Robert Darrow, @properties

Festival season is in full steam here in Chicago.  You can’t help getting swept up into (stuck in traffic in?) some big festival this weekend.  Here is a rundown of the biggies this weekend.

Taste of Chicago

The City of Chicago welcomes the 29th annual Taste of Chicago June 26 – July 5, 2009. Each day more than 70 local restaurateurs offer a delicious combination of ethnic items, family favorites, exotic and Chicago specialties feeding more than 3 million people in Grant Park, in downtown Chicago. Entertainment is also provided every day by a variety of musical performances on multiple stages.

Taste of Chicago home page

Chicago Fireworks

Chicago sets off its fireworks at 9:30 pm on Friday, July 3 rather than on the traditional Fourth of July.  Centered off Grant Park and over Lake Michigan (just outside Monroe Harbor) the City’s Independence day fireworks display is the year’s big display.

Upon sampling the array of food selections at Taste of Chicago, festival attendees will slowly make their way to the Petrillo Music Shell for the pre-fireworks entertainment. Beginning at 7:30 pm, the 85th Army Band will dazzle the audience with their harmonious sound.

Following the conclusion of the 85th Army Band’s performance, spectators will direct their attention to the award-winning fireworks display that will last for 20 minutes as 101.9 THE MIX broadcasts their soundtrack to compliment the show in the background. The view of the show is best throughout Grant Park, and museum campus to the south, as each explosion of color in the sky, along with the musical accompaniment, builds up to the grand finale.

Chicago Fireworks home page

Chicago Tango Week

Tango musicians, dancers and fans from around the world coming together for the largest Tango festival in the Midwest, which sets up shop for the week at the Double Tree Hotel and the adjacent North Shore Center for the Performing Arts.  July 1 to 6.

It takes Four (days) to Tango.  www.chicagotangoweek.com

African Caribbean International Festival of Life

All weekend long in Washington Park – 55th and Cottage Grove in Chicago.

Featured in an article on how Realtors use Blogs to “Spread the Word.”

Link here, but it requires a log-in.  Realtors – enjoy!

Excerpt from the article about YourWindyCityGuide:

With his blog, www.YourWindyCityGuide.com, Darrow often writes about things going on in and around the Chicago neighborhood of Lakeview. He tries to post about five times a week, believing that you get diminishing returns if you post less than that. You get random visitors who find your blog through Google searches, but subscribers like to see new stuff every day, he says.

Using the application, TweetMyBlog, headlines from Darrow’s blog posts are automatically posted on his Twitter profile too. Another application through Facebook posts the blog headlines on his Facebook page too, creating a viral effect. Instead of reaching about 1,000 people with his old newsletter eight times a year, he can reach the same amount of people in a week with social media tools.

Blogs don’t cost a lot. Darrow paid about $300 to have his blog designed and now pays about $60 every two years for the Web hosting fees. It does, however, take time and effort and the results may not be as cut and dried as someone seeing you on the Internet and immediately calling to ask you to list their house, Darrow says. Under the social media model, you provide information and if people find it useful, they can follow you and it fosters a relationship for when they are ready to buy or sell.

A co-worker of mine wrote today to ask:

A high-rise does not allow a washer and dryer to be installed.  But my client still wants to put one in.  She doesn’t care that they aren’t allowed, and is adamant about putting one in.

Do you have any insight into this?

Have you had a client put one in?

What are the fines if they get caught?

Also, in a high rise, does she need the building engineer to shut off water to the unit or can she do it on her own in a utility closet? The building is an old school building on Sheridan Road.

This is just about the worst idea possible for a resident in a high rise.  This ranks up there with setting up a charcoal barbeque in your bathtub (an actual event in Mr. Steve’s property management past.)

There is no more possible potential for damage than from water.  Perhaps fire.  But those are #1 and #2.  If anything were to ever go wrong (and with a washing machine something will eventually go wrong) the potential liability is staggering.

But first, let’s answer the question about whether a machine can be installed.  When permitted, yes, a laundry hookup is possible.  Find a wall with a closet that has a water supply and drain pipe nearby, and a contractor can tap into the supply and drain and hook up a laundry connection.  This costs around $4,000 in a typical Chicago high-rise.

