How long will an older building (say built in the 1930’s) last before it deteriorates to the point beyond repair? And what would happen to one’s ownership of the condo if a building is determined no longer inhabitable?

And then later, the client followed up:

The question of the lifespan of a building may strike you as weird, but this is a totally normal question coming from a place like China, where buildings start to show serious problems after only a couple of years and then crumble after a couple of decades. In China, when a building needs to be demolished and rebuilt, the residents have certain rights to receive compensation in the form of new housing, cash, etc. In this context, the question of what owners of American condos constructed in the 1920s and 1930s do if the building deteriorates beyond repair is entirely natural. I actually don’t know the answer. I’ve never heard of such a situation, which of course doesn’t mean it hasn’t happened.

What a great question, and one that I never considered before.

Chicago is no Rome

I’m always impressed when watching House Hunters International and the episode features some adorable European city with buildings and apartments that date back to the 1700’s.  The charm and grace of some of the old apartments can be breathtaking. 

Here in Chicago, we don’t have any housing that dates any earlier than the 1880’s, primarily because the city burned to the ground in 1871.   A few structures survived the fire, but the Chicago Water Tower located at Chicago and Michigan Avenues isn’t a residential structure.

Homes and apartments in Chicago can date back to the late 1880’s, 1890’s and early 1900’s, but Chicago’s oldest condominiums date back to the late 1910’s and 1920’s.  So let’s look at those buildings and see how they are behaving as they age.

Brick buildings from the 1920’s

One example shown here is your classic Chicago courtyard from the 1920’s.  The construction technique used when building a Chicago courtyard would be an all-brick building on a brick foundation, or maybe a concrete foundation if newer.  The walls would be three or four courses of brick thick, and the outer course of brick would be a fourth or even fifth course added as decoration.

Brick buildings are long-lasting, durable, and require very little maintenance.  The decorative outer skin of brick will require maintenance every 20 to 30 years, and if it were to fall into serious disrepair could be completely removed and reinstalled.  This drastic measure is rarely necessary, and most brick maintenance involves tuckpointing and taking care of the aging windows.  The other major component of brick buildings like this one is the roof.  Flat roofs in Chicago typically last 10 to 20 years.  And can be rather expensive to replace.  However keeping up with the roof and the brick can ensure that a brick building can last virtually forever.

Older high rises in Chicago, such as the Rookery Building shown here, can be either all concrete block construction, or concrete over steel frame. 

Concrete block buildings have walls that get thicker and thicker closer to the ground to support the massive weight of the building above.  Steel frame buildings can be clad in concrete block without needing the additional thickness of their walls near the ground.

Both styles of buildings are nearly maintenance free and durable.  The most common defect found in buildings such as these can be the decoration that can fall off if not maintained properly.  Maintenance of the roofs is similar to that of the classic Chicago courtyard, but on a larger scale.  The same can be said for the maintenance of the exterior.  The giant concrete blocks are just larger versions of the common brick of the courtyard style building.

The old Standard Oil, then Amoco Building, currently the AON building, offers an interesting maintenance history.  By no means “old” by Chicago standards, the Amoco Building was constructed in 1973.  It was originally clad in shimmering Italian Carrara marble which gave the building a gorgeous warm glow in the sunshine. 

Unfortunately, the thin slabs of Carrara marble did not handle Chicago’s change of seasons very well, and after only a year began to warp, bow and crack.  Steel straps were installed to attempt to hold the marble in place.  But eventually the marble crumbled and in 1990 a project began to re-clad the entire building in white granite.

Even with this dramatic defect, the underlying structure of the building remained completely stalwart. 

Probably one of the most dramatic instances of building neglect, and a situation that nearly describes the situation the client asks about in her email above is the situation at Marina City during the 1980’s and 1990’s.

Converted to condominiums in 1977, the Home Owner’s Association did not adequately plan for the maintenance and upkeep of the towers, and over the years the building and some of its systems fell into disrepair.

By the mid 1990’s the concrete exterior badly needed attention and chunks of concrete could be seen falling from the building, parts of the parking garage were closed because it was not longer safe to park cars in some areas, the roof was leaking leading to damage to the condominiums on the upper floors of the towers, and the elevators stopped working frequently.

