Archive for 2012

Chicago Apartment Tower Fetches High Price

Wednesday, December 26th, 2012

In what will become the second largest multifamily acquisition of downtown Chicago since January 2012, Jones Lang LaSalle Inc. signed a contract to buy the Onerie Center, a 60-story apartment tower in the Streeterville area, for nearly $190 million. Should the sale of the 615-unit high-rise at 441 E. Erie Street go through, the building’s current owners, Boston-based Metropolitan Properties of America Inc., could stand to make a nearly 42 percent profit.

This drastic price increase on the Onerie Center is indicative of Chicago’s rapidly growing apartment building market as of the last few years. Still too wary of the fluctuating real estate market to commit to buying a home, a vast majority of Chicagoans has instead opted to rent, prompting landlords to hike up their rent prices. A highly anticipated development boom, however, could prove to stave off rising rent prices and landlord profits in the coming years, causing the balance to tip slowly in favor of buying.

For the time being, however, Chicago rental properties will continue to demand high prices. The asking price of the Onerie Center is the second highest for a downtown apartment building in the past year, eclipsed only by the 848-unit Alta at K Station, a West Loop building slated to go for around $300 million.

The acquisition of the Onerie Center is the second of its kind for Chicago-based LaSalle Investment Management, which purchased a block of 145 corporate apartments in a River North high-rise last year for roughly $62 million.

As for the state of the Onerie Center, sources say that the location is a definite plus, but that the building itself is in dire need of some updating. Almost 85 of the building’s units have already been renovated, but the cost of fixing up the remaining units may reach a whopping $5 million, or almost $10,000 per unit.

Sales of downtown Chicago apartment buildings are expected to total nearly $1 billion by the end of the year. That would prove a big year indeed, but it’s a decline from last year’s record $1.4 billion sales, and may be a bellwether for the state of the apartment market in the coming years. Some say that fewer and fewer big investors are bidding on apartment buildings every week, perhaps because they have already hit their investment allocation for Chicago.

In any case, the topography of Chicago’s real estate market is expected to change dramatically in the coming years. Watch for a boom in new developments and cross your fingers that the market will rise up as more and more Chicago residents take the leap into buying a home.

Keep Your Condo Association Honest

Monday, December 24th, 2012

Property managers hold a great deal of responsibility—but in some cases, managers choose to take advantage of their positions, which give them access to funds with very little direct oversight.

While most of these individuals are hardworking and honest, there are numerous documented cases in which managers have embezzled funds into personal accounts and left the condo association or building high and dry. Of course there are preventative measures that can be taken to better ensure that this situation never arises.

If you’re a member of your condo’s board (a position worth looking into), it’s your right, and absolutely in your best interest, to keep in touch with the association’s attorney, property manager and insurance agent in order to map out a plan in order to avoid any financial hiccups.

  • Properly vet the incoming/current property manager. Ask the incoming management company and individual property manager to submit credit reports prior to their start date. If they truly desire your business they should have no qualms submitting to the credit checks.
  • Keep a close tab on the funds. There are two pools of money in community associations: operating accounts and reserve accounts. Reserve accounts should be under strict control of the board. Only board members should be allowed to write checks or transfer funds from this account. In regards to the operating account, there should be a set dollar limit that requires the property manager to obtain board approval and signatures in order to release funds. Any check that exceeds the allotted dollar amount for monthly bills should require board approval. While bothersome, this is the only true way to enact checks and balances.
  • Find out if the management company is protected from employee error. Make sure your management company has a fidelity bond that insures coverage from employee negligence. Similarly make sure that your association is named as an additional insured.
  • Keep the funds in separate bank accounts. It’s imperative that operating and reserve funds are kept in separate bank accounts in the name of the association. Make sure that the property manager isn’t combining funds with other properties or even worse, his/her personal account.
  • Ask to see the monthly numbers. Ask that your property manager is supplying the board with monthly financial status report. These reports will certainly include actual copies of the association’s bank statements. The board’s president or treasurer should be receiving official monthly or quarterly statements directly from the bank to avoid any confusion or human error.

