Glut check: 3,300+ unsold homes downtown

The second quarter of 2010 ended with 3,344 developer units still on the market in downtown Chicago, according to Appraisal Research Counselors‘ latest Downtown Chicago Residential Benchmark Report. Crain’s has the story.

Downtown developers sold just 150 units between April 1 and June 30, down from 256 in the first quarter and 313 in 2Q 2009, the article says.

Our copy of ARC’s executive summary hasn’t arrived yet — look for more facts and figures here once it does — but I did run across the 2Q 2005 this morning. Let’s reflect on the market conditions from five summers past.

2005 was a record quarter for the for-sale market…the downtown market continues to exhibit great strength, as it appears that we are headed toward record-breaking sales velocities during 2005.

Speculators dressed in many disguises continue to inflate demand in the market and continue to be one of our major concerns in the market. They continue to be very difficult to identify. Developers often brag that they do not sell to speculators because they do not sell multiple units to one purchaser. However, speculators often buy single units in many buildings, and other speculators band together, purchasing units in the same building in different buyer names. In addition, any developer with a “following” typically is attracting speculators who follow them from development to development, purchasing a unit in each new project that is brought to market by that developer.

…Newly announced projects are posting huge sales (contracts/reservations) during the first few weeks of marketing. In fact, of the 4,898 units that were placed under contract/reserved during the first two quarters of 2005, approximately 62% of these units were located in projects which had just started marketing programs during 2005.

Note: Among the 21 projects that started marketing in 1Q and 2Q 2005 were One Museum Park (289 units), The Chandler, (286), Fairbanks at Cityfront Plaza (281), ParkView Condominiums (268), Marquee (206), Museum Park Place (194), MoMo (184), Madison 901 (148), 451 Huron (135), and Avenue East (133).

…Developers are using reservations to stimulate activity at the start of the sales program, generating large numbers of reservations which can be difficult to convert to contract. With reservations being refundable, prospective buyers only need to write checks typically for $1,000 or $5,000 for a reservation; with the reservation being non-binding on the buyer, the prospective buyer basically has “nothing to lose” by placing a reservation on a unit…Thus, some of the “sales” numbers are being inflated…and may result in some negative absorption in certain projects employing this strategy in the following quarter.

The South Loop market share topped all other submarkets…for the year to date, the South Loop totaled 1,065 contracts, closely followed by the West Loop.

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