When the Home Owner’s Association actually went insolvent, a court ordered receiver took over and began the process of revitalizing the property. 

To my client’s question above, and as a “worst case” scenario, what happened at Marina City was that the new management company levied Special Assessments to make the major repairs to the building.  Some of the Special Assessments actually exceeded the purchase price of the units that some of the owners paid when they bought their condos.

Today, Marina City has been completely revitalized and enjoys a solid reputation as a building owners truly enjoy living in due to the building’s myriad of amenities and superb location on the Chicago River.

Could Capitalism be a factor?

Throughout all of the United States (and most European and Western countries) the building construction materials are of a quality that have an indefinite lifetime with maintenance and care. I think it has to do with the fact that as capitalist economies with an emphasis on property ownership, it is completely normal for the individual home owner to property maintain his or her property in order to preserve the value inherent in the ownership of the property. And that translates into the same instinct for condominium buildings where the Boards, the managers, and the homeowners all strive for the same ideal as well.

From a home inspector’s perspective

I called Michael Massart, a home inspector from Speaker of the House Inspections to ask him whether he ever heard of a condominium building falling into disrepair, and here are some of his thoughts:

• Most of the housing stock in Chicago is 140 years old or younger.
• The question from our client above would be a great question if the property in question were a frame house, especially a frame house in the suburbs constructed shortly after World War II as many of those homes were quite hastily constructed.
• Your Chicago brick condo building from 1890 through 1960 were constructed of solid brick, not hollow bricks, and therefore feature more clay or concrete, and as a result it is very unlikely that this type of building would ever deteriorate during our buyer’s lifetime.
• Chicago’s soils are very stable, made up of mostly clay and sand.  ‘our soils are clay and sand and don’t settle or heave greatly, or as severely as they may in other parts of the country or the world…. Our soils DO settle and it causes a fair amount of hardship for people; they just don’t settle greatly, i.e. bldgs. don’t tumble over because of it; our soils will subside to an extent especially in draughts, but not as much as say, Texas, where there are expansive soils and people have to water their foundations.
• In over 8,000 inspections, about the worst Michael has ever seen are in two situations:
• Buildings built right on top of the water – like on the Chicago River or on the lakefront.  Sometimes there is evidence of settlement in those buildings.
• Buildings that have had their foundations compromised by malfeasance – such as construction immediately next door that undermines the foundation of the nearby buildings.
• Chicago is the home of the Sky Scraper, and most of the world’s most experienced architects come from Chicago architecture firms.
• High rise foundations in Chicago normally feature caissons that drill down as far as the underlying bedrock which makes the construction extremely stable.

The short answer

I haven’t heard of a situation where a condo building has fallen into such disrepair that the building could not be repaired.  Based on my experience and the comments from Michael above, I think our client can be quite comfortable that any condominium we purchase can be expected to easily outlive them.

How about if the building is destroyed?

In the event that a building DOES get destroyed by some catastrophe, such as a fire, your home owner’s insurance would pay you for your loss. And if a building was completely destroyed by a catastrophe, such as a REALLY BIG fire, the home owners that lived in the building would get together to decide whether to re-build the building, or take their insurance money and go somewhere else.

I happen to have a lot of one bedrooms in Lincoln Park and Lakeview for sale at the moment.  The remainder of my inventory is mixed between townhomes, houses, condominiums in various neighborhoods and a commercial condo.  With the one bedrooms representing a hefty chunk of my inventory, let’s take a look at what’s going on from that perspective.

Historically, the month of August is slow.  This is the month that most Chicagoans realize that  the days of summer are numbered, folks leave town for vacation, and otherwise people simply don’t pay a lot of attention to real estate.  Buyers that needed to have a home selected in time for the start of the school year did their shopping in late Spring and early Summer.  There were a lot of July closings and a few more closings to take place in August.

The economy is also dealing the real estate market a one-two punch.  Illinois’ unemployment is higher than the rest of the nation’s at 10.4%.  And the banking crisis, or the leftovers of it, make it challenging to get a mortgage even though rates today are at historic lows (Guaranteed Rate is offering a 30 year, fixed, conforming, loan at 4.375%!)