Why do some buildings prohibit them?

Because either the water supply, or the drain, is inadequate.

Here’s the interesting part for our client above:  even if hers is the only machine in the building, if the drain pipes are not large enough in diameter, suds and soapy water will not drain fast enough, and will back up into her unit, the units below her, the units near the ground floor, and possibly the units above her.

This is a certainty!  Not a hypothetical event.

What if our client above is still willing to take her chances?

• First, if the association finds out about the machine, they will order it removed.
• Second, if not removed, they will fine her.
• Third, if our client refuses to pay the fines, she’ll get sent to collections.  And the costs for collection attorneys will get added to her grand total.
• Fourth, if she still refuses to pay the fines, the collection attorney will file suit to collect the fines and costs.
• At her court date, a judge can grant possession to the association, who then can evict the owner.
• After the owner is out, the association can pay a contractor to remove the machines.
• And finally the association can rent out the unit to pay the back fines, back assessments, collection costs, court costs, repair costs, and the costs associated with renting the unit.

What if the machine actually floods the units below?  This is where it gets ugly.

• It’s likely that a rubber supply line will eventually rupture.
• Or that soapy water will burst forth from nearby residents sinks, tubs and drains.
• This will ruin the walls, floors, carpeting, belongings and mechanical systems of those units.
• And if the hose bursts while you are out, water will continue to flood units below the one with the washing machine installed beneath it.
• Your insurance carrier requires that residents follow the policies and rules for the building.
• The building has not approved the installation of the washing machine, and will actually offer to testify that your installation completely violates the policies for the building against you.
• Your insurance carrier will deny your insurance claim, and the claims of all the residents whose units had damage done by your machine.
• The association will sue for damage to everything that is common that the water ruined.
• Every single neighbor that is affected will sue for damages to their unit and their belongings.

I have seen water damage estimates in high rises in excess of $1-million.  Pretty much your entire net worth is at risk just for the convenience of not riding the elevator to do your laundry. 

Not really worth it; wouldn’t you agree?

Chicago real estate firm @properties today announced the acquisition of Chicago property management company Venterra Management Corp. The move paves the way for @properties, the city’s largest independent real estate broker, to expand into property management and condominium association management in and around Chicago.

Venterra, which was active in Chicago property management for more than 30 years, will be renamed @properties Property Management. The company currently manages approximately 800 condominium units and several hundred thousand square feet of commercial real estate on Chicago’s north and south sides.

@properties co-founders Michael Golden and Thaddeus Wong say they will look to quickly expand the company’s management portfolio targeting condominium and apartment communities of 30 units or more, shopping centers, neighborhood strip centers, and office and industrial properties in the city of Chicago and surrounding suburbs.

“Expanding into property management and condominium association management is a natural move for us. We know we can create value for our clients by leveraging our brand, our network and our industry-leading marketing and technology,” said Wong.

“Commercial and residential property owners, asset managers and condominium associations will benefit from our team’s experience and from the high standard of service that has always defined @properties. Our goal is to set the bar, to be the premier Chicago property management and condominium association management company,” said Golden.

Golden and Wong announced that they have hired Steve West as managing director of @properties Property Management. West, a former @properties sales agent, most recently worked as a property management professional in Chicago. Golden and Wong also named Michael Rourke vice president of commercial management. Previously, Rourke was vice president and director of retail services for Venterra.

The existing staff has experience in residential and commercial property management, condominium association management, finance and accounting, reserve analysis, construction management, on-site operations, architecture and structural engineering.

The company will offer a full menu of services including: property staffing, financial reporting, assessment collections, budget preparation, property maintenance, emergency services, condo board relations, vendor and subcontractor management, management of association-owned rental apartments, and tenant/owner communications.

The formation of @properties Property Management is the latest in a series of moves by @properties to offer expanded services to a growing client base. Last year the company launched @properties Relocation, a corporate relocation division, as well as @properties Commercial, a commercial brokerage and investment-sales division. In April 2009, the company announced the creation of @properties Institutional Services Group, a boutique division set up to serve institutional clients that own or invest in distressed real estate and Chicago real estate foreclosures.

