“People want to know where the bottom is — if they knew where the bottom is, they would jump up and buy… I don’t know when that day is, and I’m not predicting it.”
– Jameson Real Estate principal Charles Huzenis, in today’s Crain’s article about Chicago’s “condo chasm.” Only two downtown projects began marketing homes this year – the Spire and the latest phase of Roosevelt Square – and the authors of the Appraisal Research Counselors‘ latest Downtown Chicago Residential Benchmark Report doubt that any more projects in the downtown market will break ground this year.
According to the report, 685 new-construction and converted condos went under contract in the first half of 2008, 358 of which were pre-sales at the Chicago Spire. That’s a 73-percent drop from the first two quarters of 2007, when 2,443 homes sold.
“Clearly the ‘rush to buy’ has left the market,” state authors Ron DeVries and Gail Lissner.
Ten new-construction condo projects comprising more than 1,400 units have been canceled this year, and DeVries and Lissner predict additional cancellations, or at least a shift from for-sale condos to rental or hotel units, before the end of the year. Only two downtown projects began marketing homes this year – the Spire and the latest phase of Roosevelt Square – and the authors doubt that any more projects in the downtown market will break ground this year.
Buyers are still sitting on the sidelines, tougher lending standards are affecting sales, and contract cancellations are increasing, according to the report. One interesting but unsurprising trend that DeVries and Lissner mention is that incentives are now the norm in the downtown market: Free upgrades, free parking and free assessments are common, although not always advertised, especially when it comes to completed units. Developers who have to compete with resales in their own buildings are opting to build out with upgraded finishes in order to make their homes more desirable.
“…and contract cancellations are increasing…”
Just curious if there is any info regarding at what rate they are increasing over previous years.
George:
I don’t have the report in front of me this evening, so I’m not sure if they were specific on the rate of increase, or how many contracts they expected to go under. I do recall the report saying that it was common in a good market for about 5 percent of contracts to fall through at any given project, and that these days, 10 percent dropped is “modest.” I’ll check tomorrow to see if there was anything more specific than that.
Thank you, sir.
Any details on the Roosevelt Square sales?
Brad:
Nothing solid. I spoke with an exec at Related Midwest who acknowledged that the market has been tough for Roosevelt Square or The Peshtigo. He didn’t give sales numbers for either project, but he did say construction had yet to commence on Roosevelt Square’s second phase. (Back in March, we ran a sponsored article on the project that said that developers were “moving quickly to break ground on the second phase.”
He also said that Related was sticking with The Peshtigo, which does go against a couple of rumblings we’ve heard from people at competing projects. He wouldn’t go into specifics about the building’s construction timetable, he did suggest that potential buyers had “the advantage of not needing to close for three or four years,” which gives you an idea of how far out that project may be.
Thanks