While 2002 may be the worst of times for condominium developers, it may be the best of times for would-be condo buyers.
“Condo buyers are in the catbird seat as more and more developers scramble to make up for slower sales at the end of 2001,” said housing analyst Garry Benson, of Chicago-based Garrison Partners.
A new study from Appraisal Research Counselors Ltd. for the downtown Chicago condominium market this year paints a cloudy picture for developers. At the end of 2001, some 4,356 newly built condominiums were unsold and sitting on the market, reported John R. Jaeger, vice president of Appraisal Research Counselors, who noted that many residences on the market have been re-listed by investors.
That compares with 3,196 units at the same time a year earlier, and 1,882 units at the end of 1999, according to the firm’s Downtown Chicago Residential Benchmark Report.
Even though mortgage interest rates inched below 7 percent to the lowest level in more than 30 years in the fourth quarter of 2001, condo sales downtown, including new-construction residences, lofts, conversion units and townhomes, hit the skids.
“Many factors contributed to this decline in buyer traffic, including the aftermath of Sept. 11, the recession, job loss, uncertainty in the economy, and the holiday season, a traditionally slow time for housing sales,” Jaeger said.
On the brighter side, Christmas and New Year’s brought a gift-wrapped package for condominium buyers in Chicago – sales incentives.
“A multitude of sales incentives are still being offered to buyers and realty brokers,” noted Gail Lissner, vice president of Appraisal Research Counselors. “Look for everything from $2,500 to $15,000 in free upgrades, from a washer and dryer or granite kitchen counters to a free parking space valued at up to $30,000,” she said.
Other developers are offering to buy back the condo after three years if an owner can’t sell it. Another incentive is a 12-month mortgage-rate lock. Some developers are willing to buy out apartment renters’ leases to get them to sign sales contracts.
Sweet Realtor perks include double commissions, gift certificates and referral fees or cash back at closing, Lissner said.
Just how slow is the condo market in the city?
“As buildings are nearing occupancy, large numbers of units now are being offered for resale, often by investor owners,” Jaeger said. “This pattern is much more pronounced than in the past.”
At the 169-unit Farallon, a condo high-rise at 600 N. Dearborn in River North, the owners have listed 39 percent of the residences for resale at the time of closing. At the 99-unit Huron Pointe, a condo high-rise at 421 W. Huron in River North, 29 percent of the residences already have been listed for resale.
Jaeger said a major difference between the new-construction condominium market in 2001 and the market in 2002 is that “virtually all of the buildings that delivered in 2000 were sold out or nearly sold out at the time of completion.”
Only a few new projects were brought to market during the fourth quarter of 2001, Jaeger said. The short list of brave new construction developments includes Prairie Tower at Central Station, 390 N. Canal, Pointe 1900, Cullerton Station and the Belvedere.
There also are some bright spots in the condominium marketplace, according to Appraisal Research.
“Loft developments continue to have very little unsold inventory,” Jaeger said. “That is directly related to the limited number of loft developments currently being marketed downtown.”
Opportunities for developers also exist in the condo conversion market, Jaeger suggested.
“This is an excellent time to announce a conversion project in the primary downtown boundaries, between North Avenue and Cermak Road, because there is only one active project within that area,” he said.
At the end of 2001, River City, a South Loop conversion by American Invsco, had only 316 units remaining to be sold, Jaeger said.
Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is president of Don DeBat and Associates, www.dondebat.net.