Even a hot housing market has its share of bargains
Perhaps the heat index should be used to measure Chicago’s housing market, which remains as hot as the city’s notoriously steamy summer temperatures. Spurred by low interest rates, growing suburban commute times and a vastly improved cityscape, Chicago continues to build and sell homes at a historic pace.
According to Tracy Cross & Associates, Inc., a Schaumburg-based market research firm, the city set a record for the number of contracts signed on new homes last quarter. This year, Chicago is on pace for more than 6,400 new-home sales, which will easily surpass last year’s high-water mark of 6,033.
The strong demand for city housing has had a well documented effect. According to the Chicago Association of Realtors, the median price of an attached home has risen 90 percent during the past five years, causing more than a few buyers to lose sleep – and hair – as they try to find homes that are affordable for non-millionaires.
Those expecting prices to fall will be discouraged by a recent report in Forbes Magazine. The study, based on research by Economy.com, deemed Chicago “less vulnerable” to a housing bubble than other cities based on a 2004 affordability index. Indeed, given the hefty housing prices in cities such as Los Angeles, San Francisco and New York, some argue, Chicago prices may only be in the early stages of a long ascent.
But it’s not all doom and gloom for buyers. Hot markets have their share of deals too – even full-fledged bargains – for those willing to look.
To the urban pioneer, go the spoils. At least sometimes. Prescient buyers have always attempted to move up the property ladder by moving outside established neighborhoods. “Emerging” areas are priced lower and can gentrify over time, but the strategy is not without risk. Some neighborhoods take far longer to change than buyers expect, and others never develop the way speculators hope.
Michael Golden, co-founder of At Properties, points to the South Loop as a prime example of a neighborhood where pioneering paid off. What was once sparse and industrial is now considered prime real estate. In fact, Golden says, there is a dearth of new construction priced under $250,000 in the area. His firm is filling that gap and selling something rare at Vision on State – brand new homes in the South Loop starting under $200,000.
The planned condo project at 13th and State has 254 units, which at press time were priced from the $170s to the $310s. The homes have one or two bedrooms, one to two baths and 610 to 1,079 square feet. The project is geared toward buyers who want to live in the neighborhood and are more concerned about absolute prices than large units or price per square foot.
“Buyers are hard-pressed to find new construction for under $250,000 in the area, so they’re moving very aggressively to seize this opportunity,” Golden said.
Buyers interested in the South Loop increasingly have to head farther south for bargains. Dubin Residential argues that this trend has pushed the borders of the South Loop beyond Cermak, where the company’s Wabash Club development is expected to open for sales in July 2005.
Located one block south of Cermak between 23rd and 24th along Wabash, the new community of townhomes and condominiums will be built on the former site of Aramark Uniform & Career Apparel, Inc.
The Wabash Club has 62 townhomes ranging from 1,700 to 2,400 square feet and base-priced from the high $300s to the mid-$400s. The development also will include 60 condominiums of 800 to 1,200 square feet, base-priced from the low $200s to the high $200s.
How do these prices compare with those north of Cermak? At the Enterprise Companies’ newest Museum Park buildings in the South Loop’s hot Central Station community pre-construction condo prices start in the $400s and rise to the $1.5 million range. Few townhouse projects are available for comparison north of Cermak because land has grown so expensive in the South Loop, developers are reluctant to build anything but condos.
Investors and buyers have long looked for bargains in “fringe” neighborhoods bordering pricier areas on the North Side, and communities ranging from Logan Square to Lincoln Square once fit the bill. But these neighborhoods are no longer cheap alternatives. They’ve become popular and prices have skyrocketed.
Along the north lakefront, Rogers Park and Edgewater are still the most affordable options, though they’re not the incredible bargains they once were. In Edgewater, for example, the median condo sold for $194,850 during 2004, up 71 percent over the last five years, according to CAR. Still, the median condo price in Lakeview, to the south, was $317,000, 63 percent higher than in Edgewater.
Prices have risen sharply on much of the South Side too, though they’re generally much lower than in North Side neighborhoods. Despite the effects of speculation and development, Chicago’s south lakefront may represent the best long-term bargain in the city.
