Housing in Chicago

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Downtown condo sales down 46% in first quarter

By Alby Gallun - Chicago Business


The slide in new downtown condominium sales accelerated in the first quarter, prompting some developers to think twice about launching big new projects.
DOWNTOWN HOME SALES Sales of new condos and townhomes in the downtown Chicago market plummeted 46% in the first quarter to 1,207 units, the lowest first-quarter total in four years. The number of new units proposed during the first quarter also fell sharply, but fears of an oversupply persist.Quarter Proposals Sales1st quarter ’07 1,218 1,207 4th quarter ’06 932 720 3rd quarter ’06 2,323 1,324 2nd quarter ’06 1,737 1,496 1st quarter ’06 2,463 2,243 Source: Appraisal Research Counselors Buyers signed contracts for 1,207 downtown condos and townhomes in the quarter, a 46% plunge from 2,243 in the year-earlier period, according to a report by Appraisal Research Counselors, a Chicago-based real estate consulting firm.
It was the seventh straight quarter of declining sales and the biggest quarterly percentage drop so far.
“Buyers have numerous options. They have little sense of urgency,” the report says. “And these buyers are now fewer in number with the retreat of many investors and speculators who had been flooding the market a few years ago.”
The good news: The supply of unsold new condos held steady in the quarter after ballooning last year. Developers started marketing condo projects with 1,218 units in the quarter, roughly matching the sales for the period — a positive sign for those worried about a glut.
Uncertain about the direction of the market, some developers decided to “sit on the sidelines” in the first quarter, says Appraisal Research Vice-president Gail Lissner. “I really do think there was some hesitancy on the part of developers to bring a lot of (new condos) on line,” she says.

Some developers have responded to the weaker market by scaling back their plans. About three months ago, C.A. “Bud” Cataldo and William Marovitz scrapped a 29-story, 168-unit condo tower at 660 N. Kingsbury St. and decided to develop a 50-unit loft building instead.
“We’re just being cautious,” Mr. Cataldo says.
Yet other developers are moving full speed ahead with new projects, indicating that the supply of unsold condos is more likely to rise than fall in the coming months. Centrum Properties is getting ready to start selling condos in the St. Clair at Cityfront Plaza, a 40-story, 261-unit high-rise in Streeterville, and CMK Development Corp., is about to start marketing a project a couple blocks south of the Sears Tower that would have 714 condos — the most in a single residential building in 35 years, according to Appraisal Research.
"Unsold inventory levels climbed in 2006 but have thus far stabilized in 2007; however, the pipeline of potential project announcements could potentially further compound this inventory issue unless developers or lenders slow the pace of development activity," the report says.
Downtown developers had 7,416 unsold condos at the end of the first quarter, up only slightly from 7,405 at the end of 2006.
Though that’s still a big number, developments representing 3,393 of those units, or about 46%, are only in the planning stage. Given the weaker market, some of those projects may never get of the ground because their developers won’t sell enough units to secure a construction loan. That would be a blessing for a downtown already awash in condos. Whatever happens to supply, it’s unlikely that demand for new downtown condos will return to its peak level of 2005, when developers sold 8,162 units, a record. Sales fell 29% last year, to 5,783 units, and could drop to 3,500 to 4,000 units in 2007, Appraisal Research estimates.






Downtown apartment rents rise again in first quarter
By Alby Gallun - Chicago Business


Downtown apartment landlords again hiked rents in the first quarter, suggesting that the market is holding up well even as developers build new high-rises.
The average Class A effective downtown rent rose to a record high of $2.25 a square foot in the quarter, up 2% from the previous quarter and nearly 9% from the year-ago period, according to a report by Appraisal Research Counselors, a Chicago-based real estate consulting firm. Effective rents include the impact of concessions like free rent, which have virtually disappeared as the apartment market has rebounded from a slump earlier in the decade.
Occupancies, meanwhile, continued to fall, reflecting competition from four new buildings added to the market in the past year. The Class A occupancy declined to 93.4% in the first quarter, down from 94.3% in the previous quarter and a peak of 97.5% in second-quarter 2006.
“It’s a good sign that owners were able to get an increase (in rent) in spite of the fact that there’s new inventory being leased,” says Appraisal Research Vice-president Ron DeVries, who expects rents to rise 5% to 7% this year.
The four new projects are the Streeter, a 481-unit tower in Streeterville; Sky55, a 326-unit building in the South Loop; the Left Bank at K Station, a 450-unit West Loop development, and the 421-unit Kingsbury Plaza in River North.
Solid job growth has spurred demand for apartments, and the shaky condo market hasn’t hurt either, as would-be buyers sit on the sidelines. “If they’re not certain that they’re going to see some appreciation in a condo unit, they’re less likely to act and may stay a renter,” Mr. DeVries says. “There’s not pressure on them to act right now, so they’re not.”
The question is whether the market will be able to absorb the numerous apartment buildings under construction or in planning. Developers have added 1,678 units to the market in the past year and another 2,150 are under construction, according to Appraisal Research.

