Downtown Chicago condominium market sizzles again

After a couple of years on the back burner, the downtown Chicago condominium market is sizzling again, real estate experts say.

According to Appraisal Research Counselors’ Downtown Chicago Residential Benchmark Report, condominium sales in the first quarter of 2004 were “the best in nearly two years” for all property types – including new construction, adaptive reuse projects, conversions and townhomes.

A whopping 1,394 condominium units were sold downtown in the first quarter, compared with only 776 during the same period last year and 911 units in the first three months of 2002.

“While developers tended to sit out 2003 in terms of bringing new projects to market, that trend appears to have been reversed in early 2004,” said Gail Lissner, vice president of Appraisal Research. “Although developers started marketing 1,267 new-construction condominiums during 2003, sales were started for more than 1,000 new units in the first quarter of 2004.”

New projects range from such ultra-luxury highrises as Jameson Development’s 50 East Chestnut, with 34 full-floor condos starting at $2.2 million, to Loft Works On Michigan, a 39-unit “environmentally friendly” condo development by Frankel and Giles Real Estate at 1919 S. Michigan, priced from $179,000.

The prospect of increasing mortgage rates may have spurred many potential buyers to make a decision to purchase in the first quarter, Appraisal Research said. Mortgage rates have increased a full percentage point since late March. In early June, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate home loans averaged 6.28 percent, down slightly from 6.32 percent a week earlier. Last year at this time, the 30-year fixed mortgage averaged 5.26 percent.

The new downtown condo projects that started marketing during 2004 represent a broad range of housing styles and price points, ranging from approximately $250 per square foot to more than $650 per square foot.

Appraisal Research also reported that condo deliveries during 2003 outnumbered any in recent years and will surpass the projected deliveries for both 2004 and 2005.

“With nearly 4,200 units delivered in 2003, we are only projecting 2,300 units delivering in 2004,” Lissner said. “However, 2005 has the potential to be another big year, if all of the proposed projects actually break ground soon. If this happens, we could see nearly 3,700 units delivered in 2005.”

The Appraisal Research report also outlined the following current trends in the downtown condominium market:

Sales incentives. “Free parking spaces valued at $25,000 to $35,000 may be replacing free upgrades as the most popular sales incentive, particularly in the River North market,” Lissner said. However, developers are now offering an array of incentives including a price discount, lower deposits at time of contract and no payments on mortgage, taxes and assessments for a specified period of time.

Small units. “Buyer sensitivity to price continues to drive demand for the smaller and less expensive units in typical developments,” Lissner said. One-bedrooms and one-bedrooms with dens continue to sell out prior to the larger residences. Sales of two-bedrooms continue to trail the one-bedroom units. Expensive penthouses are experiencing slowest sales pace.

Premium views. “Buildings that offer particularly desirable views (of Lake Michigan, Grant Park or the Chicago River) are attracting knowledgeable buyers who are rapidly purchasing the prime view units at the start of the sales program,” Lissner said.

High-end finishes. Because of heavy competition, developers are increasing the level of standard finishes being offered. “We are continuing to see developers adding stainless-steel appliance packages as standard now that the market expects this amenity,” Lissner said. “This is one way to differentiate newly built condos from resale units which are generally finished to a lower level.”

Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media, Inc.,

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