In the same way that buyers are pushing just beyond the borders of the South Loop in search of deals, they’re considering homes outside of the Hyde Park-Kenwood area, long considered a highly desirable residential island on the Mid-South Side, according to Larry Bloom, managing broker and sole owner of Bloom Realty, Inc. Bloom, a 30-year Hyde Park resident, says that sophisticated builders are looking for new territory. A variety of conversion and new-construction projects have sprouted in what he dubs “the South Campus neighborhood,” between Cottage Grove, Stony Island, 61st and 63rd.
“A high-quality three-bedroom two-bath condo with all the bells and whistles can be had for the mid-$200s,” Bloom says. “The area is serviced by Metra Electric, express buses and the CTA. And Lake Shore Drive and the expressways are easily accessible with far less congestion.”
Bloom’s firm is working with the Boyle family, an established developer from the south suburbs now building Chapel View Condominiums, named for the project’s views of the University of Chicago’s Rockefeller Chapel. The condo development at 6113 S. Kimbark may be off the radar for some buyers, but for those willing to explore this location, three-bedroom two-bath units are available in the $210s – an impossibly low price by North Side standards.
According to Bloom, it’s not just university students who are intrigued. Buyers in the neighborhood are increasingly diverse and include professionals affiliated with area hospitals, south suburban commuters and disillusioned residents from the South Loop and West Loop who would have to pay more than twice Chapel View’s prices for similar homes in their neighborhoods.
Another source of bargains during the last couple of years has come from builders, who faced with stiff competition, offered buyers everything from free parking to appliance upgrades to clinch deals. Incentives eased as developers sold off much of their existing product, but they’ve returned this summer. Some are advertised and some emerge in the back rooms of sales centers as developers try to topple customers off of the fence and into contracts.
Charles Huzenis, president of Jameson Realty Group, says that even though sales are strong, the depth of the new construction market continues to encourage incentives – a situation that will change once supply is more in line with demand.
At Jefferson Tower, a 23-story condominium building planned in the West Loop, Jameson is offering a free parking space valued at $29,800 with each condo. The development also includes a high-end finishes, such as slate flooring and granite countertops, as standards.
“There still is a large selection of new-construction condos on the market, so builders are hoping to spark sales this summer by offering packages full of special amenities that typically are offered as options,” Huzenis said.
Free parking continues to be one of the most popular and profitable perks. Buyers who purchase one of 15 luxury corner residences at 950 W. Monroe, priced from the $450s to the $520s, will receive a free two-car parking space. At the boutique 30 W. Erie development, Jameson Realty Group is giving away a parking space, valued at a hefty $50,000 in this luxury location, with each condo. New West Realty is offering a $15,000 parking discount until July 15 at its 182-unit Van Buren Lofts and its 207-unit Paramount Lofts projects, both adaptive reuse developments underway in the West Loop, said Ted Mazola, president of New West. Veterans of U.S. military service in Iraq or Afghanistanare being offered an additional $10,000 discount at both loft developments.
At several adaptive reuse projects – buildings converting from commercial to residential purposes – another buyer incentive is provided courtesy of the state. Under this program, the developer of owner-occupied units in a historic building can apply for a tax break that freezes the assessed real estate tax valuation of the homes near the pre-development level for eight years following the rehab.
University Station Lofts, a historic adaptive re-use condominium conversion at 1550 S. Blue Island, on the Near West Side, is a prime example. Sales at the development have been spurred, according to co-developer Mazola, by the building’s landmark status and the attendant break in real estate taxes. Mazola said many buyers at University Station would see their tax bills limited to around $200 a year for eight years.
Only a handful of buildings qualify for this substantial perk, but the current market includes both affordable examples, such as University Station, and ultra-luxury ones, such as the Palmolive Building and the Ambassador.
Other current incentives range from special financing packages to free upgrades. The developers of State Place, a mixed-use project at 11th and State, in the South Loop, are giving buyers $10,000 in developer upgrades, including granite countertops, stainless steel appliances and washers and dryers. Brinshore Development is helping buyers get a foot in the door with a $5,000 cash incentive to pay for closing costs at Westhaven Park, a mixed-income community on the Near West Side.
