Heavy competition forecast for ultra-luxury condos downtown in 2006

City Homes

Developers of ultra-luxury downtown condominium buildings had better buckle their seatbelts in 2006 because experts say marketers of high-priced residences may be in for a bumpy ride.

“Luxury buildings are expected to encounter increasing amounts of competition in 2006,” said Gail L. Lissner, vice president of Appraisal Research Counselors, Ltd. and co-author of the Downtown Chicago Residential Benchmark Report.

The report, which surveys sales of new and converted condominiums, townhomes, lofts and adaptive-reuse residences, reported that a record 8,162 units were purchased downtown in 2005, up from a total of 6,298 units in 2004.

“The pipeline in 2006 is filled with potential residential projects,” Lissner said. “Developers are aggressively planning new projects which could exceed the number brought to market during 2005.”

Encouraged by strong sales in 2005, Lissner said, developers are actively pursuing new developments. “If there is a downturn in sales activity, this may become problematic for the market, combined with the high level of unit deliveries planned in 2006,” she said.

The Appraisal Research survey found that the individual sizes of proposed projects is increasing, although sizes of residences are moderating in middle-market developments, as some developers are targeting price-sensitive buyers.

“We expect very little new-construction condominium inventory to be priced under $300 per square foot in 2006, with the bulk of the new projects in the $300 to $399 per-square-foot range,” Lissner said. “Many developers are targeting the upper-middle market, luxury, and ultra-luxury markets.”

The Appraisal Research survey noted that marketing programs in three ultra-luxury projects are expected officially to start during the first quarter 2006. Lissner predicted that there would be “intense competition for buyers” among ultra-luxury condos priced at $700-plus per square foot.

“Ultra-luxury buildings in this price category tend to offer larger residences averaging 2,000-plus square feet of space, and these properties cater to a very selective clientele,” Lissner said.

Appraisal Research expects strong demand in 2006 for condominiums along the Michigan Avenue corridor, stretching from Oak Street (1000 N.) to Roosevelt Road (1200 S.), she noted.

“We now are seeing strong demand for residential units either on Michigan Avenue or within one or two blocks of Michigan Avenue,” Lissner said. “These properties are commanding some of the highest prices in the market, although located in many different submarkets – from the Gold Coast and the Cathedral District of River North, to South Streeterville, the Loop / New Eastside and the South Loop.”

“Currently, there are several proposals for luxury new condominium developments on Michigan Avenue or in very close proximity,” Lissner said. The report listed the following ultra-luxury projects now underway or planned on or near Michigan Avenue’s “Magnificent Mile” in 2006:

The Ritz-Carlton Residences. Rubloff Residential Properties started marketing 86 new-construction condominium units in early March from a sales center at 625 N. Michigan Ave. The elegant 40-story tower, designed by Lucien Lagrange Architects and co-developed by Chicago-based Prism Development Co., is planned on a prime site at Michigan Avenue and Erie Street formerly occupied by the Terra Museum of American Art.

Prices range from $1.25 million to more than $9 million for residences ranging from 1,370 square feet to grand penthouses with up to 5,744 square feet, according to James Kinney, president of Rubloff.

“The ultimate in hotel services in a non-hotel building will be provided at the Residences at the Ritz Carlton,” Lissner said. “This will be a purely residential condominium property with an extremely high level of personal service and staff, managed by the Ritz Carlton.”

900 North Michigan. This project involves adapting eight floors of office space for ultra-luxury condominiums priced at an average of $850 per square foot. A marketing program started in October of 2005.

Intercontinental Hotel. A redevelopment is proposed for the north tower of the hotel in the 500 block of North Michigan Avenue. Residences would include both hotel condominiums and traditional for-sale condominiums.

Trump International Hotel and Tower. Now under construction only one block west of Michigan Avenue, the 92-story luxury residential and hotel condominium tower has easy access to Michigan Avenue at the Wrigley Building. It will feature five-star hotel services, a 24-hour concierge and a world- class fitness center and spa. Prices range from $815,000 to more than $8 million.

Other upscale new-construction condominium projects now under development within one block of Michigan Avenue include Sutherland Pearsall’s 550 N. St. Clair; Avenue East Condominiums, at 160 E. Illinois St.; and The Fairbanks, at 240 East Illinois, the first of three towers planned at CityFront Plaza by Centrum Properties.

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., www.DonDeBat.net.

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