Apartment Investors Give Chicago a Much Needed Nod

We all know the Chicago rental market has been less than ideal. Prices have fallen and vacancy rates have risen. Couple that with staggering unemployment statistics, and a slew of other national (and local) financial problems and the result is a dreary, almost hopeless housing outlook for 2009.

But wait! Today in Crain?s, the ?biggest downtown real estate deal of the year? just so happens to be the 480-unit Cityfront Place at 400 N. McClurg Court. Miami-based luxury high-rise developers Crescent Heights (30 E. Huron, Park Place Tower and Regent?s Park) put Cityfront Place under contract for $83 million and the deal is supposed to close this month. According to the article, this acquisition is the first downtown apartment building to sell in over two years which is a good indicator that the rental market might rebound before any other division in the housing market.

Known at “Condo Converters”

Crescent Heights is known in Chicago primarily as condo converters. One could easily assume that the apartment building was bought for conversion, but Tomer Bitton, a Partner at Crescent Heights noted that ?The condo market is dead. The rental market is at the bottom and is beginning to improve.? It seems likely that Crescent Heights will keep the 39 story Cityfront Place as a rental building until the housing market and condo prices improve.

I see this as very positive news for the Chicago rental market. This kind of investment activity may seem counterintuitive given the current unemployment rate for Illinois stands at 10.5%. However, the Regional Economics Applications Laboratory at the University of Illinois predicts the state?s workforce will shrink by 4.15% to about 5.4 million jobs by September of 2010. Larger investors can take this information and speculate that they can see the bottom, which gives them a reasonable basis for projections and ?worse case scenarios? that they were unable to see before.

We would like to thank kern.justin for sharing today?s photo via the Creative Commons License.

11 November 2009 ? The Three Arts Building located at 1300 N. Dearborn may be turned into what some are calling the Midwest?s largest columbarium.  Don?t? have a dictionary handy? This columbarium will have enough space to store the ashes of up to 15,000 dearly departed residents. Built in the early 1900?s, and designated a Chicago landmark in 1981, this four story building was designed by architect Jim Holabird and features a Byzantine-style entrance, beautiful ornate mosaics and a central courtyard. Back in the day, it served as a residence for young woman studying music, drama and painting. For between $1,000 and $10,000, the dearly departed can spend eternity in Chicago?s most expensive neighborhood. That may seem like a lot of money for a cubby hole, but compared to Bill Wrigley Jr?s 13,200 square foot penthouse around the corner at 65 E. Goethe, listed for $14 million, maybe it?s not so bad after all! Creepy? Yeah! Inappropriate? Maybe. But, don?t get too worked up just yet. Although this type of use is permitted by zoning, any changes to a Landmark building must be approved by the city. So there is a chance these uber-quiet neighbors may spend eternity elsewhere.

6 November 2009 ?As home buyers, sellers, Realtors® and affiliated professions await the signing of the expanded Home Buyer Tax Credit by the President, buyer options continue to narrow. According to the regional MLS, MRED LLC, there are 26% fewer homes under $800,000 on the market today than in October of 2007. While single family homes sales in Chicago have increased by 46% in this two year time frame, condo sales have seen a 15% decline over the same period. The added benefits of the housing credit include an increase in income limits and purchase prices as well as a $6,500 tax credit for current homeowners who are in the market to buy.  To receive the credit, those homeowners must have lived in their current homes for five of the last eight years.

30 October 2009 ?Agreed Does Not Mean Passed -

There is much optimism that the tax credit for first time home buyers will be continued into next year. Although the Senate has agreed on an extension and expansion of the program, it has not yet passed. As with any piece of legislation, the housing tax credit is tied to other bills being debated. For those in support of extending the program, you still need to contact your congressman on this issue. According to the Illinois Association of Realtors, 45% of homebuyers in Chicago have been first time buyers.

