Sunset on the South Loop?

Between 1990 and 2000, according to the census, the South Loop’s population increased by 39 percent?the third largest neighborhood population increase in Chicago for that 10 year period. That the area’s growth and popularity had grown was obvious and apparent in both housing costs and real estate values. Growth continued and rates rose due to the popularity of the South Loop neighborhood.

What has changed since the population increase are the types and sizes of businesses that were able to survive the drastic increase in rents. For businesses whose lease was signed before the population increase, retail rents were a bargain.

Many Changes in the South Loop

However, in today’s lean times, the rates charged for commercial space in the South Loop seem to be artificially high. The vacancy rate for retail and commercial space in the South Loop reflects what is happening in the downtown CBD, as reported in the major Chicago newspapers over the past few days. The retail in the South Loop market continues to have a high vacancy rate due to asking prices.

Hopefully as potential retailers decide to take advantage of the South Loop, landlords will be more realistic with their asking prices and the South Loop will continue to grow.

We’d like to thank Joe M500 for so generously sharing this post’s photo via the Creative Common’s License. Thank you Joe!

Simple supply and demand are having a strong impact in the South Loop.

A quick search in MRED for condos in the South Loop (I defined it as Congress to 18th, Dan Ryan to Lake Michigan) shows a huge number of condos on the market. If we look under the new, stricter maximum HUD loan of $380,000 we find:

• 391 active with an average price of $289,449, median price of $299,000.
• 144 pending* averaging $305,913 with a median price of $312,900.

For jumbo loans (over $380,ooo), the numbers are:

• 414 active The top price being asked is $3.2 million; the average is skewed by some very high end properties at $695,139; the median is a much more telling number at $539,500.
• 186 pending* The top pending price is $2.5 million with an average of $695,139 and a median of $539,500

Clouds Over South Michigan

I was surprised at the number of pending sales. (Pending is defined as when all contingencies?such as obtaining financing and inspecting the property?to the purchase have been met and there is nothing in the way of the closing). However, as many of us have seen, having a contingency-free deal no longer means the transaction will close. More and more often the deals don’t close due to financing “disappearing” or the buyers just not willing to go through with the deal and willing to lose their earnest money.

Despite all of these numbers, Appraisal Research Counselors is reporting that developers are planning to complete 2,147 more condos in the South Loop, which is 66% MORE than were completed in 2008.

But where is all of this leading us? Well, Crain’s Chicago Business is reporting that Miami developer, Lennar Corp., has sold only 43% of the condos in Library Tower, a 184-unit project at 520 S. State St.. This means that Lennar will likely not be able to pay off their construction loan that is due Jan. 11. The ramifications are huge in this type of situation, especially for those who have closed on a unit in the building and had planned to live in it.

So, where can we see things going in the South Loop? It’s pretty clear that we’re going to see a lot of bankruptcies, longer marketing times, and most importantly, much lower prices.

*Be aware that, amazingly and annoyingly, real estate agents very often do not understand what pending means and label their deals incorrectly as pending when they should be contingent.