A sign we'll likely be seeing more and more of in the coming months.

The word is out?Rubloff has been acquired by one of the fastest growing real estate companies in Chicago, Prudential Preferred Properties. Prudential Preferred has been growing quickly and this purchase makes it is one of the five largest real estate companies in Chicago.  The company will operate under the name Prudential Rubloff Properties and will have 17 offices and nearly 900 agents and staff. The terms of the transaction have not been made public.

The acquisition is another sign of the volatility in the business of real estate as well as the real estate market today. Medium-sized real estate brokerages are finding this economy tough to withstand and are being gobbled up by the larger companies. Many small boutiques and brokerages with niches which tend to have lower overhead seem to be able to hang on during this economic downturn, but medium-sized brokerages with more expenses are having a harder time.

What Will the Rubloff Agents Do?

When talking with Rubloff agents, we are hearing concerns. As is the norm with this type of merger, Prudential should be ready some unhappy agents. Rubloff agents are not used to franchise fees, which Prudential does have to charge. Rubloff agents are also used to a lot of free marketing materials (virtual tours and open house signs to name two) that in the past Prudential has charged their agents for. As always, there will be a culture gap and it will be interesting to see how the new combined management team bridges it.

This is a pivotal time in real estate; Darwin’s theory is most definitely playing out before our eyes. Expect more of the same as the summer real estate season ends and cash flows at brokerages slow down.

10 August 2009 ? The impact of the conditions of the local real estate market is one of the a largest factors to the growing budget deficit of the City of Chicago. With a projected shortfall for the overall budget in 2009 to exceed $300 million dollars, the mayor?s office is predicting a greater number for 2010. According to the City of Chicago, property sales contributed  approximately $250 million to the city?s revenue via  the transfer tax at the height of the market in 2006. This tax totaling $10.50 per  $1,000 of purchase price($7.50 by the buyer, $3.00 by the seller) paid at the closing of each real estate transaction is estimated to bring in only $55 million in 2009. The city is only budgeting $53 million for 2010. The concerns all  Chicago Realtors®, residences and business should have is where the city will be looking to make up this shortfall.

6 July 2009 ? Don?t look for this week?s print edition of Crain?s Chicago Business. The publication has gone from a weekly to a biweekly print publication. The publisher is saying this is just for the summer months. This is another major sign of the transition of the newspaper industry transitioning from print to an online media. In the last months, the print issues have become very thin as a result of declining advertising revenue. At one time most of the major real estate brokerages would take full page ads on a weekly or monthly basis to advertise upper bracket properties, but the industry is now focused on online media for both brand and listing promotion.

29 June 2009 – This week?s Crain?s Chicago Business (PDF) is reporting that the relative cost of owning vs. renting is swinging back in favor of home ownership across the U.S. and in Chicago. The Chicago real estate market is already seeing signs of this with an increase in pending home sales. There are great expectations that June?s sales numbers will finish off what should be a strong second quarter. Realtors® see this trend continuing as many of their buyers have reengaged and are actively looking at properties and going forward with offers. Tire kickers have become purchasers. As sellers have been adjusting their prices, buyers have making repositioning themselves regarding financing. Borrowers are expanding their lending options, taking advantage of the $8000 tax credit and creating greater equity in their purchase with larger down payments.

23 June 2009 – Eddie Bauer joins Circuit City, Linens ‘N Things, Mervyns and other retail chains that have filed for bankruptcy court protection as consumer spending has fallen and the recession continues. Last Wednesday, Eddie Bauer, best known for it’s outdoor clothing line filed for Chapter 11 bankruptcy. Eddie Bauer considered a reorganization, sale, or liquidation through Chapter 11 bankruptcy protection as it continued operations under a modified business plan. However, it now hopes simply to be sold. This is yet another sign of the continued recession and that the economy has likely not hit bottom. No one knows what will happen to Eddie Bauer‘s prime real estate location on the Magnificent Mile. According to CB Richard Ellis Inc. data reported by Crain’s, the toney shopping street was already suffering from its highest vacancy rate in the past ten years of 7.2%.

