Chicago Condo Sales Cool Out
Monday, August 18, 2008PAUL KANGAS: It's a buyers market for condominiums in Chicago. Between now and next year, close to 10,000 new units will be available in the downtown area alone. But as Diane Eastabrook reports, sales are slowing and that has developers pulling the plug on future projects.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Walton on the park is now little more than a dusty hole in the ground, but in a couple of years it will be a 400-unit luxury condominium development towering over downtown Chicago. Developer Ronald Shipka of the Enterprise Companies says many potential buyers have been parading through the development's models since they opened last year, but to date only about half of the condos have been sold.
RONALD SHIPKA, PRINCIPAL, THE ENTERPRISE COMPANIES: People are reluctant to make a commitment for a project that is going to be delivered out in late 2009 or 2010. They've lost confidence in our economy, possibly our leadership and they are looking to be safe and safe is no commitment.
EASTABROOK: Chicago didn't see the real estate boom that Las Vegas, south Florida and California saw in recent years, but it was a hot spot for condo sales until a year ago. Now that the market has cooled, there is a glut of new and soon-to-be completed condos for sale. Appraisal Research Counselors, which tracks Chicago's downtown residential real estate market, says 11 percent of the 4,800 units delivered last year remain unsold, 25 percent of the 4,900 units ready for delivery this year are unsold and 40 percent of the 4,600 units available next year are up for grabs. Vice President Gail Lissner says as a result, some developers are adopting sales strategies that are now common in other markets.
GAIL LISSNER, V.P., APPRAISAL RESEARCH COUNSELORS: It used to be that the list price was the price and now there is a lot more room for negotiations.
EASTABROOK: Lenders are also adopting new tactics. Many are requiring higher pre-sales and more capital from developers before backing any new projects. Lawrence Johnson, executive vice president of New Century Bank says lenders are also looking more carefully at the developers.
LAWRENCE JOHNSON, EXECUTIVE V.P., NEW CENTURY BANK: I think it's only going to be the highest quality, best experienced developers that have very strong financial conditions beyond the equity in which they are putting in the project that will be able to find lenders willing to consider new financings for them.
EASTABROOK: Slow sales of this loft project in Chicago's loop have left developer Alan Lev more cautious about the condo market. Belgravia Group's 565 Quincy condominiums are only half sold after a year-and-a-half of marketing, so Lev is postponing future projects.
ALAN LEV, PRESIDENT & COO, BELGRAVIA GROUP, LTD.: We have a couple of projects that we have under contract. We're not obligated to close and we won't close and go forward with them until we see things turning around some.
EASTABROOK: Real estate experts think it could take a few years for Chicago to work through the overhang of new condo units, which could explain why developers have put at least 10 proposed projects on hold. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
