Luxury Real Estate

Despite speculation that the luxury residential market in the city of Chicago, $1,000,000+, will experience a slight down-turn as consumers sit-back and wait to see what happens with the stock market, the statistics paint a different picture. This information was taken from the Multiple Listing Service showcasing that the first-half of June could turn-out to be an equally strong month for luxury sales despite the ups-and-downs of the S&P, NASDAQ and DOW.

Statistics Show an Upswing

JANUARY — 39 Properties went under contract – 34 have closed so far
FEBRUARY — 43 Properties went under contract – 32 have closed so far
MARCH — 79 Properties went under contract – 63 have closed so far
APRIL — 50 Properties went under contract – 30 deals have closed so far
MAY — 64 Properties went under contract – 21 deals have closed so far
JUNE – 34 Properties went under contract

Consumers Still Participating

With interest rates still historically low and opportunities to purchase a luxury home at what we hope is the “bottom of the market,” consumers have the confidence to continue participating in this real estate marketplace.

We would like to thank Antoine Nicholas for sharing today’s photo via the Creative Commons License.

Lots of signs in one spot is never a good thing...

The single most important factor when selling a home is the list price. Before Nancy, my business partner, and I even talk about all the ways we can drive traffic to our listings, we talk about market value and where a home should be priced in relation to its competition. Why do we do that?

Because overpriced homes lose their appeal after 30 days and sellers spend the remaining market time either adjusting the price to buyer?s expected level or not selling at all.

Let me explain:

The greatest amount of pent-up demand for a seller?s home is when it initially enters the marketplace. Let?s say for example Joe Martin wants to sell his 3-bedroom/2-bath condominium in Bucktown. Hundreds of buyers are looking for this product, and many agents are waiting for a new 3-bed/2-bath unit to come available. When Joe?s listing hits the market as ?NEW,? hundreds of agents and buyers see it, but ONLY if it fits within the expectation of perceived value in this 2010 marketplace ?around $425,000 for a simplex. If Joe lists his condo for $500,000, 15% above expected price level, he misses maximum exposure which results in very few showings and no offers.

If You are the Buyer

So now, pretend you are a buyer. If you are looking for a  3-bed/2-bath condo in Bucktown and a new listing comes on the market that fits your needs, you quickly contact your agent to get you into see this home. If your schedule does not accommodate an immediate showing, you may ask your agent to schedule a showing for the following week, or you attend the open house. More than likely, if you are a serious buyer, you have made arrangements to get into this home within the first three weeks of it being listed. If you haven?t made those arrangements, or if you saw the listing and didn?t make an offer, it?s because you think you can find a better price elsewhere based on the condos features. And, you are not alone, the hundreds of agents and buyers who have passed-up this listing as well think the same exact thing.

But our seller, Joe, is certain that all it takes is that one special buyer to enter the market place who truly understands that this condo is exceptional and commands a price 15% above the market?s expectations.

In this Market the Opinion that Matters is the Buyer’s

Unfortunately in 2010, market value is not dictated by seller?s perception: the person whose opinion matters is the buyer who makes an offer. My greatest education on the buyer mindset happens when I sit an open house where the consumers who walk through love to talk to me about market value (which I enjoy doing too). Let me share with you what I have learned:

1. Buyers, along with their agents, have extensively researched their niche market because they have been looking at similar properties for weeks if not months

2. They are calculating adjustments for the differences between homes (this point in particular is critical for sellers to understand)

3. They are monitoring price adjustments, through their MLS page, as well as homes that go under contract and closed sale prices

4. And based on points 1-3, they are creating an opinion on value
An industry rule of thumb is if 30-days have passed with a steady stream of showings, but no offers, the price needs to be adjusted down 5%. If 30-days have passed without any showings, an adjustment of 10% off list applies. Chicago residential real estate data concerning market time vs. price adjustments appears to support that claim.

There are no new laws created around supply and demand in the 2010 real estate market compared to any other year, decade or century. Years of data have proven that after 30 days, demand and interest wane. But data has also proven that pricing a home below market value will generate multiple offers which will then drive up the price to market value. So market value always wins. Accepting market value is the hard part.

We would like to thank Sean Dreilinger for kindly sharing today?s photo via the Creative Commons License.

24 February 2010 ?

Centrum Properties has been served a foreclosure notice from Wachovia Bank for the parcel located on the corner of Ashland, Lincoln and Belmont. Centrum purchased this 80,000 square foot site in 2005 for $18,700,00 with the intention to build a $100-million retail/residential project called the Lakeview Collection. In 2008, Centrum restructured their plans dropping condo development for 130 apartments. Unfortunately, financing for new developments ceased to be available as the financial crisis intensified, leaving developers like Centrum stuck with land loans that they cannot pay back.

Centrum is working with another equity partner, and has had productive discussions with Wachovia to restructure the loan.

According to Crains ?Centrum has no plans to give up the property and still plan to build a scaled-back project on it with about 100,000 square feet of commercial space but no residential. CVS Corp. has signed a lease for a roughly 13,000-square-foot drugstore there, while Bank of America N.A. has a lease for a 7,500-square-foot branch.?