Federal Home Loan Bank Board Building

Yesterday I wrote about the possible problems of getting a 5% loan. On Wednesday I started to hear about another plan. Maybe you may have heard all the buzz about Republicans wanting a 4% fixed mortgage rate for mortgages. You can read or listen to a good overview of the whole story on NPR. It’s an interesting idea. Let’s take a look at it a little more closely.

Don’t Count On 4% Mortgages…and Here’s Why

Honestly, I don’t think it is going to happen. It’s a HUGE undertaking that will be wildly expensive, and hard to implement, despite what the idea’s proponents are saying. And, you still need Wall Street‘s buy-in. The investments that will make it possible have to get sold, and investors are just too skittish on mortgages right now to go anywhere near dumping the kind of money that would be required to make this system work.

Likely a False Hope That Can Cause Problems

I don’t think I can speak for all mortgage professionals, but for most of us, when news like this comes out, it creates false hope and false anticipation, like when they were talking about 4.5% a couple of months ago. We either get calls saying something like, “Hey, I heard there’s gonna be 4% mortgages, and I want one” or a prospective

client says “Well, I’m gonna wait for now, cuz I think rates will be down near 4% soon.” This is sad and often counter productive?they may be passing on a 5% rate, only to have the rates go up, and the best we can do for them is 5.75%.

Like a lot of government ideas, it’s well-intentioned, but ill-fated.

Agree? Disagree? Let me know in the comments area below. I’d love to hear your thoughts.

Sunrise On New Buildings in Chicago

There’s a lot to love about a new building: the smell of fresh paint, the gleam of new stainless steel appliances, the anticipation of waiting for the cardboard protecting the walls of the elevator to be taken down so you can finally see what’s behind it, the excitement of people wearing hardhats carrying blueprints around the unfinished lobby. It’s exactly like an adult version of waking up on Christmas morning to a mound of presents, but then mom says you have to eat breakfast and wait for Aunt Flo to arrive before you can open them.

But, as many of the people who have bought new construction condos over the years are eager to tell you, there are a lot of pairs of underwear waiting for you under all that wrapping paper. Sure, there will be the occasional Lego Death Star or Cuddle Me Elmo, but red checked flannel shirts and itchy hand-knitted scarves will be in the mix as well.

Here are some of the basics that buyers of new condos, be they in high rises or three flats, need to know:

1. How the Turn Over Works

When looking at a new building, you need to understand exactly how the developer is going to turn the building over to the association. Huh? Fair question?let me explain. As the condo building is being built and the condos are being sold, the developer’s company owns the building. At some point, when a specific percentage or number of the units has been sold, the responsibility for the building is turned over to condo association. At that point, the developer simply owns the remaining units and is no longer the owner of the entire building. Undoubtedly the developer will have more units, and therefore more votes, than anyone else in the association, but he/she is still just a unit owner after the building has been turned over. All of this is spelled out in great detail in the mountain of paperwork that comes with buying a condo. This mountain of paper that used to be a pine tree is usually divided up into two documents: the condominium declarations and the condominium bylaws.

It’s important for you to know how many of the units have been sold and how many more need to be sold before the turnover happens. Why is this important? Read on.

2. The Assessments Will Go Up After The Turn Over

Going Up!

While the developer is trying to build and sell the condos, he/she/it owns the building. They can say the assessments are whatever they want. They are supposed to reflect what the developer believes the operating expenses will be after the turn over, but somehow they often seem to under budget…often by a lot. When the turnover takes place, the condo board then starts getting the bills instead of the developer: electric, gas, insurance, maintenance (yes, it starts right away), staff for large buildings, and on and on and on. The developer is supposed to have built up some money for the association to begin paying these bills, and of course there is money coming in from the assessments. But, is it enough? Not usually.

