Like much of the USA, Chicago and in particular my neighborhood (River North) has had an immense construction boom in housing over the last decade or so. Condos have sprung up everywhere, and some buildings that initially started out as high-end apartments converted over to condominiums.
Not only has there been an increase in the number of units, the turnover in units once purchased by the buyer is quick. If our building is any guide, perhaps 25% of the units are resold on the secondary market every year. We are a medium sized building, which I consider anywhere between 75 – 150 units, and not a weekend goes by without a couple of Realtors in the lobby and a few open houses. The Chicago Tribune has a decent real estate section and you can select a given building (by defining a unique address) & see the turnover across a period of time, along with the gain (or loss) in pricing on units that have been purchased more than once in that time period.
The boom seems to be coming to an end. There is a lot nearby that was going to have a 19 story condo building; now there is a sign on the lot saying that a ground level lease is available. Some other buildings that were proposed seem to be moving quite slowly, as well.
I would broadly segregate the condo real estate market into the following groups: 1) developers that haven’t started yet 2) developers for which construction is substantially committed and units are being sold 3) units available for resale from owners who own / occupy the unit.
This advertisement is from a developer in category #2 – the building is up, many of the units have been sold, and now the developer is trying to clear out the rest of the inventory. This building in particular (I can see it outside my window, picture below) was an apartment building that converted over to condos; the process is pretty far underway (I think that they have sold most of the units) and the developer apparently is pretty committed to unload the rest of the units. In the fine print of the ad you can see the straightforward comment:
“We’ve lowered our prices to give you the kind of deal that you’ve been waiting for. If you think you can do better, tell us. We’ll see what we can do.”
As a potential buyer, this is the kind of situation that you should be looking for. The developer wants out, and every month that the unit is unsold they are losing money on financing and having to keep a sales staff running (in this case, they get rent income, but they seem pretty damn motivated).
One thing about this advertisement that made me laugh – the comment that “The End Is Here – River North Condo Prices are as Low as they are going to Go”. If only this developer had that sort of control over time and space. It is true that these condos have an intrinsic value, which is their rent multiple. This is the floor for value, assuming that people want to keep living in downtown Chicago, which seems to be a reasonable assumption.
Unlike other areas of the country (Miami, Las Vegas) a lot of Chicago’s purchases weren’t pure speculation; people want to live downtown in order to minimize their hellish commutes (see Dick Valentine of Electric Six’s witty summary of the situation here) and they are willing to pay a premium to do so. In some other areas of the country, these types of buildings are in free fall, but in Chicago there is a “floor” on its value.
If you are a buyer and looking to purchase a condominium, you should try to find a developer that is attempting to close out their last units. The developer at this point will be motivated to give you a deal, like the one in this ad.
The other way is to find someone selling that has a compelling story – like they have the condo on the market because they have been transferred out of town and they have been sitting on the unit, paying dual mortgages, for a long time and now they just want out. If you are buying from such a buyer bid low and don’t budge… it is possible that they are at the end of their rope either in terms of cash or patience and just want to get it over with. If the seller doesn’t seem extremely motivated and have a compelling “sob” story, then just wait and come back in three or six months – time is your friend.
If you are a buyer with decent credit, you are in the catbird seat now. Either buy from an economically motivated builder trying to close out, a desperate seller, or just wait. Time is on your side…
And no, condo prices haven’t gone as low as they are going to go, regardless of what the ad says.
Cross posted at LITGM