The Q2 2008 Residential Benchmark Report from Appraisal Research Counselors (ARC) serves up a variety of generally downbeat news for developers of new downtown Chicago condo projects. Some modestly positive notes for the developers: most aren’t yet dead or crippled.
ARC reports:
The vulture funds are ready but the market has not yet progressed to that point. Certainly developers are not meeting their proforma projections for absorption, but at this point developers (with a few exceptions) have not had to bail out of projects. There have been several project cancellations recently, but these projects had not started construction. One building, Burnham Pointe, is being sold to a rental operator as a rental building, so this is another potential exit strategy in buildings which have not yet begun delivery or started their unit closings. This strategy will likely become more frequently used. Generally, experienced developers with solid financial backing and well-conceived projects are still able to adapt to the new market conditions.
In previous posts we quoted ARC on growing inventories and rising contract cancellation rates.
Buyers who are sitting on the sidelines waiting for developer / lender fire sale prices should connect a few dots here.
Some projects will get wholesaled out to rental operators. If fire sales do occur most will inure to the benefit of vulture funds in the form of bulk sales rather than sales to individual bargain hunters.
In the early 80s I was one of those bulk buyers, acquiring 173 units in 4 well-conceived but financially-troubled projects. I rented the units for 5- to 7-year periods until the for-sale market returned. Most of my buyers didn’t see any bargains.
I get the feeling there is going to be a huge boom in sales when those prices drop a bit. The fire sale is coming.