In a strong economy, studios and one bedrooms are strong sellers.  In a weak economy, demand for studios and one bedrooms falls off.  Demand for buying a studio or a one bedroom falls off even more.  This happens as fewer people can afford to live alone and start doubling up in larger units such as two and three bedroom apartments and condos.  The economy also removes a large section of people from the market as their purchasing power is diminished. 

Figures for the end of July tell a striking tale:

In Lincoln Park and Lakeview, combined, for the month of July, about twice as many two bedroom condominiums sold as one bedrooms.  The same ratio holds for properties that went under contract – or pending sales.

July 2010, one bedrooms, pending sales = 38

July 2010, one bedrooms, closed sales = 36

July 2010, two bedrooms, pending sales = 65

July 2010, two bedrooms, closed sales = 70

You can expect that traffic will be lighter than you have experienced in June and the first three weeks of July.  Traffic will stay light until the first weekend after Labor Day when buyers come back out shopping during the fall market.  This fall most Realtors are expecting a better fall market than last year’s and better than the Summer Market. 

The expiration of the buyer tax credit is far enough back in history that the “pulled forward” demand for homes should be exhausted.  And as the economy improves, though slowly here in Chicago, there are some folks relocating to Chicago, expanding their families, and needing to choose new housing.  We’re expecting demand to increase from “weak” to something even better than perhaps “tepid.”  Certainly nowhere near “blistering” by any stretch of the imagination.

During the month of August, while we have the time, it’s a good idea to have me, or your Realtor, prepare a new Market Analysis for your property.  If there are any new strategies to implement, or price changes that need to me bade, having the decision made during the slow month will allow the change to made promptly on Tuesday after Labor Day.  Expect a call from me in the coming days to set up an appointment to get together to go over the new Market Analysis.

Ummm… Where’s the house?

These buyers have been scouring the websites and sent me a list of some seemingly good deals.  Including a list of buildings that all seem to have one common characteristic.  I’ll refrain from publishing my laundry list here on the blog as I don’t want to alienate a whole bunch of other clients, other happy homeowners, or tarnish any reputations.  But I’m happy to share the same advice with my readers.

What all of these buildings have in common: they were all converted to condos around the year 2005 – give or take a couple years. Though these buildings are all different ages (some old, some middle age, some relatively new), all were apartment buildings first, then a developer decided to convert to condominium.

What happened to these buildings was a two-fold WHACK:

1. They sold a LOT of units to INVESTORS. During the late 1990′s and early 2000′s, it became normal for nearly anyone, and their grandmother, to put money down on a condo. And nearly as soon as the condo was ready, or a year or 2 later, you could "FLIP" it for a profit. And most of the time, you could rent the unit out and make money on it while you owned it.

2. Everyone who bought around that time is upside down. Starting in 2008, continuing through 2009, and up to today, real estate values dropped like a rock. This doesn’t matter much if you bought your home, condo, or other real estate a LONG TIME ago. Like 2002 or earlier. If you did, you probably still have some equity. For example, I bought my home in 2001. My price was $434,000. Prices in my townhouse complex went UP, UP, UP and at the high point it was worth $625,000. Then in late 2007, prices started falling. And now my next door neighbor has his unit for sale – exactly the same as mine – for $499,000. But I’m okay because I didn’t LOSE $125,000, I just won’t MAKE as much if I had to sell right now.

The problem: buildings like the ones these delightful overseas shoppers asked me about are filled with two types of people: (A) Investors and (B) young home buyers. Both categories of owner are currently upside down.

(A) Investors – they are having a hard time making payments because RENT doesn’t cover EXPENSES anymore. Because they can’t afford these units anymore, they are walking away from their units in great numbers. Hence the high number of foreclosures and short sales.

