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DOWNTOWN CHICAGO: Condo Bargains Galore . . . But, Too Often, It's Difficult to Finance Them!


Condos, condos everywhere.  Often priced for a song, or just slightly higher. 

That's the environment in many new Downtown Chicago Condo Buildings, thousands of which began construction several years ago, in a stronger Real Estate Market.

Today, however, the overall weakness of the condo market here has left many prominent developers here doing the unthinkable - offering sizable discounts off their asking price.  This counters recent practice of maintaining high price points, but offering special incentives - reduced-priced upgrade packages, free garage parking, even Hawaii Vacations or HDTV's - instead of a lower price.

As reported by Jeffrey Steele in the February 14th edition of the Chicago Tribune, roughly 7,500 new construction condo units hit the Chicago Gold Coast, Loop, West Loop, South Loop, Streeterville, and River North Neighborhoods in Downtown Chicago between 2008 and 2009.  According to estimates by Gail Lissner of Appraisal Research Counselors, at a meeting last month of members of The Chicago Association of Realtors, about 2,200 of these new units are still available for sale downtown.  That staggering figure is in addition to the 5,020 resale condo units available for sale in the same neighborhoods (Midwest Real Estate Data MLS Statistics for Downtown Chicago).

Experienced Real Estate Professionals covering Downtown Chicago see great equity building potential for those who buy now.  Our Team agrees.

Projects such as The Private Residences at Ontario Place near North Michigan Avenue, and the 565 Quincy project in the West Loop, are discounting some condo prices to the low $200,000's - prices never seen for years in these neighborhoods.  At the Quincy Street project, developer Alan Lev, President of the Belgravia Group, cut some prices in January as much as 30%.

Developers did try the incentive route, but, in this market, with the incredible inventory surplus, the condos just weren't selling fast enough.  Hence, the unprecedented price moves.

Even with the once in a lifetime discounts, however, many buyers are left sitting on the sidelines.  Far more stringent underwriting rules for Fannie Mae, Freddie Mac, and FHA Loans require more down payment of many condo buyers.  In our Team's experience, the once-widely-available 5% Down Financing is only for those with top credit scores, and buildings with impeccable financial credentials and condo reserves. 

Although building guidelines have moderated somewhat, many new construction projects do not have enough capital reserves in the condo association for approval of commonly-available financing options.  Further, some of the older buildings have an association "Right of First Refusal" built into their Condo Declaration.  This clause allows these condo associations to purchase condos in its complex that sell lower than they'd like - even finance them, if necessary - rather than potentially lower prices complex-wide.

Such Right of First Refusal used to be an automatic denial for FHA Financing - now practically the only option for buyers with less-than-10% down payments.  That is not the case anymore, but those buildings still require up to a several week wait for FHA approval of the complex.  Also, the specific language of some First Refusal Clauses might slow down the foreclosure process when buyers default, a situation not acceptable to lenders offering 5-10% Down Conventional Financing.  Rules for those buying condominiums as investment - not owner-occupied - are even tougher.

In a nutshell?

Lots of opportunity in Downtown Chicago and The Chicago Loop to acquire condos at deep discount prices these days.  But finding the money to buy them often is a bit tricky.


Posted: Tuesday, March 09, 2010 10:22 PM by Dean's Team


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