Dubin Residential, is working with its preferred lender, Chicago Bancorp, to allow homebuyers to lock-in today’s low interest rates for up to 18 months. Buyers pay no fees in the program, only a deposit that’s refunded at closing. Extending the rate-lock period, typically not more than 45 or 60 days, protects buyers who might not be able to afford their home upon completion if interest rates move up significantly over the next year-and-a-half. Over the course of a 30-year loan, such savings could be substantial.
Timing is critical
Timing can be another critical factor in finding deals when it comes to new construction. Buyers in search of bargains should avoid the herd mentality, suggests Tracy Cross, president of housing analyst Tracy Cross & Associates, and arrive at developments early or late.
According to Bob Horner, a principal in Winthrop Properties and developer of Printers Corner, a new condo project planned for Printers Row, buyers who purchase a home during the pre-construction phase can benefit while the developer is courting financing.
“If enough buyers commit to buying during the pre-construction phase of the project, a lending institution will provide the financing needed for construction on the project to commence,” he explained. “For this reason, developers are more than willing to entice buyers by offering units at a reduced rate.”
Once buyers meet their “pre-sale” requirement – often around 50 percent of units – prices generally rise. At Printers Corner, an 88-unit development at Polk and Wells, Winthrop is selling condos with one to three-plus bedrooms from the mid-$200s to the $800s during the pre-construction phase. Prices are likely to increase once construction starts.
The Thrush Companies is offering buyer incentives of $7,500 to $15,000 at its 740 Fulton development, a 14-story tower with 132 units planned for the West Loop. The deal will end this summer once ground is broken, according to developer David Chase. The homes have one to three bedrooms and one to 2.5 baths, and parking is included in unit prices that range from $272,490 to $869,990.
The other auspicious time to bargain hunt is at the end of the sales cycle, when a developer wants to close down the sales office and move resources and staff to a new project. It costs money to carry unsold units – labor, interest, administrative costs, taxes. Every month that the final unit of a project does not sell, the developer becomes more motivated to close the books. The fortunate buyer can sometimes have the unit for less than last year’s price, in effect gaining instant equity in the home.
Dubin Residential is down to its last townhome at the Courts of Evanston development on Chicago Avenue, according to Mike Kelahan, director of sales and marketing for Dubin Residential. “I would just as soon get it sold, take down the sign, and be gone. We have a $20,000 discount on the unit, which is a pretty nice incentive. I can either give that money to the customer or give it away in other costs. Don’t get greedy, get smart.”
City programs available
The city’s Department of Housing has a number of programs to defray the costs of homeownership, including the Chicago Partnership for Affordable Neighborhoods. CPAN, as its known, helps first-time buyers purchase homes in new developments at below-market rates.
“It’s a program aimed toward hardworking middle-class workers, including teachers, firemen, policemen and others,” Kelahan says. “It’s good for the buyer and good for the community.”
The program makes developments affordable both through developer write-down and purchase price assistance to home buyers. At Dubin Residential’s Welbourn Row project in West Lakeview, 11 two-bedroom condominiums are priced at $170,000 – about $50,000 below market value through CPAN, according to Kelahan. To qualify, homebuyers must be approved for a 30-year mortgage and earn no more than 100 percent of the area’s median household income – $52,800 for one person and $60,300 for a household of two.
It’s a volunteer program that Dubin and other developers have bought into. The city typically takes back a second mortgage on the difference between the market price and the buyer’s price, which must eventually be repaid. This prevents buyers from quickly selling the properties. In exchange for contributing some of a development’s units to the CPAN program, builders are often granted greater density for a project by the planning department.
Other projects offering units through the CPAN program include Rivers Edge, 2801 N. Oakley; the Larrabee, 865 N. Larrabee; the Grand Terrace, 405 E. Oakwood; Grand Timber Lofts, 500 N. Damen; 2129 N. California; and Belmont Lofts, 4131 W. Belmont.
Some builders offer their own discounts for particular buyers. At Jazz on the Boulevard, a 137-unit development at 41st and Drexel, the Thrush Companies is offering Chicago school teachers and police officers as well as University of Chicago Hospital employees up to $10,000 in free upgrades on select market-rate and workforce homes through July 31. The project is a joint venture of the Thrush Companies, Granite Development and Heartland Housing.