“@properties Property Management dovetails well with our Institutional Services Group. We now have the ability to offer an investor, asset manager or financial institution a single point of contact for stabilizing, managing and selling distressed and bank-owned real estate in Chicago,” said Golden. “Our development-marketing experience also puts us in a unique position to help condominium communities make a smooth transition from a developer-run association to an owner-run association.”

“Today, our clients aren’t just looking to sell or acquire an asset. They’re looking for complete solutions to complex real estate problems, and frequently that involves a property management component,” said Wong.

IMG00027.jpg, originally uploaded by darrowwest.

Classic Lazy Friday Night in Chicago

A regular reader writes:

Robert,

Background info: I’m the president of a 32 unit condo building in Lakeview. It’s been 15 years+ since the developer rehabbed this vintage building and made them condos. All of our units are sold and for the most part, the HOA is financially healthy. We have about $60K in reserves. 2 unit owners are having some money issues (lost their jobs) that prevented them from paying on time for a recent special assessment (around $4,000 per unit). 1 of them finally paid the balance and the other 1 has worked out a payment plan to pay it off by Oct 09. We have 3 units for sale right now with 2 more intending to sell this summer. 1 potential buyer is under contract and wants the seller to help get our building FHA approved. Since I’m the president, the seller has come to me for help with this. I read your comments about 1st right of refusal (FRR) and agree that it’s rarely, if ever exercised. Our building has never used our FRR.

Question: Isn’t a potential buyer in our building who’s using a FHA loan going to be riskier for the association than a conventional home buyer? Doesn’t someone seek a FHA loan because they have a lower credit score and less down payment? Seems like that would make them more likely than a conventional buyer to get behind on paying assessments, doesn’t it? So, I’m thinking as President, maybe we should keep the FRR in our rules/regulations so that people with poor credit don’t become a greater percentage of unit owners here. I don’t want the headaches that go along with collecting money from my neighbors. And I don’t want to see my own home investment deteriorate if the HOA has financial problems.

Link to past articles on Right of First Refusal here and here.

Dear Mr. President,

(Doesn’t that sound fantastic?  I wonder if I should be saying it in a breath-y Marilyn Monroe voice…)

Let’s answer your question first:

I can’t imagine that a buyer who takes advantage of FHA financing is any riskier than another buyer.  FHA buyers traditionally are pretty well qualified buyers who have smaller than traditional down payments (and when I say traditional, I mean really old school down payments of 20% or more.)

FHA loans were never designed for the whole sub-prime category of buyer – namely – buyers with lower credit scores, or non-traditional income verification.  I would fall into that category.  I am self employed, and for my mortgage, I applied with Stated Income.  Which basically means I swore I made as much as I represented on my mortgage application.  But did not turn in very much supporting documentation to back it up.  Salespeople, small-business owners, people who earn commission, people who have cash in the bank but not a lot of income (also known as “trust fund kids”), all fall into the sub-prime category.  And none of them could qualify for an FHA loan.

So, no, I don’t think that trying to restrict buyers from buying in the building is going to protect you against the kinds of problems you are experiencing at your association today.  In fact, the policy could hurt you!

A second opinion from Mike Nielsen at Guaranteed Rate:

Not allowing FHA buyers in could mean that you are keeping good buyers away.  Not all FHA buyers have poor credit, no money, and high DTI’s.  Maybe they just have 1 of those 3 and are forced, in this lending environment to choose FHA in order to take advantage of low prices, great rates, and tax credits.  By not allowing FHA buyers you will increase market time of units in the building and therefore drive down prices.  Also, NOT good…..

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To carry on further, let’s go back to the basics.  The government decided it was in society’s best interest to promote home ownership.  Home owners are more stable.  They pay more taxes.  They have more kids.  And those kids pay more taxes.  They work harder.  And pay more taxes.

So the government came up with a bunch of policies to promote home ownership.  The result of those policies is the secondary mortgage market – Fannie Mae and Freddie Mac.  And government guaranteed mortgages (FHA loans.)  The ability for banks to get money back after lending it out on home loans revolutionized the way people buy homes.