An interesting twist in this story: One big developer had a "Special Program" for investors to generate more sales. They would GUARANTEE the payments for investors. What they would do – sell to investors, and guarantee that the rent payments would cover the mortgage, assessments and taxes. So if a person bought a 1 bedroom at The Sterling, and the payment of mortgage + tax + assessment was $1,700, but a renter was only paying $1,500, the developer would make up the $200 per month shortfall. And the guarantee went for two years. Of course, everyone believed that rents would continue to rise at 10% per year, just like it always had. Instead, rents plummeted. And ALL those investors got stuck with condos that cost $300, $400, $500 and more, every month, than the rent paid for. That one big developer offered that same program at several buildings. This resulted in THOUSANDS of units being sold to investors who couldn’t make payments on them in the last 5 years.

(B) Young Owners – they bought a condo thinking they would make a ton of money from appreciation. But instead have seen their down-payments vanish, and their payments skyrocket as their adjustable mortgages rise.The double-whammy for Young Owners is the economy. Unemployment in Illinois is still close to 12%. Lots of these poor young buyers have lost jobs, or been forced to take pay cuts. Hence the high number of foreclosures and short sales.

What to do for my buyers?

I’m going to try a three-prong approach. 

1.  Choose carefully for some better examples from their suggestions.  A couple of the buildings they asked about really are quite lovely.  And some of my research shows that the buildings are slowly recovering from the glut of foreclosed units in the building.

2.  Recommend some alternatives.  For a building that they loved, I might suggest another more established building around the corner.  The Gold Coast and River North are filled with mature buildings whose financial outlook is rosy, yet values are down because values are down throughout the rest of the neighborhood.

3.  Search out other great deals.  There are plenty of ways to search for units that have had massive price reductions.  And even some established buildings have an occasional short sale or foreclosure.  All these criteria can be searched for in our MLS.

Head over to the Chicago Public Schools Locator Website at: http://schoollocator.cps.k12.il.us/ 

From there, you can pick a school by name, and view the street boundaries on a map.

Or you can input a property address and ask the system for the schools that serve that address.  This is a great tool to use if you – as a buyer – are thinking about a particular house, and are curious about the schools that serve the family that lives in that property.

As I said before, I’m amazed that this question gets answered as often as it does, as a simple Google Search with the words “chicago public school boundaries” returns the best result first in the list of results!

Check out the latest post.

Congratulations Adam and Nikko!

Last week Congress approved an extension of the popular First Time Homebuyer tax credit which was set to expire at the end of November.

To recap – under the current program, first time home buyers could apply for $8,000 cash back on their next tax return.  Or could amend their 2008 tax returns to request the refund.  The $8,000 is not a “deduction", rather, it is a direct payment back to the taxpayer.  In other words, if the government owed you $500 on your tax return, you would get a check back for BOTH the $500 PLUS the $8,000 – or a total of $8,500.

If you owed money on your taxes, the rebate would offset your taxes.  If you owed $1,000, the $8,000 would offset the $1,000, and you would get a check back for $7,000.

The new First Time Homebuyer Credit is available for purchases between December 1, 2009 and contracts signed through April 30, 2010.  You must close on your new property by June 30, 2010. 

Income limits have ALSO been expanded.  Buyers now qualify for the First Time Homebuyer Credit if they earn UP TO $125,000 for each borrower.  The Homebuyer Credit phases out with higher incomes.  Since there’s math involved, I’m skipping the formulas for the purposes of this post.  (It’s a great opportunity to call your REAL ESATE PRO for further info. Hint?)

Repeat Buyers Not Left Out

Congress also added a shopping opportunity for existing home owners who buy a new (different, not necessarily brand new) home.  Repeat buyers qualify for $6,500 credit towards their next home purchase if they have lived in their current home for at least five years. 

First Time Buyer Down-payment Assistance from State of Illinois

Additional resources for buyers in Illinois can assist first time buyers with a gift towards down-payment.  On October 30, Governor Quinn launched an affordable home ownership program designed to help qualified buyers by providing a second, forgivable loan for 3% of the purchase price.  The max gift is $6,000 which is applied towards the down-payment on the property.  Buyers are required to put down at least 1% (or a minimum of $1,000) of their own money towards the purchase price. 

