http://www.chicagotribune.com/business/chi-wed-condos-chicago-may14,0,6755090.story
Record condo numbers to saturate downtown
With sales slowing in weak economy, oversupply forecast
By Robert Manor | Tribune reporter
May 14, 2008
Nearly 6,000 condos, by far a record number, are expected to come on the market in downtown Chicago this year at a time when mortgages are tougher to get and sales have slowed dramatically, according to a report.
That adds up to a big worry about the Loop-area market, which has seen explosive growth in recent years.
"It's tremendously serious," said Steven Hovany, president of Strategy Planning Associates Inc., a planning and real estate consulting firm. "What you are going to see are buildings going into foreclosure."
Hovany predicts developers will cancel downtown projects for several years to come, until the excess housing is absorbed.
Downtown living, almost inconceivable 15 years ago, has contributed an extraordinary amount to Chicago's economy and its reputation as a livable city. The near West Side, once a depressed area, is now noted for fine dining. The near South Side has gone from a desolate warren of railroad tracks and warehouses to an engaging neighborhood with a short walk to work for thousands of people.
That momentum has drawn more and more projects, but now developers and real estate analysts say more downtown condos are coming on the market than demand warrants.
"There certainly is some oversupply," said Alan Lev, president of the Chicago home-building firm Belgravia Group. "If you are in the South Loop or the West Loop, you have some inventory to burn off."
Gail Lissner, vice president of Appraisal Research Counselors, said 2008 is the biggest year so far for downtown condos. Her firm says 5,984 units will come on the market this year. That compares with 4,794 last year and a projected 4,160 next year.
Yet buyers are not showing up.
Sales of newly built downtown condominiums plummeted by about 83 percent during the first quarter, to 201 units from 1,207 units a year earlier, according to a report to be released Wednesday by Appraisal Research Counselors.
"There's more risk in the South Loop than in other neighborhoods because of the quantity of new deliveries," Lissner said.
Lissner said there is no widespread discounting on downtown condos, but developers are willing to deal on price under specific circumstances. A developer with only a few units remaining in a building might discount the sales price just to end involvement with the project, for example.
In a recent report, Appraisal Research Counselors cited a number of factors that are hindering sales, including economic uncertainty and a concern that the housing market has yet to hit bottom.
Mike Hart, regional manager of Hanley Wood Market Intelligence, said developers are inclined to sweeten their offers but not necessarily lower the sales price. He said that means more free amenities included in deals, "whether it's flooring or something in the kitchen or maybe a free washer and dryer."
Although some town homes are coming on the market downtown, the overwhelming majority of newly developed homes are condos.
Lev said demand can change block by block, and some units are easier to sell than others. For example, Lev said, entry-level homes, meaning those costing less than $300,000, can sell to some first-time buyers because they aren't burdened by having a home to sell, and mortgages are available for people with good credit.
"It's the middle that is having a tougher time," Lev said. He defines middle-priced units as those costing somewhere between $400,000 and $800,000. He said those would-be buyers often have a home they must sell and cannot afford two mortgages for a protracted time.
Lev is finishing up a 400-unit condo at 600 N. Lake Shore Drive, where he said 130 units
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Thanks for the explanation, honte.
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