Monday, September 14, 2009

DOWNTOWN CHICAGO CONDO MARKET ATTRACTING FIRST-TIME BUYERS

Declared dead and buried earlier this year, Chicago’s downtown condominium market apparently is still alive and just in a state of slumber.

That gradually improving diagnosis comes from Appraisal Research Counselor’s latest edition of the “Downtown Chicago Residential Benchmark Report,” which noted that 313 new-construction condos were sold in central Chicago in the second quarter of 2009.

That is a vastly better number than the anemic 55 units that were sold downtown in the first quarter of this year, but still a far cry from the good old boom markets of yesteryear.

Between 2006 and 2009 more than 18,000 downtown condo units were completed for an average production of 4,500 units per year, Appraisal Research noted.

However, this development wave has ended and developers struggling to obtain construction financing. Only 620 condo units are in the pipeline and scheduled to be completed in three buildings in 2010. Only 86 units are under construction in one building set for completion in 2011.

What is causing the mini revival of the condo market? Good old fashioned consumer bargain hunting.

“The developments exhibiting the strongest sales were the projects which were offering the largest price discounts,” said Gail Lissner, vice president of Appraisal Research. “The most active segment of the market appears to be the first-time buyer.”

Appraisal Research noted that several factors are sparking sales in the first-time buyer market, including Uncle Sam’s $8,000 first-time buyer tax credit, the availability of Federal Housing Administration-insured financing with down payments as low as 3.5 percent, and the freedom from having to sell and existing residence.

“A large amount of condo inventory priced at $250 to $350 per square foot is attracting first-time buyers, especially those who feel confident about their jobs,” Lissner said.

Appraisal Research noted that more condo developers are offering special below-market financing packages.

For example, in the second quarter, American Invsco launched an innovative program that offers rock-bottom 2.5 percent mortgage financing to condominium buyers at 200 N. Dearborn, a 47-story tower now being converted to condominium ownership in Chicago’s Loop. Buyers are required to place a 20-percent down payment to lock in the 2.5 percent rate on an interest only 10-year loan.

Some developers are offering price discounts to attract buyers. “Developers of several downtown buildings have substantially re-priced the unsold inventory in order to quicken the sellout of the building,” Lissner said.

Auctions are another marketing device used by developers to sell standing condo inventory. Condominiums and townhomes are being auctioned at discounts ranging from 30 percent to more than 55 percent, depending on location, Lissner said.

Some developers have given up the ship and are converting buildings from condo to rental.

“Recently, Centrum Properties said it will cancel sales contracts at its 346-unit Roosevelt Collection, a mixed-use lifestyle development in the South Loop, and begin a leasing program, Lissner said.

“While the market is still challenged by the recession, job losses, tighter lending standards and contract fallout issues, the pace of condo sales showed a marked improvement in the second quarter because of discounted prices and affordable financing,” Lissner said.

With a market recovery on the horizon in 2010, Appraisal Research predicted that the condominium conversion segment may be the first to benefit since it can provide new units most quickly.