10 February 2010 ? Another developer is suffering the serious consequences of Chicago?s four-year condo market slump. The Columbian, a 46-story condo building at 1160 S. Michigan, has been taken over by the lender, Fidelity, who financed this development’s mezzanine loan. With 71% of the building sold, the developer, Allison David of David Group LLC, was able to pay the primary loan of $92 million to Corus Bank; but not the principal and accrued interest of the mezzanine loan. According to Crain?s today: Fidelity agreed to accept just the principal payment of $18.5 million without the interest. The developer, in-turn lined-up funds in November to pay-off that loan, but Fidelity backed out of the agreement demanding $29 million instead. Fidelity sent a default notice to the developer in January, and took over the Columbian on February 3rd. Davis is suing Fidelity for breach of contract and sabotaging their sales efforts.

27 January 2010 ? In April 2009, the Obama administration announced a plan to include second mortgages into its foreclosure rescue program. This program is designed to encourage mortgage note holders to reduce interest rates for five years on second mortgages. The government will share in the cost of these reductions or, as an alternative, the government will pay the holders of second mortgages to release that debt. The Treasury Department has not yet issued final guidelines for the program, but despite that, Bank of American has signed on. According to the Wall Street Journal, a spokesman for Bank of America says the company has put more than 200,000 borrowers into trial modifications ? the first stage in getting their loans reworked under the Obama program.

20 January 2010 ? According to the Wall Street Journal Real Estate section, housing construction is expected to rebound this year from its severely depressed 2009 level. The market, however, remains unpredictable as foreclosures continue to rise. In other news, Frank Nothaft, chief economist at Freddie Mac, said the percentage of people who are behind on their mortgage payments probably won’t peak until the second half of 2010. In regard to construction starts, David Crowe, chief economist for the National Association of Home Builders, says builders are likely to begin construction on 610,000 single-family homes this year, up 38% from last year. His forecast assumes that the total number of U.S. jobs will start growing again in the second quarter. Housing starts will remain far below the 2005 peak of 1.7 million. Mr. Crowe cautioned that the housing market remains tenuous because foreclosures are increasing, job growth is stagnant, and builders continue to have trouble securing credit.

23 December 2009 ? As we anticipate the opening of the new Apple Store on the corner of North and Clybourn, the builder, Cupertino, are putting the property up for sale. But don?t be alarmed ? Apple is merely a tenant (with a 10-year ground lease) and are able to pay their part of the rent. The current owners are asking around $10,000,000 for this land, and with an annual base rent of $725,000 from Apple (for the first ten years), the new owner is looking at a capitalization rate of 7.25% – a respectable number in this current economy.

9 December 2009 ? Joe Abbas, the owner of Luxury Motors Inc., is yet another casualty in the auto-industry down-turn. The prime property that Abbas purchased in 2007 at 530 W. Chicago Ave. is going into foreclosure. Joe Perillo Sr., a party to the mortgages, filed a $6.6 million foreclosure suit on the property. According to Chicago Crain?s today, ?Before filing suit, Mr. Perillo personally bought two loans on the property, totaling $8.3 million, from MB Financial Bank. How much of a discount, if any, Mr. Perillo got on the notes could not be determined.? The foreclosure suit alleges that the first loan of $6.6-million has defaulted for failure to pay property taxes. Mr. Perillo has offered a deed in lieu for the property.

2 December 2009 ? Baum Realty Group, LLC is seeking government assistant for its $53,800,000 project to convert the former Frederick Cooper Lamp Co. factory at 2545 W. Diversey Parkway to the “Green Exchange” ? office and retail space used by eco-friendly businesses. A first of its kind in the United States, the developer has already secured 24 tenants committed to 90,000 of the buildings 250,000 square feet. The project began in 2006 with private funding from Associated Bank. Unfortunately, the original loan of $35 million shrunk to $20 million during the economic downturn. The developers are now applying for $15 million dollar loan from U.S. Department of Housing and Urban Development (HUD) under the Section 108 loan plan. Moreover, the Chicago Community Development Commission, who could possibly draw funds from the Community Development Block Grant program and a local tax-increment financing (TIF) district, will consider their application on December 8. As quoted in Crain?s Real Estate section today, the Green Exchange has the support of local Alderman Manuel Flores: ?We have to do our part promoting a green marketplace and working with companies that are showing a willingness to invest in our city and doing it in an area where there is real growth potential,? said Flores.

21 October 2009 ? Yesterday, Ron Phipps, First Vice President at the National Association of Realtors (NAR) stood in front of the Senate Banking, Housing and Urban Affairs Committee urging them to extend the buyer tax credit. According to the NAR website, Phipps was quoted as saying,

?The data on the present home buyer tax credit show that the credit has had its intended impact?sales have jumped in recent months to a projected 5.1 million for the year and housing inventory has been trimmed, thus stabilizing home prices noticeably.? He also pointed out that each home sale generates approximately $63,000 in additional economic activity, providing a tremendous economic boost to the national economy. ?But it is a fragile recovery, and now is the time to build on home sales momentum by extending the tax credit throughout 2010 and expanding it to all home buyers,? he said. ?The present credit, due to expire on November 30, cannot help new purchasers now who write a contract today?they won?t be able to close before the deadline, and will lose out on the credit. Without congressional action now, the market and our national economy may freeze again?possibly as soon as this month.?

If you are an advocate of extending the credit, click on the following link, you can quickly notify your local Congressman of your opinion:

http://takeaction.realtoractioncenter.com/campaign/hbtc?qp_source=dotorg