It’s simple…the developer wants to make the building attractive, so they keep the price of the assessments low. However, when the board has to begin paying the bills, they may find that the money coming in isn’t going to cover the money going out. And that’s when you see your assessments go up.

Take my good friend, Kelly. She bought a gorgeous unit in the south loop with views of the lake, the skyline, and Veteran’s Stadium. She was in heaven. Then the board took over the building and they quickly realized that they needed to nearly triple the assessments to get out of the hole they were in. After four months of triple, they were able to reduce the assessments to double of what they were before the turn over.

This doesn’t happen every time, and the assessments aren’t always going to double, but your agent and your attorney better be digging into the numbers to give you an idea of what to expect after the turn over.

3. There Will Be Problems With the Building

You’re buying new construction. Everything is new, right? Everything should work, right? Agreed, but that’s not the real world. In the real world, there are manufacturing defects in heaters, windows, and tile glue that can’t be seen when they are installed. All of these problems will usually present themselves sooner rather than later. Be prepared that your brand new dishwasher’s water pump may spring a leak after it’s fifth load. That’s why it’s under warranty. Be prepared for these types of things to happen. The developer didn’t do it on purpose, and they’re bound to happen.

Equally importantly, the building is going to settle. Gravity works. And, like rust, it never sleeps. Walls will crack. Windows will need caulk to fix newly appearing gaps. Cupboard doors will need to be adjusted. Unless you can get a reprieve from Sir Isaac and his pesky laws, you have to expect that you will have issues regarding settling for a year or two…maybe more. Complaining to the board will do no good (unless one of them knows Sir Isacc). This is something you have to expect.

4. The Developer May Not Be as Responsive as You’d Like

The cheerful sales agent working for the developer isn’t going to come out and tell you that the developer will have started a second or third building by the time you move in. Many of the crew that are working on your building will be moving on to the other buildings. Normally the developers will get everything fixed, but it may not happen as quickly as you’d expect. Make sure to talk about this with sales agent and the developer. What are their policies? How long will the developer take care of small problems? I have seen developers who have fixed problems long after their legal liability expired (see below). They were fixing problems to make sure their reputation was polished to a high shine. These are the people you want to buy from.

5. Usually a Company Built the Building

A company built the building you’re going to buy into, not a person. And, that company will likely be dissolved as soon as possible. Most developers create companies for every building they make: “123 N Main Development LLC.” As soon as the company is no longer legally responsible for the building (one year after turning it over to the association) they will undoubtedly fold the company. This means if there are problems, the entity that built the building no longer exists and the association is on its own. The developer isn’t 100% off the hook at this point however; there is no statute of limitations on negligence. But for cracks in the walls, broken tile, and under lit hallways…the developer is essentially gone.

You and the association need to make sure you know exactly what day the developer can close up shop. You need to make sure that you have all of your issues on the table by then.

Get a Good Team to Help You

This post is not to try to dissuade you from buying new construction. It’s simply to make sure you, dear buyer, go into your new home with your eyes wide open. And how best to do that? By having a bulldog of a buyers’ agent working for you. You need to have someone who has a lot of experience and knows the ropes. The agent working for you should know all of the information above and be able to dig deep into the building to find out as much of what you face in the future as is possible.

You need to make sure your attorney is earning his/her money and looking over the condo declarations and bylaws very, very carefully and alerting you to potential issues. You should have an experienced inspector look over the unit very carefully. They may be able to hear the bad water pump in the dishwasher, giving you the chance to make sure they’re taken care of before you move in.

Mostly, you need to know that your gorgeous new home will have issues, but that’s life isn’t it? All homes have problems. (Want to see my To Do list??) The important thing is that you know as much about what is coming down the path as is possible. It will make enjoying that view and gorgeous kitchen all the better.

Photos by Alan Levin & Iris Shreve Garrot