29 October 2009 –GET YOUR CHECKBOOKS OUT…….
Bad news and not so bad news for Cook County and Chicago residents. The new tax bills will be arriving shortly and some residents may want to be sitting down when they open their mail. Most Cook County residents will be looking at a median increase of 10 percent, and in some areas, 20 percent. The better of the bad news is that the median increase in Chicago is estimated at 3 percent. For instance, Lincoln Park is looking at a measly 3 percent and Lakeview is even lower at a 2.1 percent increase. However, not all neighborhoods will fare so well. According to the Cook County Assessor’s office, the median increase in many of the other 77 neighborhoods will shoot significantly higher. Many of the lower income areas will see the highest percentage increase along with more middle-class communities near O’Hare airport.

An Unpopular Opinion?

Many Chicagoans are still reeling with disappointment over Chicago?s loss of the 2016 Olympics. But the impact on the near south and South Loop real estate markets may have been less than positive after the flame was extinguished.

While 2016 is a long way off in real estate time, the recent market crash has taught us all to plan further into the future. I have quietly held an unpopular opinion regarding the long term impact of the Olympics on our city. Olympic-based funding and other investments would certainly have fueled infrastructure, commercial, and residential development leading up to and during the events, but the aftermath was a subject rarely discussed in public forums.

A healthy, sustainable real estate market requires a balance between supply and demand. Supply includes commercial and residential units available for sale and rent, as well as funding required to buy or lease these properties. This supply would have undoubtedly increased markedly with the increase in demand prior to and during the events. Olympic-related jobs would have provided income for purchase and rent of these properties, and commercial enterprises would have set up shop to serve workers and visitors at a record pace. Following the closing ceremony, however, visitors return home, jobs end, and demand would have dropped off drastically.

This imbalance would have had a significant negative impact on existing property in and around the Olympic venues. Empty commercial space does not indicate a healthy neighborhood to potential buyers, and I wholeheartedly believe that prices of residential properties in both near south and South Loop neighborhoods would have taken a serious hit in pricing. As we have recently seen, high levels of inventory take years to absorb. Nothing good comes of an oversupply situation.  Post-Olympic buyers would not have benefited either – there wouldn’t be enough of them to take advantage of the situation.

The lessons learned in the past several years should have influenced how we understand supply and demand within the marketplace.  Healthy markets result from slow, consistent activity, not huge, one-time events. I am in this market for the long haul, and still hold my unpopular opinion.

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

28 October 2009 ? Block 37 again faces uncertainty after Bank of America filed a $128-million foreclosure suit against its developer last week. One possible solution – replace current developer Joseph Freed & Associates with a new developer willing to pump more money into the project. Block 37 is already $34 million over budget. John Buck Co., who has experience with many successful downtown commercial developments, has been quietly advising Bank of America on the matter since last spring. It is unclear what role the company might play, but insiders speculate that Buck may be willing to take on a larger role in the project. After 20 years of delays, Mayor Daley is anxious to see some return on the city’s $100 million investment. Tenants have occupied the office tower since last year, but the future of the retail operation, which was scheduled to open next month, remains uncertain.

More Housing Numbers ? Different Data, Same Message

Being that it is the fourth Tuesday of the month, today is the day Standard and Poor releases its Shiller-Case housing numbers. They looked at month to month numbers versus the Realtor® Association who basis their findings on a year over year period. According to their statistics, this month?s Case-Shiller home price indices is reporting improved readings for seven months in a row. Essentially, this new report reflects similar data to last month?s figures.

What this means for the Chicago Real Estate Market

When Case Shiller talks about ?Chicago? they are using the Chicago Metropolitan Statistical Area or MSA which, defined by the U.S. Census Bureau, includes the counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will. Keep in mind Chicago?s 77 neighborhoods are thrown in with Joliet and Rockdale Junction in terms of these statistics. With that being defined, they are reporting that Chicago saw an increase in home prices from July 2009 to August 2009 of 1.7%, but a 12.7% decline of year over year prices.