A whopping 4,283 more are in the planning stage, but Appraisal Research estimates that only 1,887 of those apartments will get built. With rising construction costs crimping projected returns, many developers will decide not to go forward with new buildings, Mr. DeVries says.
That doesn’t include Chicago-based D2 Realty Services Inc., which expects to break ground later this year on a 600-apartment building on Clark Street in the South Loop. Two projects are already under construction nearby and a couple others are in the works, but D2 Principal David Kleiman expects that demand for apartments will jump when the Roosevelt Collection, a major retail development under construction next door, opens in 2009. “I’m not worried about the supply,” he says. “The neighborhood where we are is going to be so sought after because of all the retail. Everybody’s going to want to be where the action is.”

Foreclosures still raging
By Steve Daniels - Chicago Crains
Defaults could nearly double in '07 as pain spreads across region

Chicago-area foreclosures, which set a record last year, are projected to reach full-blown crisis levels in 2007.

Cook County is on pace to record at least 30,000 and as many as 36,000 foreclosure filings this year, according to Cook County Circuit Court Judge Dorothy Kinnaird, who presides over the Chancery Division, which handles foreclosures. That would mean a 35% to 62% increase from 2006, when 22,248 filings were easily the highest in county history after having risen 36% from the previous year. (The court combines both commercial and home foreclosures, but residential mortgages comprise the vast majority of its cases.)





The driving force behind the foreclosures: adjustable-rate mortgages, which proliferated during the housing boom, according to a new report by the National Training and Information Center, a Chicago affordable-housing advocacy group. The mortgages offered low interest rates for a limited period and often let buyers skip down payments and get approval without showing proof of income, or both. Many buyers landed in trouble when their interest rates — and their monthly payments — adjusted upward, the NTIC said.

The rapid rise in home defaults is sure to be another drag on the area's slowing housing market by adding to the inventory of unsold homes. It also could have repercussions for lenders as they struggle with a flood of defaults that could leave thousands of Chicagoans with decimated credit ratings — and no roof over their heads.


Slightly more than half of the mortgages that went bad in Chicago last year had been made in the past two years. And nearly all of those — 97% — were adjustable-rate mortgages, according to the NTIC, which performed a detailed review of foreclosure data in Chicago and the suburbs.

The data show foreclosures up in nearly every part of the city and suburbs, from the middle-class South Shore neighborhood (up 55%, to 331 foreclosures, last year) to the well-heeled suburb of Wilmette (up 192%, to 3.

"It's not just unsophisticated borrowers who got into trouble," says David Rose, the NTIC analyst who authored the report. "It just shows you how risky these (adjustable-rate mortgages) really are."

'WE CAN'T HELP AS MANY'

While the foreclosure crisis continues to worsen, there may be an end in sight, as mortgage lenders in recent months have tightened credit standards, especially for so-called subprime loans available to homebuyers with spotty credit.

Lenders have generally stopped offering subprime borrowers mortgages with no money down and no documentation of income, a common practice just six months ago, industry representatives say. Now, homebuyers who want a loan without meeting standard income-documentation requirements generally must make at least a 5% down payment.

"There's nothing wrong with saying no to someone," says Michael Mangin, executive vice-president in charge of consumer lending at Marquette Bank, a $1.6-billion-asset lender on Chicago's Southwest Side with a $383-million mortgage portfolio — and no foreclosures so far. "Too many people were put into housing they really couldn't afford."

Ironically, while credit-tightening may eventually help slow the rate of defaults, it may be exacerbating the current foreclosure crisis by making it harder for troubled borrowers to refinance bad loans, says Bill McNamee, president of the Illinois Assn. of Mortgage Professionals and president of Pinnacle Home Mortgage, a broker in Lombard. "We can't help as many as we used to," he says.

SPREADING FAR AND WIDE

In Chicago last year, foreclosures increased in 73 of 77 neighborhoods, demonstrating the breadth of the problem, according to the NTIC report. Overall, foreclosure filings jumped 36% in the city to 10,294.

Among the suburbs hardest hit last year were northwest suburban Des Plaines, whose 195 foreclosures were nearly double the 100 in 2005; west suburban Naperville, with a 57% increase to 209 foreclosures; far north suburban Waukegan, with a 49% increase to 438; and southwest suburban Plainfield, where 402 foreclosures represented a 58% jump.

©2007 by Crain Communications Inc.

Now the Good News:

Despite these gloomy reports and forecast, most NACHI Inspectors I"ve spoken with in Chicago and Suburban areas indicate Inspection sales are actually up, over comparative periods, from last year.

Keep up the hard work NACHI Members