Monday, November 23, 2009

NEW CONDOMINIUM PRICE CUTS HELP ABSORB INVENTORY IN DOWNTOWN CHICAGO

Like the whooping crane, the construction crane now is on the endangered species list in downtown Chicago.

A few years ago, with a frenzied condominium boom in full swing, downtown visitors spent time gawking at dozens of construction cranes perched on the tops of high-rises.

Current estimates indicate that about 4,000 condominium units now are being completed and ready for occupancy in downtown Chicago, and 64 percent of these residences already are under contract or sold, according to Appraisal Research Counselors’ Downtown Benchmark Report for the third quarter of 2009.

“Inventory of completed, unsold new condominiums downtown now totals 3,225 units,” said Gail Lissner, vice president of Appraisal Research Counselors.

Between 2006 and 2009 about 18,000 units were completed in downtown Chicago—a pace of about 4,500 units per year, according to the new Appraisal Research report.

“Very little construction activity is expected to be completed in 2010, with only 900 units under construction and slated for delivery,” Lissner said. “Only one building with 86 units is projected for completion in 2011.”

Many developers were busy in marketing developer-owned units at deep price discounts in 2009. “A total of 1,372 closings for developer-owned units have taken place through the end of the third quarter,” Appraisal Research reported.

For example, Kargil Development slashed prices by as much as 25 percent at Prairie District Lofts in the South Loop. The $499,800 price tag on a 4-bedroom, 2-bath loft with 1,915 square feet of space was cut to $379,800—a savings of $120,000.

Despite the construction slowdown, things are much better in the Windy City condo market than in 2008, when 20 condominium projects with a total of 3,800 units either were formally canceled or closed down marketing operations. “There have been substantially fewer projects shut down during 2009,” Lissner said.

There is some positive new in Appraisal Research’s generally gloomy report:

• Condo closings are on the rise. The total number of new developer-owned condominium closings has risen each quarter this year, from 357 closings at the end of March, to 383 closings at the end of June, to 632 closings at the end of September, according to public records.

• First-time buyer bonanza. “As the strongest segment of the market, the first-time buyer is leading the recovery of downtown condo sales,” Lissner noted. Without the worry of selling an existing home, wise novice purchasers are tapping the $8,000 first-time buyer tax credit and pairing it with low-down payment FHA financing.

• FHA-financing comeback. The rise of Federal Housing Administration-insured home loans has helped condo buyers obtain financing with low 3.5 percent down payments.

• Special financing packages. Construction lenders such as MB Financial have been offering 95-percent financing at below-market rates in some developments it financed to help facilitate closings at such downtown projects as Silver Tower in River North, SoNo in Lincoln Park, and CA23 in the West Loop.

Forecasting the future, an optimistic Lissner said the downtown condo market is returning to construction levels reminiscent of the early to mid-1990s, when there was very little new condo development activity.

“As the unsold inventory gets absorbed and the economy improves, pent-up demand will be evident again. This lull in new development activity will set the stage for a new development cycle within the next several years,” Lissner said.