loans — some builders are now swallowing the medicine and cutting prices to levels that will actually attract buyers.
Among the deals my buyers have snagged in the last 3 months:
* A Bucktown 3-bedroom, 3-bath duplex for $399,000, in a building where the developer expected to sell each unit in the mid-$500s.
*A Rogers Park 2-bedroom, 2-bath condo for $200,000, in a building where similar units sold for about $245,000 two years ago.
* A Logan Square 3-bedroom, 2 and a half-bath condo for $380,000, on a block where smaller units sold for $50,000 more in 2006.
Such deals are no longer the exception in Chicago. For buyers with good credit, verifiable income, and some money saved for a down payment, the whole city is basically on sale.
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