Counseling through a HUD-certified counselor is a requirement of this assistance program.  IHDA expects to help approximately 2,000 home buyers in Illinois with their home purchases in the coming year.  Home buyers that want to participate, visit Illinois Housing & Development Authority on the web to find a participating lender.  www.ihda.org.

When you buy a condo, you are entitled to a giant stack of documents that you get to look through as part of the discovery process – learning everything there is to know about the association, the building, the finances – pretty much everything about the building.

In this building, the financial disclosure revealed a 13th month assessment that the association uses to build up its reserves. 

13th month assessments were devised as a rather clever way to build up a bunch of money in savings rather quickly and without too much pain on the part of the members.  Often times, 13th month assessments are enacted for only one year, or perhaps two.  Usually just for a few years at most.

The way they work is the association bills the home owners for one extra month worth of assessments at some point during the year.  Many times right at the beginning of the year.  Equally as often at the end of the year.  Since the first or the last month of the year usually coincide with the Holiday Shopping Season, I’ve seen a few associations bill the extra month in June.

In my example, we discovered that the 13th month assessment is due on November 1.  This cleverly is one day after we are scheduled to close.

Two problems:

Our contract has a paragraph where the seller of the condo swears that there are no special assessments.  And that if there ARE any special assessments, details who is supposed to pay for it.  In our contract, the seller indicated that there is NOT a special assessment, and the rest of the paragraph is scratched out.

So on the very first month of his ownership, my buyer (theoretically) gets whacked with a special assessment.  Of course, as a practical matter, we’re going to require the seller to pay the assessment since it has been planned for all year long, and the seller failed to disclose it.

My second problem is that this budget trick makes the assessments look better than they are.  In our example, the advertising and the MLS say our assessments are $270 per month.  But if the association uses a 13th month assessment year after year, the TRUE assessments are 10% higher – or a little more than $300.  When comparing this unit to others in the neighborhood, typically, the one bedrooms have assessments in the $250 per month range.

In fact, in THIS buyer’s instance, I searched out condos with assessments LOWER than $300 per month.  And the budget trick allowed the marketing to reflect the false (lower) figure.

It’s the duty of the manager as well as the board of an association to accurately show the true condition of the association, both physically and financially.  The 13th month assessment scheme does mask the true financial picture for the association, and in that regard, Your Guide is not a fan.

Labor Day weekend is an un-official Realtor Holiday as well as the last hurrah for summer in Chicago (and all over the Mid-West.)  Knowing these key facts will help you develop a strategy to see what you need to see this weekend.

• I, and most of the other Top Producing agents in Chicago have already booked their weekend schedules.
• This might include a few showings.  Or might not.  And the rest of their social obligations for the weekend.
• The agents that are working “Floor Duty” this weekend are the rookies hungry to pick up clients.

The first thing to know about the weekend:  If you’re reading this now – it might be too late.

It’s not that I won’t meet a buyer, or accommodate a showing on the weekend.  But I firmed up plans with my buyers much earlier in the week.  It’s the same for showing my listings to other agents.  But last minute requests often indicate that the client you’re working with is more of a “tourist” than a “buyer.”

I love showing homes to buyers.  Not so much to the tourists.

A few clues to identifying the tourists:

• The phone call comes in after 3pm on the Friday of the Holiday Weekend.  Whether from the actual buyer or the agent.
• There are certain real estate companies out there that specialize in capturing leads from the internet.  I know which companies those are.  A phone call from one of those agents late on Friday, or over the weekend, usually indicates we have a “tourist.”
• An out-of-area area code on a return telephone number.  From either a potential buyer or a Realtor.

I love out-of-area buyers.  But I like the opportunity to meet them in a relaxed meeting in an office setting rather than a hastily arrange last minute showing.

So this weekend you won’t catch me in the office.  And if I’m already out with friends at Labor Day festivities, I probably won’t grab my cell phone.  It’s the same with the other seasoned pros, too.

So if you call the number on the sign, or the office from an ad somewhere, you’re going to reach the Low Man on the Totem Pole.  And there may not be much he can do for you.

Plan ahead for  the next Holiday with these tips:  line up your Real Estate tours by Monday or Tuesday before next holiday rolls around!