Robert Darrow, @properties

Archive for the ‘Development’ Category

In a press release on September 8, and detailed in the Sun Times today, local developer William Senne (also the Broker/Owner at Property Consultants Realty) slams other developers for their price reductions, and how “panicky” discounts hurt the marketplace.

Mr. Senne seems to be reacting to recent sales promotions like these and names Smithfield Properties by name in his press release:

Your Guide thinks this sounds like someone crying over spilled milk, and offers several reasons why price adjustments are sound business decisions.

In example after example, it is demonstrated quite clearly that you can inspire sales by playing with price.  Think of pricing as a throttle:  if you want to go faster, drop the hammer on pricing and more sales immediately follow.  This of these examples and try to argue that these are poor decisions:

• Cash for Clunkers: 700,000 car sales in less than 2 months.
• Groupon – the website where businesses pitch crazy discounts to large quantities of self selected consumers. Success stories include 1,269 pairs of blue jeans sold on June 8, and 4,913 Annual Memberships to the Art Institute of Chicago!
• If you need a Real Estate Example, you need only look as far as @properties development R+D 659, where over 115 condos have been sold since the announcement of dramatic price incentives.

Sounds awful, doesn’t it?

Your Guide also takes exception to another assertion by Mr. Senne that buyers will find themselves in substandard units in a building that lacks a viable condo association.

To the contrary:  I find that selling units to actual home buyers is the more desirable alternative to developers facing tough decisions in this marketplace.  Too often developers choose one of two other options leaving condo buyers frustrated to financially ruined.  Those choices include:

• The developer retains control of the un-sold condos and rents the units.  With a building half-full of renters, and the developer in control of a sizable percentage of ownership, owners face financial uncertainty when the time comes to sell their homes.  Strict lending guidelines make it virtually impossible for a new buyer to get financing on a condo in a building where one person owns more than 10% of the association.  Add to that the transient quality that the new development acquires as a rental property rather than as a stable condominium building.
• The developer stubbornly refuses to react to the market; steadfastly holding on to pricing that is clearly out of touch, and eventually loses the remaining units in foreclosure.  Worst case:  you need only drive by the Lincoln Park Lofts, formerly The Ashton Lofts located at the corner of Ashland, Fullerton and Clybourn.  Two poor home buyers purchased and moved in two years ago, and after the developer’s remaining units were foreclosed upon, were stuck living in an empty building with no other neighbors to help pay or care for the crumbling building.

The only validity to Mr. Senne’s argument is that previous buyers are hurt by the price reductions.  We can’t argue there.  It’s not fair for the prior buyers to bear the burden of the lower prices.  But those lower prices are not the fault of the developer, they are a function of the marketplace. To ignore the reality is to simply kick the can down the road.

Your guide realizes it’s time to update what’s happening with the stalled development of the old Dominicks site at Broadway and Aldine in Lakeview after noticing that the original post is one of the most popular here at www.YourWindiCityGuide.com.

Original post here.

The current outlook is murky.

The development site was just about to fall into foreclosure, when the developer filed for bankruptcy protection.

If I had to guess, however, the bankruptcy will simply forestall the inevitable foreclosure of the land by one of the THREE lenders on the property.  One lender provided funds for acquisition of the land, and another developer was providing construction financing.  A mezzanine lender was providing a bit of financing in between.  The development partnership has defaulted on all three loans.

The development is no stranger to controversy (Full article at Crain’s here)

A $7.9-million loan on a former Dominick’s site in Lake View is turning into a sour deal for a controversial investment fund managed by developer Allison Davis and a nephew of Mayor Richard Daley.

The fund managed by Mr. Davis and Daley nephew Robert Vanecko is seeking to auction off a site at 3012-3036 N. Broadway St. after an apparent default on the mezzanine loan by a venture owned by little-known Chicago developers Michael O’Connor and Jonathan Zitzman, according to a recently published notice of public sale.

The city’s Inspector General, David Hoffman, is investigating how DV Urban obtained investments totaling $68 million from five city pension funds, according to the news reports. Chicago police officers and others have raised questions about their pension funds’ investments with DV Urban.