In Italy, for instance, there is no secondary mortgage market.  There’s barely any mortgage market.  So banks rarely make mortgages.  And if they do, they can only lend as much money as they have sitting in the bank.  So people pay cash for houses.  And houses don’t appreciate very much because there is not very much demand for them.  And they are hard to sell when you want to get rid of your house.

Here in the U.S. the push to increase home ownership was rather successful!  At its highest point during the Clinton administration, home ownership reached 65% – an unheard-of level in American history.  (Insert glorious anthem, sunshine & roses and happy-shiny people images here.)

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Notwithstanding the current crisis, as a general rule, expanding home ownership to more Americans is actually a good thing.

The crazy lending guidelines where banks got SO aggressive in approving sketchy buyers is what has had the most impact on the current crisis.

But even if we didn’t have a financial institution crisis, and the sour economy was confined to unemployment, then, your association would still be in the same boat.  Your residents don’t sound like deadbeats.  How could they know that their job was in jeopardy?  And that they would get laid-off?  That’s not the fault of a financial institution.  Or that your resident was a shady borrower.  It’s rotten luck.

And often times, the best way out of a rotten situation is to get out!

You need to help promote policies in your association that open up the pool of potential buyers for condominiums in your association.  Trying to restrict buyers is absolutely the wrong choice!  The best course of action for you as steward of your association will be to protect values by keeping up with maintenance of the property, maintaining adequate reserves to cover expenses and unexpected surprises, and promote the desirability of the building/complex/community as best you can.

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A related side-note:  another option for cash-poor condo owners is to rent out their condos to cover the mortgage payments.  An example might be an owner that takes a job elsewhere after a layoff here in Chicago.  Or an owner that moves in with family, but owes more on their condo than it’s worth.  I see both examples frequently these days.

A practical option for owners in these situations is to rent out the condo until it can sell.  Or it appreciates enough that the owner can sell it.  Or long enough for the owner to get back on his feet.  But there are some associations that are holding fast to their “No Renters” policies – to the detriment of the association!

It is in the association’s best interest to relax this restriction, or relax the enforcement of the rule during hard times like we’re in now.  Owners that get trapped in a mortgage that they can’t get out of, but are forbidden by restrictions to rent out their units often times windy up in a situation where they can no longer pay the mortgage or the assessments on the unit.

This is a bad thing for associations.  Sure, when times are good, it’s great to increase the level of owner occupancy and stability within your community or building.  But if the alternative during hard times is to force owners into nonpayment situations, the association can often times wind up short.  Short on daily expenses.  Short on unexpected breakdowns.  And these shortages are often passed on to the other owners who have to carry the expenses of the empty unit.

Mister Steve, your Property Management Guide, can offer guidance to associations in taking control of units that are vacant and not paying their bills.  But it’s a cumbersome process.  And it certainly makes sense to let an owner who’s down on his luck to take whatever measures necessary to keep some form of income in the pipeline.  Empty units, especially ones that sit in the winter, are another terrible source of downward pressure on property values in a community.  One that an association would be well advised to take measures to ensure they don’t find themselves in the situation in the first place.

Ordinarily, I would not shamelessly plug a listing here in the blog (notwithstanding the listing widgets in the sidebar) but I am off to Uncommon Ground for a noon lunch with my home owner for 1466 W. Warner to update the listing.

(I probably should leave now since today is game 2 of the Crosstown Classic. Chicago White Sox at Cubs. Queen Asphalta, full of grace, please bless me with a parking space…)

Last year, we rented the unit with option to purchase.  That didn’t fly this year, so my favorite condo is coming back on the market.  And I think we’re going to revise the price as well.

This post is simply an excuse to post some of the most gorgeous photos of a restored vintage interior I have had the pleasure to represent in a long time.

For those of you officially following the discussion on the mortgage mess, as well as the ridiculous supposition by the Founders Bank in the south-suburbs that the 8th of 8 closings still only represents 88% sold, it’s officially dead.

The buyer is perfectly qualified.  And now that we’ve killed enough time, the building’s Home Owner Association has passed its one-year anniversary date, so the condo could even get FHA spot approval!

No no fretting for Your Guide.  We’ll get this closed in a couple weeks.

