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.

14 October 2009 ? Some good news – perhaps for all the margarita lovers in Chicago.

The Beckman family, makers of Jose Cuervo tequila, is expected to purchase a 310,540 square foot building at 303 W. Madison St. for approximately $60 million. The sale would be the first significant sale of a downtown office building this year and possibly the first time a Mexican investor has made a sizable real estate investment in the Chicago area.

The deal is scheduled to close Wednesday. The Beckman family paid upwards of over $2 million more for the building than sources had previously estimated.

Now we just need the Beckmans to rent space to some of the high-end Tex-Mex chefs in Chicago and we?ll have many Mexican delights under one roof. Bueno!

16 September 2009 ? Northwestern Mutual Life Insurance Co. plans to sell Cityfront Place, a 39-story, 480 unit apartment building at 400 N. McClurg Court. The building was initially developed back in 1991 and is currently 97.5% occupied.

The downtown market has been mostly dormant for the past several years. The last time a big downtown apartment building changed hands was in August 2007, when the Streeter, a 481-unit tower at 345 E. Ohio St., sold for $210 million and One Superior Place, an 809-unit building at 1 Superior St., sold for $217.6 million. But with signs that the economy and financial markets are stabilizing, Northwestern Mutual is betting that investors will be willing to jump back in the market.

So how much will Cityfront Place sell for?? Hard to estimate in this market. It?s clear, however, that Cityfront will sell for less than it would have at the peak of the market in early 2007. Nationally, the average per-unit price for an apartment property has fallen 33% since then, according to Real Capital Analytics Inc. One investor estimated that Cityfront Place would fetch more than $70 million, or about $146,000 a unit.

The bad job market has hurt demand for apartments in general though the downtown market has held up relatively well, which could work in Northwestern Mutual?s favor. The sale of Cityfront Place will add 2,716 units to the downtown market between now and 2011. Some worry such an influx could drive occupancy and rent down.

Downtown Chicago...lots of buildings...not many sales

The number of new construction units sold in downtown Chicago has jumped from a paltry 55 in the first quarter of 2009 to 313 units in second quarter. While this may sound very encouraging, it is still a far cry from the numbers of the second quarter of 2008. Last year 484 new units sold in the second quarter, which is 35% more than this year.

It is obvious that things are starting to very slowly rebound from the bottom of the market. However, prices are likely going to continue to go downward. Developers that are selling most readily are the ones that are offering the biggest incentives. Prices are being cut across the board and buyers are the big winners. Many developments have cut their prices between 25 percent and 35 percent. Some have auctioned off units and others have given up and are renting out the units in the building.

Huge Inventory Downtown

In addition to prices, inventory levels are through the roof. There are currently 3,527 units that are unsold that were recently completed or will soon be completed. This is down just 8% from a level of over 3,800 in the first quarter. The only way sales will continue to be strong is if prices continue to drop to help the market absorb all of these units. The competition is at record levels. Not to mention that many contracts that are written never close?

Closing Contracts is a Struggle

Up to 25% of contracts do not close due to the variety of reasons; many people simply cannot buy in our current recession. This is a dramatic increase over the 10-15% of units that were not closing this time last year. Bank loans are coming due for many developers and it is important to meet these dates or try to get an extension on their loan. Now is a good time for buyers, as long as they buy in a building with good resale in the future. Better get out the crystal ball.

We would like to thank Mike Willis for sharing today’s photo via the Creative Common’s License.