 

Renting in Downtown Chicago Could Cost You

Friday, December 21st, 2012

As many are still shell-shocked from the real estate woes brought on by the 2008 bust, renting will remain a popular option for the foreseeable future in Chicago. As a result, apartment rents have been steadily rising—and will continue to do so amongst the top levels of the rental pyramid in Chicagoland. Among the lower levels, rents will remain fairly flat.

In the fancy luxury buildings of the downtown area, rents are roughly 7.5 percent higher than they were this time a year ago. The most exclusive buildings are charging around $2.58 per square foot, and a few have gone as high as $3.00 a foot. These per-square-foot rates are at an all-time high.

Following the “superdeluxe” buildings are what is known as Class B buildings. These properties have rents that are up roughly 5 percent, with their square footage charges varying greatly. The level below that, which covers apartments in struggling areas, saw a 2.5 to 3.5 percent increase in rent over this time last year—after almost a decade with no movement in rental charges.

At the lowest level, rents are flat, and are likely to remain that way until a full economic recovery takes hold. These apartments are located in areas plagued by high unemployment, making it difficult for landlords to find tenants who can actually afford to pay rent.

Demand for rentals is very high in mid-level areas like Hyde Park, but unlike the downtown area, rents won’t go any higher than inflation.

So what is truly behind the rising rents, and why the disparity among “levels”? The economy is what seems to be driving the wildly increasing rates. Movement in the top three levels is primarily dictated by employment and income growth. Renters at the top levels are usually college-educated, and the unemployment rate for this group of people is pretty low, around 4.5 percent. This, combined with the high demand for downtown rentals is what has driven luxury rental prices sky high.

3 Reasons to Buy Your New Condo Before Year’s End

Wednesday, December 19th, 2012

With less than a month left in 2012, the time you have to benefit from year-end home buying tax benefits and other financial perks is quickly winding down. Here are a few must-know insights that will prove helpful for any Chicago condo purchase you’re planning to make in the near future.

End-of-year tax benefits.
Making a new condo or home purchase before the end of the year makes you eligible for several tax benefits, including:
· Mortgage interest deduction: This benefit allows you to deduct the interest you paid on your mortgage during 2012. Interest is deductible only on the first one million dollars of debt. While you won’t see much of a kickback from this tax benefit in 2012 because the year is almost over, you will most certainly surely appreciate this benefit in 2013.
· Mortgage insurance premium: If your down payment is relatively small (less than 20%) and requires private mortgage insurance, the interest on those payments may be tax deductible. Income restrictions do apply, however.
· Mortgage points: If you decide to pay points on your loan, each paid point is deductible the year it is paid.

Record-low interest rates.
Rates are at historic lows, and have been that way all year. But with looming concerns over the “fiscal cliff” and the uncertainty around next year’s rates, now may be the best time to take advantage of a new mortgage.

Down payment funding.
With capital gains tax expected to rise from 15 to 20 percent in 2013, cashing out stocks and mutual funds and using that money for a down payment now may be your best bet to ensure the largest return on your money.

Chicago’s best neighborhoods are already seeing an increase in demand for new condos and homes, with prices slowly ticking upwards, new construction underway and the number of foreclosures stabilizing. So if you’re feeling that now is the time for you to buy, get in touch with your Chicago real estate agent and make it happen before 2012 is gone!

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Monday, December 17th, 2012

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Downtown Chicago condo market in recovery?

Wednesday, December 12th, 2012

Smaller. More targeted. Smarter. These are just a few words used to describe the way condo developers are approaching their new ventures in downtown Chicago.

Following the disastrous housing market crash of 2008, developers were left with 8,222 unsold units in the downtown area, and most decided to turn these units into rental properties. But in the third quarter of this year, builders were left with only 1,113 unsold downtown units, as many moved from renting the units to trying to sell them again, as they saw things turning around for the market.

Now that developers were able to unload already-existing properties, how will new builders thrive in this “new” Chicago condo market? In today’s world, smart is the new big. Where builders may have opted for the opulence and grandeur of a towering high-rise in the past, they are moving towards developing smaller, more targeted condo dwellings. The one-size-fits-all approach is gone, at least for now, and builders are more focused on developing homes to meet buyers’ specific needs.

