18-Sep-17 – If downtown developers could find a way to build new high-rise condominiums at lower price points, it’s likely that a condo boom would be underway in the Windy City in 2017.

Unfortunately, the illusive dream of affordable housing downtown is fading because “construction and land costs have rapidly escalated over the past two years,” notes the Downtown Chicago Benchmark Report, the latest analysis of the condo market by Appraisal Research Counselors Ltd.

At the end of the second quarter of 2017, there were 802 unsold new-construction condos and townhomes being marketed for sale downtown. Developers sold 107 new units during the first quarter of 2017 but sales slowed to 73 units in the second quarter.

The unsold new-construction condo and townhome inventory downtown totaled 663 units at the end of the first quarter of 2016. Inventory totaled 471 units in the first quarter of 2015.

However, these sales numbers aren’t impressive when analysts compare them to the condo construction boom years of 2004, when 6,298 units were sold – or 2005, when a whopping 8,162 units were sold. In 2006, a total of 5,783 units were marketed before the Great Recession hit.

“Banks are requiring higher equity...for construction loans and boosting condo pre-sale requirements of up to 50 percent, depending on equity/sponsorship,” said Gail Lissner (left), vice president of Appraisal Research Counselors.

Another roadblock to new condo construction downtown is the proposed changes in the new Affordable Requirements Ordinance, Lissner said.

Under the proposed changes to the existing ordinance, developers seeking zoning changes would be required to price 15 to 20 percent of the project’s housing units affordably, instead of the current 10 percent. Targeted areas would include the Near North and Near West Sides, and the Milwaukee Avenue Corridor.

Veteran developer Steve Fifield of Fifield Companies, who has built 3,300 apartment units over the past decade, called the proposal “an absolute disaster.” Fifield said it would force landlords to boost rent $300 a month on a typical one-bedroom apartment. Currently, developers of residential housing projects can fulfill 75 percent of the affordable housing requirement by paying an in-lieu fee, while the other 25 percent must be fulfilled with actual on-site or off-site units. The new ordinance eliminates the in-lieu fee option. (Right) Construction worker at top of Streeterville’s One Bennet Park. Buildings in River North and Loop visible in distance.

Appraisal Research noted that the downtown condo inventory being marketed for sale by developers is heavily weighted towards the ultra-luxury segment of the market.

On a per-square-foot basis, 86 percent of the unsold new-construction condo inventory units are in buildings priced at an average of $700-plus per square foot. A total of 315 ultra-luxury units – some 39 percent of the unsold units – lead the market with prices pegged at $1,000-plus a square foot.

The top of the ultra-high end of the market downtown is the 94-story Vista Tower hotel and condominium complex now under construction at 363 East Wacker Drive. (Left) Rendering of a kitchen at Vista Tower.

The tower will have 406 condo units and 191 hotel rooms. 21 penthouses are priced in the $8-10 million range, according to Magellan Development Group, co-developer with China’s Dalian Wanda Group.

Bargains at existing buildings, too

Buyers hunting for an affordable condo downtown should shop existing buildings for condo bargains, advised Ron DeVries, vice president of Appraisal Research.

An Appraisal Research survey of the 65 largest and most prominent existing downtown buildings with a total of 20,895 units found that prices have risen 4.6 percent in the first half of 2017 to an average of $433 per square foot. In 2012, condos in these buildings sold for an average of $338 per square foot.

“Overall, prices in these 65 buildings have risen 28 percent above the worst point in the housing decline in 2012,” said DeVries (right).