Buyers riding high as new condo towers churn out units in ’03
For anyone who wondered what effect the terrorist attacks of 9/11 would have on Chicago’s residential highrise market, a quick drive through downtown provides an instant answer. Construction cranes crowd corners from Old Town almost to Chinatown, as the City of Big Shoulders continues its love affair with vertical living.
The place where some argue the modern highrise was invented is once again on the rise, with more than three-dozen new condo towers totaling more than 7,000 units actively selling apartments. Some of the new highrises are virtually complete, with residents moving in, and others have yet to break ground. Some are nearly sold out and others are just beginning to write contracts.
The cityscape, already dramatically altered by a nearly decade-long building boom, will continue to look up during the next several years as these new additions reshape the skyline.
More important for condo buyers, the flurry of new towers comes at a time when the economy is soft and the real estate market, while still healthy, has slowed considerably. This means that shoppers not only have an incredible variety of new product from which to choose, they also are being wooed by developers, who are offering price reductions and a wide range of concessions in what clearly is a buyer’s market.
Around 4,100 condominiums will be completed downtown and ready to occupy during 2003, according to housing analysts Appraisal Research Counselors. That’s double the roughly 2,000-unit levels seen during 2002 and 2001.
This massive number of deliveries comes against the backdrop of slower sales rates and significant additions to the rental market, as new apartment towers such as Grand Plaza, the Park Millennium and 2 E. Erie, come on line. A couple of years ago, many condo towers were sold out long before they began delivering units. Now, nearly 28 percent of the 4,100 condos scheduled for occupancy this year are still unsold.
“There will be huge numbers of deliveries in 2003 and 20 percent fewer sales (than in 2001),” says Gail Lissner, of Appraisal Research.
This highly competitive market creates a number of advantages for highrise buyers. The large number of units available in towers that are complete or close to it, means that the gap between when people sign contracts on new units and when they can move in has shrunk considerably. While buyers in new highrises typically face a wait of anywhere from six months to more than two years, depending on when in the construction cycle they signed contracts, shoppers at many highrise developments now can close on their new condos in 90 days or less.
Developers are throwing in everything from free upgrades and parking spots to significant price reductions and no payments for set periods of time. The developer of 1000 S. Michigan Avenue at press time was luring buyers to its project with a drawing for a trip for two to the Monaco Grand Prix. D2 Realty was offering a $20,000 discount on parking, and Robin Construction was giving away parking spots, valued at $33,000, with purchase of a two- or three-bedroom condo at the Grand Orleans.
Both 1111 S. Wabash and Hudson Tower were offering special programs that allow buyers to put just 5 percent down. American Invsco has offered a variety of incentives at various projects, including no down payments or closing fees, or no mortgage payments for six months.
“Developers are definitely dealing right now,” Lissner says. “If you’re looking for concessions, they’re out there. It’s becoming a little more like shopping for a car. But there are fewer (concessions) this quarter than during the fourth quarter, which is always a little weak anyway.”
Fewer sales incentives are being advertised, but builders, especially those with units ready for occupancy, have shown a willingness to deal once serious buyers are in the sales center.
The current highrise market, however, also holds risks for buyers. In addition to the many condo buildings under construction, around 3,000 condos (most, though not all, in highrises) are being marketed in buildings that have not yet broken ground. Around 60 percent of these units are unsold, according to Appraisal Research, which means it’s possible that some highrises now on the market will never get beyond the planning stages.
The Habitat Company, for example, pulled the plug last year on 390 N. Canal, a 34-story highrise planned for the edge of River North, when it couldn’t pre-sell enough units. Deposits may be refundable, but that’s small consolation for buyers who plan their lives around a new home only to find out months later that they have to start shopping all over again.
Another potential drawback to the unsold units offering quick delivery is that developers sometimes select finishes for these condos and complete the space, eliminating what many buyers consider one of the prime benefits of new construction – the ability to choose colors, cabinets, flooring and other items. Some buyers don’t mind trading choice for speedy delivery, but many want more input into how their condo will look and some ability to customize.
While the market for new highrises has tilted in favor of buyers, low interest rates and the attractiveness of real estate as an alternative to the sluggish stock market have kept sales at levels that by historical standards, are still quite high for the city. Some new highrises have sold at a quick clip, especially those with aggressive pricing.
“Four out of the five velocity leaders were priced below $300 a square foot,” Lissner said.
Michigan Avenue Tower, a highrise planned by Russland Capital Group for 1250 S. Michigan, has seen some of the fastest sales, with 185 of 221 units sold during the last eight months, according to Robert Frankel, of Frankel & Giles Real Estate, exclusive marketing agent for the project.
“The reason it sold so well is it has a Michigan Avenue address, great views of downtown and the lake, and there’s a beautiful swimming pool and park area with a jogging track and barbecues,” Frankel said. Condos in the 29-story highrise are priced from the $320s to $1.5 million.
The newest highrise to enter the market also has seen quick sales, spurred by a sterling address and its status as part of Lakeshore East, a massive mixed-use development located between Lake Shore Drive, Grant Park, the Chicago River and Illinois Center. The Lancaster, by Magellan Development Group and Near North Properties, had signed more than 50 contracts at press time after three months on the market, according to Joel Carlins, of Magellan.
“What are people attracted to?” Carlins asks. “Typically, they want to be around a park or water, or maybe a skyline. Here you overlook Grant Park, where no one can build, Lake Michigan and the Chicago river. To the west you see the skyline, and we have a six-acre park in the center of the development.”
Such megaprojects, from Central Station, in the South Loop, to Kingsbury Park, on the Near North Side, increasingly will dominate the downtown residential market during the next decade. While any highrise can offer door staff and indoor parking, the new master planned communities have the added benefit of being instant neighborhoods with their own retail, parks, roads and in the case of Lakeshore East, even a public school.