No matter who is pulling the data and how they chart it, the message is the same ? first time buyers and jobs. ?Broadly speaking, the rate of annual decline in home price values continues to improve? says David M. Blitzer, Chairman of the Index Committee at Standard & Poor?s. ?While many of the markets remain down versus this time last year, the relative rate of decline has shown some real improvement. We see this general trend whether you look at the as-reported data or the seasonally adjusted figures.” But Blitzer cautions that “We do want to remind people of the upcoming expiration of the Federal First-Time Buyer?s Tax Credit in November and anticipated higher unemployment rates through year-end. Both may have a dampening effect on home prices.”

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

Representing both buyers and sellers I have learned the impact of price changes in this particular market. It is home-buying process is not only about the value of the property, but also the buyer’s perception that the seller really wants to sell.

Sellers Must Acknowledge Price Pressures

The underground walkway between Concourse C & B at O'Hare Airport

Sellers need to remember, particularly right now, they need to do everything to capture that buyer. I recently had potential buyers on a listing of mine. The buyer’s agent let me know it was between my listing and another very similar home in the neighborhood. During the time these purchasers where making their mind up, the other property lowered their price, not much, but still a reduction. My seller’s would not. Their response was bring us an offer. I diligently tried to convince the other agent to get something on paper and we would work with it. The buyers opted to go forward on the other listing. That price change said to them those sellers really wanted to sell.

It Is All About the Price Change

Showings of listings are currently more sporadic then ever. A seller cannot wait to see if a buyer who came through is going to put in an offer or anticipate that the next buyer will put in an offer. Make the necessary adjustments now. We are seeing some buyers come back months later. If there is still no adjustment they will probably move on again. Don’t you want to sell before then?

According to Trulia, more than a quarter of the homes on the market have reduced their prices for the fourth consecutive month in a row. Chicago ranked number 16 with 30% of the homes on the market taking an average of 9% price decrease.

Buyers Looking for Signs of Serious Sellers

Working with several home buyers right now, I see great differences compared with buyers in the past. They are not anxiously waiting for what is new on the market?they are looking for the reduction. They are not just watching for prices to fall but looking for the sign that the seller is serious in this market.

Small changes can generate an offer and get the negotiations started. We are starting to see multiple offer situations with larger changes. If a property has been sitting on the market for a while with no changes, the buyers think the seller is not serious and will be difficult in the negotiations.

Home buyers who have been out there looking are really only interested in a new listing if it is priced at?but usually less than?the comparable properties they have been looking at. Sellers can longer test the market with a “try me” price.

Marketing the Property

It is price that gets the offer but is marketing that gets the buyers in. The first showing is now the photos online accompanied by the virtual tour and its presentation on all the dozens of common real estate websites. Sellers need to make sure their listing is properly marketed and priced by today’s definition or you will not get the second showing.

We would like to thank Andrés Larsen for kindly sharing today’s photo via the Creative Common’s License.

30 September 2009 ? Today?s big cliffhanger: Will the old Chicago Main Post Office actually close today or not? Inquiring real estate minds want to know. With an opening bid of a measly $300,000, everyone is waiting to see if wealthy would-be buyer Bill Davies (the high bidder who pledged $40 million for the property at an Aug. 27 auction) will actually close the deal today as required. Some sources who have dealt with him think he won’t close the deal, which means he would forfeit a $4 million deposit to the seller, (the U.S. Postal Service) but could attempt to negotiate a new sale at a lower price.

The closing is scheduled for this morning, and so far no one has been advised of any hitches. If Davies does not provide the remaining balance, the service will consider whether to auction the property again.

Davies, an anonymous bidder until now is a wealthy man whose attempts to redevelop his former hometown of Liverpool, England, collapsed. “The money is available to him. I don’t believe he will spend it,” one source said.

So for now, we wait. Will it close for $40 million?? If not, if the postal service can keep the $4 million deposit, it would keep the place heated for a couple of winters. Or perhaps lower the price of stamps for a few months, but I doubt that.