Take developer David “Buzz” Ruttenberg, for example. After selling all 48 units in a five-story West Loop development, Mr. Ruttenberg is preparing to build another 40 unit development nearby. While impressive that he was able to move these units in a still-sluggish economy, projects of this scale wouldn’t have even garnered attention five years ago, as he was working on a two-tower, 400-unit monster project on Lake Shore Drive.

Ruttenberg’s latest project, a 14-unit row home development in the Lincoln Park neighborhood, is an ideal example of the rise of targeted condo dwellings. The new condos, which will be located in the 1500 block of West Montana Street, will target young families who want to stay in the city, and feature amenities and layouts that cater to that core group of home buyers.

As confidence and cautious optimism in the real estate market grows, smart developers are slowly moving away from the rental models they adopted during the bust, and are moving to develop targeted, smart housing. If a 27.5 percent increase in condo sales during the first three quarters of the year is any indication, we are well on our way to a market recovery.

Rich & Famous: Chicago’s Luxury Real Estate

Monday, December 10th, 2012

Luckily, the general public doesn’t have to endure the insufferable Robin Leach shtick of the early 1990s to find out how “the other half” lives.

Prior to the Thanksgiving holiday, Chicago real estate reached a new milestone when the most expensive condo exchanged hands for a staggering $15,000,000. While working Chicagoans are budgeting for imminent CTA fare hikes, I think it’s fair to assume that this transaction serves as a sobering reminder that not everyone is affected by the Red Line renewal project.

So what exactly does a $15,000,000 condo look like? I have no idea, but the MLS listing states that the 66th floor penthouse in the Park Tower at 800 N. Michigan Ave is 7,900 ft. of luxury. There are three bedrooms, four full bathrooms, five half baths and three garage spaces belonging to this penthouse suite. The unit also boasts 16-foot ceilings, 360 degree panoramic views and a private 44-foot outdoor terrace.

If you’re a Chicago homeowner, you’ve gotta be asking yourself, “What about the monthly and yearly taxes/assessments?” Glad you asked. Monthly assessments come in at $5,372 while property taxes are an impressive $109,373. No big deal. The sale of this unit has broken several Chicago real estate records because in addition to being the most expensive condo in Chicago it also smashes the record for the most expensive price per square footage at $1899.

The terms of the sale are a bit dubious as the unit was never featured on the open market; it was listed on the MLS Friday night, after the deal had already closed. This of course means the deal was privately negotiated and was only placed on the MLS so that the broker could be publicly credited for the transaction.

Richard Cooper, head of Oak Brook hedge fund Cooperfund, bought this unit back in August of 2000 for slightly over $3,000,000. Sold only 12-years later for a substantial mark-up, it appears that Mr. Cooper made yet another phenomenal investment.

Wolf Point Development Shelved in Wake of Controversy

Monday, December 10th, 2012

After months of tweaks, changes and perfections, the ambitious three-building development planned for downtown Chicago’s Wolf Point has been officially halted, thanks to several last-minute modifications in need of review.

The $1 billion project has proved a lightening rod for controversy since its inception, prompting endless back-and-forth negotiations between the developers and community members concerned about how the massive development would affect their everyday lives. Residents of nearby Kinzie Street were especially worried about a drastic increase in traffic in the area, ultimately pressuring the two developers—the Kennedy family and Houston-based Hines Interests L.P.—to make significant changes to traffic patterns back in October. Following October’s town meeting, the developers and community members apparently agreed upon the construction of one commercial tower and two residential buildings, with a total of 1,285 parking spaces.

Now the latest controversy revolves around a last-minute proposal by the developers to allow for the construction of some 1,800 hotel rooms, a number that was allegedly never discussed at either of the town meetings in May or October.

According to Ald. Reilly, the final updated plans he received just 24 hours prior to Tuesday’s town meeting were vastly different than what was previously agreed upon. Considering the significance of the Wolf Point Development—located in one of the last prime undeveloped parcels of downtown Chicago real estate—Ald. Reilly placed it on hold in order to review the new changes carefully before giving the go-ahead.

