CHICAGO LOOP CONDO MARKET Faces A Historic Glut of Inventory in 2008!
AN ESTIMATED 6,000 NEW CONDOS TO HIT THE MARKET IN DOWNTOWN CHICAGO IN 2008 - ONLY 201 UNITS SOLD 1ST QUARTER THIS YEAR!
It's getting tougher to finance a new condo these days! Here in Chicago, and in most other parts of the U.S., lenders are tightening their underwriting standards for owner-occupancy, condo association capitalization and reserve requirements, and buyer credit score and down payment amounts.
With this as a backdrop, a staggering number of new condominium units will be available for purchase by the end of 2008, in the fast-growing Chicago Loop, South Loop, West Loop, and Near South Side (with portions often called "Historic Motor Row," after the number of early automobile dealers that used to populate this area before 1920).
"It's tremendously serious," according to the President of Strategic Planning Associates, Steven Hovany. "What you are going to see are buildings going into foreclosure."
Mr. Hovany is concerned that the projected glut will delay developers who are considering building in Downtown Chicago and The Loop - not now, but in 2009, and beyond.
Twenty-five years ago, much of the South Loop and West Loop were an inviting hodge podge of railroad tracks, abandoned lofts and warehouses, and the occasional shot-and-a-beer tavern. That has changed now, of course - much of the area is a highly-sought destination, for living, for dining, and for nightlife.
The Loop buzz has drawn greater interest from condo developers, but many feel there is too much inventory coming on line at a time when demand is just not keeping up.
Gail Lissner, Vice President of Appraisal Research Counselors, estimates 2008 will add historic condo inventory in Downtown Chicago. Her firm estimates 5,984 units will come to market before the end of 2008. That compares with 4,794 last year, and a projected 4,160 in 2009.
Buyers, however, have responded in lackluster fashion. Newly-constructed condo sales in Downtown Chicago and The Loop dipped by 83% during the First Quarter, 2008 - to only 201 contracts for sale written, from over 1,207 during the First Quarter, 2007.
Lissner feels condos in the South Loop run the greatest risk of staying on the market, unsold. This is due, she feels, to the sheer quantity of new condos available.
She observes that few condo developers slash the price of new units for sale. Instead, more are offering often-significant upgrade incentives - upgraded kitchen cabinets, stone counters, or hardwood flooring, and the like.
Alan Lev, of major Chicago Developer The Belgravia Group, has a new condo project north of Downtown - at 600 N. Lake Shore Drive. To date, only 130 units have sold in this 400 unit upscale condo building.
Lev sees more movement in entry-level condominiums (those priced at around $300M or less). These units more often appeal to firs-time buyers, who aren't encumbered by the need to sell their current condo or home. When these buyers have good credit, and strong down payments, they can often more easily find financing, at an attractive interest rate. The market for condos in excess of $400,000 is now seeing tightness, as many of these buyers are moving up - and can't afford to purchase a new condo without selling their current home first.
Tim Desmond, President of The Central Station Development Corporation, the prestigious townhouse development where Chicago Mayor Richard Daley presently resides, plans to add an estimated 500 units in 2008. These days, he says, builders and developers must work very closely with lenders to make sure loans get approved. "The lenders are being a lot more cautious," Desmond said, "and they are asking lots of questions."
He projects the Downtown Chicago Condo Market in 2010 and beyond will depend on policies by lenders - both those working with consumers, and those working with the developers as well. Tighter money for financing, coupled with new, more stringent loan requirements for both condo buyers and builders, will have the effect of dampening demand.
See yesterday's article by Robert Manor in The Chicago Tribune for more info.
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