Your guide has no doubt that there will eventually be condos of some form or another on the site.  But ground breaking on a new, smaller scale development is probably years away.  I would also wager that the site will include space for a new Dominicks grocery store as the original deal to sell the land to the developer included a provision for the Grocery Chain to open a new store in the development.

It just came to me today, when I received the fifth email from the Head Honcho’s at @properties announcing another development that has slashed prices quite dramatically to inspire some fast sales.

This is after remembering that my Video Walking Tour of Roscoe Village contained one vignette of my comments on some of my buyers getting some REAL GOOD DEALS so far this year.

The buyers that I mention in the video above made an offer of $475,000 on a River North townhouse listed for $565,000.  The owners countered us at $550,000.  My advice was to try to settle for around $525,000.  My buyers made a counteroffer at $500,000, and when the received a counteroffer of $540,000 said “No Thanks.”

Those sellers came back to us a day later and said they would take the $500,000.

Your guide had the pleasure of selling one of the massively discounted one bedrooms at 2930 North Sheridan on the very first day of their blow-out sale.  $40,000 off a $260,000 one bedroom is a very sweet deal.

Here’s another one from a few weeks ago.  Since this flyer is getting on three weeks old, we have the results of the incentive:  Over 100 more contracts since this program was released to @properties in-house transactions, and then to the Public a week later.

More? You ask?  Savings at Superior 110 are also in the 20% off range.

A couple examples of incentives that probably won’t work in the flyers below.  No mention of the amount of discount offered for these “Builder Close Out Price Reductions.”  But looking in the MLS, they appear to be around 5% off.  That’s probably not going to cut it.

And at Silver Tower (below) the $5,000 off units that start at $250,000, but easily scoot above $500,000, the discounts amount to 2% on a less-expensive one bedroom to under 1% on the upper end large units in the building.

Your guides and our co-workers are reporting signs of life in the real estate market in some neighborhoods.  For example, in Lincoln Park and Lakeview combined, there have been 56 closings and another 45 units gone under contract in the last 7 days.

But the latest report from Appraisal Research Counselors shows dismal sales at new developments downtown.

More than half of all the new developments in downtown Chicago had sales that were canceled (net negative sales) or did not make a single sale in the first quarter.

Only 55 units went under contract or closed.  This leaves 1,590 units completed, still waiting for sale in the marketplace, and another 2,250 units under construction that are unsold.

Buyers take note:  Appraisal Research Counselors is seeing prices being reduced by as much as 20% at selected developments.  20% – across the board. And your guide is aware of some buildings with incentives that knock off 1/3 from last years prices.  Also look out for some of the auctions where a few units selling without reserve have sold for half-price.

UPDATE:  Sun Times Article here on a bunch of cool incentives being offered by local developers.  Loop to Roscoe Village.

2nd Update:  Thanks, Gail, for the correction.

This site is the triangle of land located at North Avenue, Halsted Street and Clybourn.  A former BP/Amoco gas station was located here.  It’s a bit remarkable that a big retailer thought that the site was developable for a high-end, boutique computer store.  But this is the site of the new Apple store – as in computers.

(Gratuitous Simpson’s reference below)

Your guide recognizes that about a bazzillion cars drive past this location on a daily basis.  And that during the Christmas shopping season, navigating the streets around the Clybourn Retail Corridor is near insanity.  So we are collectively wondering – where are people going to park???

While walking back to the car from the new Apple site, I came across this lonely vision.  I call it “Popcorn, anyone?  ANYONE??”

Your guides have been watching developments throughout the downtown market for signs of life.  But instead, they seem to be dropping like flies.

The latest news on Wacker Drive at the Waterview Tower is that the hotel planned for a portion of the building has served notice to the developer that they are terminating their agreement to open the Shangri-La Hotel inside the building.

The developer, Teng & Associates, has been unable to get new financing from sources in China, and construction crews stopped working on the building in the fall last year.  Nothing has been happening on the construction site since then.

Remarkably, Chicago has not had many construction projects that go belly up during construction.  Besides this development, the only other unfinished eyesore is the mid-rise condominium building located at the corner of Fullerton and Clybourn on the west edge of Lincoln Park.