I just wish the ***-clowns at Founders Bank might have considered letting us all know that they weren’t really interested in  doing this loan sometime like – oh – I don’t know – a month ago?

It’s like Roseann Roseannadana always says (or said back when she was younger.)  If it’s not one thing, it’s another.  If one lender sends an appraiser from Farm Country to The Big City, another lender says 8 out of 8 units sold only equals 88% sold.

It’s always somethin’

When your guide started this discussion on mortgages a week ago, I did not mean for it to turn into a week long diatribe.  But I had my next most favorite mortgage snafu yesterday.

A young, qualified buyer under contract for the last unit at the Buena Flats condos in Lakeview.  It would make sense that this – the LAST closing – would be the easiest.

But this poor buyer’s lender – and the underwriter, hiding behind the anonymity of his/her big bank facade – has certain guidelines.  Guidelines for this bank require 90% of the units in a new development be SOLD.

And at Buena Flats, this is the 8th of 8.  Nay! says Founder’s Bank (no, your guide is not afraid to name names) the building is only 88% sold!  Let’s do the math:  7 closed plus 1 sold is 8.  There are 8 units.  Wouldn’t that be 100%?

Nope.

7 closed is 88% sold.  Ours doesn’t count.

I think this situation worked itself out today.  My developer tells me that his attorney is getting ready to schedule the closing for Thursday.  It’s always good when situations resolve themselves.  But why in the world is this an issue to begin with?  This closing should have occurred yesterday, and it was blown by this idiot lender.

Crossing your guide’s desk as an email from the Big Cheeze, Mr. Thad Wong, is an article from the Wall Street Journal about appraisals, low valuations and the new Home Valuation Code of Conduct (HVCC.)

Link to article here, but some excerpts to follow as the article is buried behind a log-in page.

Patti Sanders, an aerospace engineer in Oakdale, Calif., knew prices were down sharply but said she was "flabbergasted" recently when her 3,100-square-foot Victorian home was appraised at $250,000, compared with $635,000 assayed two years earlier. The new estimate prompted a lender to reject her application for a refinancing that would have lowered her mortgage payments about $400 a month.

Credit lines are also vulnerable. J.P. Morgan Chase & Co. recently froze one customer’s home-equity line of credit because, the bank said, his Manhattan apartment — a 2,650-square-foot three-bedroom, two-bedroom duplex with a terrace appraised at $1.475 million in 2005 — was worth just $600,000. Chase told the borrower, who asked not to be identified, that the lower
credit line would remain in effect until a new appraisal could demonstrate the value was much higher than $600,000.

One of your guide’s clients had his Home Equity Line of Credit slashed from $175,000 down to the outstanding balance.  The original HELOC was with WaMu.  I suppose these HELOC’s were what contributed to WaMu’s demise.  Now the HELOC is held by Chase.  Your guide banks with Chase as well as keeps a biz credit card and a car loan with them.  And I can tell you, Chase is not in the habit of keeping anything you wouldn’t ordinarily characterize as "conservative" in their system.

Lenders burned by huge losses from defaults now are pressing appraisers to be more conservative. And appraising itself is more difficult with home prices fluctuating rapidly and transactions few and far between in some markets; sale prices from a few months back may no longer reliably indicate the value of nearby homes.

One of my recent appraisals came back $60,000 below contract price.  And this happened after I listed the house for sale $70,000 less than the last identical unit sold for. 

And don’t even get me started again on the selection process for appraisers with the new rules of the HVCC.

The code bars loan officers, mortgage brokers or real estate agents from any role in selecting appraisers. This has encouraged lenders to outsource the selection to appraisal-management companies, or AMCs, which take a sizable cut of the appraisal fee. As a result, appraisers are under pressure to "do it faster, do it cheaper," said Bill Garber, a spokesman for the Appraisal Institute, a trade group.

Debbie Huber, a Las Vegas appraiser for 20 years, said she has turned down requests from AMCs that offer to pay 50% to 70% of her standard fee and require that the work be completed in as little as 48 hours.

Some appraisers said AMCs settle for appraisers who have little experience or live far from the homes they evaluate. John Simms of Peoria, Ariz., said he often gets assignments more than 100 miles away in neighborhoods he doesn’t know well.