Among the details that still need to be hammered out is the maximum number of apartments and hotel rooms in the three buildings, as well as the final layout of each building. Though the Plan Commission was set to review the proposal at Tuesday’s town meeting, the discussion has now been pushed back to December 20th.

The decision to halt the Wolf Point Development could prove a major blow to the Hines-Kennedy venture, who hoped to kick off construction next year with a 525-foot high-rise on the west side of the property containing some 510 apartments.

Despite the setback, representatives of the developers claim they will continue to work closely with the city and the community to reach a tenable solution that is satisfactory all interested parties.

Foreclosures to Rentals: How Chicago Real Estate Is Evolving

Friday, December 7th, 2012

As economic indicators over the past few years have proven, the Chicago real estate market is in a vastly different place than it was in the very recent past. Before the Great Recession, Chicago was more of a home owner’s market. But now, people in Chicagoland are gravitating towards rentals, as there is still a lingering feeling of uncertainty regarding home ownership—despite the market showing many signs of recovery.

One of the dark spots giving Chicagoans pause is the city’s foreclosure rate. While foreclosures dropped in 131 out of the top 212 metro areas in the country, foreclosures in the Chicago area actually increased by 34 percent in the third quarter. Only New York, with a 69 percent increase, and Tampa, with a 49 percent increase, had more significant spikes in foreclosures.

So, what does this mean for Chicago? If you’re an investor, it means that it’s the perfect time for you to buy up some of those foreclosed properties, fix them up and seize this opportunity to take advantage of Chicago’s hot rental market. That’s what Thomas Barrack, a billionaire real estate investor, plans to do in the area. He’s just not entirely sure when.

Barrack, the founder of Santa Monica, Calif.-based Colony Capital LLC, has already purchased a portfolio of distressed homes from the Chicago-based firm MB Financial Inc. for $195 million, but he has yet to buy a bank-owned house in the area.

If Colony Capital is serious about entering Chicago’s foreclosures-to-rentals market, they are going to face some steep competition from other investors, including Mack Cos, who’s based out of Tinley Park, and Waypoint Homes, based in Oakland, Calif.

Barrack believes that consumers still want to live in single-family homes, even if they are renting them because of hesitations about buying. And he believes that creates an opportunity for him to foster scalable, ongoing business in the area.

Can Chicago’s downtown condo market be saved?

Wednesday, December 5th, 2012

Nationally, the housing market is slowly coming back from the brink. But in Chicago, we are still facing a few trouble spots. The most glaring stain on our housing market metrics? Downtown condo sales.

Since the collapse of 2008, downtown condo sales have been on a steady decline. The number of unsold new condos fell to an all-time low of 1,478 units in the third quarter of 2012—a far cry from the nearly 6,000 unsold units that were available in 2007.

Developers managed to sell 154 units downtown in the third quarter—down from the 182 units sold in the second quarter of this year and the 229 units sold in the third quarter of last year. Although condo sales are looking bleak downtown, other Chicago areas, such as Streeterville, are doing quite well, as home buyers take advantage of record-low interest rates.

So what’s the problem with downtown? Most Loop dwellers prefer renting over buying, and as the market makes a pivot to accommodate this new reality, condo developments are falling by the wayside. Developers are moving to rent condos, as opposed to keeping them on the market unsold.

Currently, nearly 500 of the market’s 1,478 unsold units are in three failed South Loop developments. New York-based developer Related Cos. is taking over the project, hoping to jump-start sales through a partnership formed with the lenders who initially financed them. This bold deal is the biggest distressed condo deal since the onset of the collapse in 2008.

How will Related Cos. ensure they fare better than other condo developers? The firm plans to reposition the three condo projects, spurring interest with high-end finishes and fixtures, sprucing up common areas and adding extra amenities, like dog grooming and dog walking.

Though downtown developers sold just 770 condos last year, average condo sales are usually around 2,700 units annually. New developers are confident we can get back to those levels soon.