Over at Trump Tower, the developer and the bank have agreed to set aside their differences and try to work out a solution to the final sell-out of remaining units in “The Donald’s” Tower.  Financing restricted the developer from lowering prices on the remaining units which has caused sales to grind to a halt even though competing re-sale units in the building are tens, if not hundreds, of thousands less.

Although there are several un-sold units remaining for sale, the building is practically complete. 

From the New York Times:

http://www.nytimes.com/2009/02/04/business/04chicago.html?partner=permalink&exprod=permalink

A concise update on the progress (or not) of two of the largest developments that broker ground, and soon after ground to a halt.

The second project was Waterview Tower, a 90-story mixed-use hotel and condominium building in the Loop, the central business district. It also was to be among the 10 tallest buildings in the city. The developer is Teng & Associates, a local firm.

Both projects got off to fast starts in terms of sales and construction, but both have now ground to a halt amid the many mechanics’ liens filed by subcontractors as the developers struggle to find additional financing.

At the padlocked lakefront site of the Spire, a seven-story-deep hole is ringed with 34 massive caissons that go down to bedrock.

The Waterview site on Wacker Drive, meanwhile, is even more unsettling. Workers had completed the first 26 floors of the building before they stopped work for good late last summer.

Taken together, the two are the most visible signs of the financing squeeze that has all but paralyzed the real estate market here over the last six months.

In yesterday’s post containing predictions for the market in 2009, I noted that builders are going to complete 2,147 condos in the South Loop during 2009.

But after this crop of condos is finished, there are no more in the pipeline.  The developments that are to be finished in 2009 were all started in 2006 and 2007 before anyone knew the economy was headed for its fall. 

But no more developments got underway in 2008 which means no more will be finished beyond this year.

So if any readers have a desire for a brand new condominium instead of a “pre-owned” or “used” home in the South Loop area, 2009 is the year for you.  There should be plenty of good deals with incentives, price reductions, and inventory to choose from.  After that, you’ll be looking at re-sales only.

The Uptown Theater, originally uploaded by Michael_Lehet.

Check out the article in Today’s Sun Times about a new deal to give control of the Uptown Theater (4816 N. Broadway) to someone else besides Jam Productions. The problem is that Jam Productions paid $3.2 million for it in a foreclosure auction last summer.

David Roeder notes of a longstanding feud between Alderman Mary An Smith and Jam Productions.

http://www.suntimes.com/business/roeder/1365026,CST-FIN-roeder07.article

Your guides hear that the development of apartments and retail along Clybourn – south of North Avenue – is still in the works despite the rotten economy.

Sun Times article here.

On the site of the land owned by the New City YMCA along Clybourn (and also facing onto Halsted) the developer plans to break ground by the middle of 2009.

The developer says that the neighborhood already has stores with the very best sales for their particular chain.  And that this neighborhood is now second only to Michigan Avenue for popularity with shoppers.

The development will be six buildings.  One will be 19 stories tall – 280 apartments.  The tower was supposed to be a 480 unit condo develpopment, but that plan was changed recently due to the plunging real estate sales market.  There will also be a parking garage for 1,250 cars.

Already crowding into the area are big retailers like Crate & Barrel, The Container Store, Banana Republic, Restoration Hardware, and in the oldest mall in the area at North Avenue and Sheffield, Best Buy and Sam’s Wine & Spirits.

Located across the street from this development – to the west – is SoNo – the twin high rise condominium development.  Some residents are already moving into the first tower.

Over at the Chicago Spire, work has ground to a halt.

Your guides hear today that due to a financial crisis in Ireland with the construction lender, financing for the development is in jeopardy.

Sun Times article here. 

Anglo Irish Bank, the main lender, faces nationalization by the Irish government to avoid collapse.  The banks stock has lost 98% of its value since its high point in the middle of 2007.  There’s an investigation as to whether the chairman hid $121-million in personal loans he got from the bank. 

The construction company, Shelbourne Development, has already borrowed $69.5-million for the construction so far, but Santiago Calatrava, the architect for The Spire, says the developer owes him over $11-million. 

Who knows if the new nationalized Anglo Irish Bank will continue to lend on the project?  The developer is actively looking for cash or equity investors, but worldwide sources of cash have dried up.  Bad news for Chicago as all we have to show for it so far is a $69-million hole in the ground.