Condo deconversion wave hits smaller buildings
Loop North News

The Home Front

(Above) Kitchen of unit for rent soon at The Kent Apartments, 2625 North Clark Street in Lincoln Park, acquired by Strategic Properties of North America in 2016 and currently being converted from a condominium to an apartment building. (Click on images to view larger versions.)

8-Jul-19 – Condominium “deconversions” are sweeping Chicago as more investors and small developers tap a profitable market. A survey by The Home Front revealed that more than 2,500 condo units in more than 20 existing condo buildings have been de-converted and rehabbed into rental apartments over the past three years.

Buyers include major landlords, out-of-state investors, and 1031 tax-deferred purchasers who are looking to acquire real estate to defer capital gains on recent property sales.

Under state law, an investor can acquire all the condo units in a building if 75 percent of unit owners vote to approve a sale. Even if some owners vote “no,” the dissenting owners are forced to sell. An arbitrator would handle disputes over appraised prices and terms.

Experts say the deconversion trend started nearly a decade ago after the Great Recession created the condo bust. Developers snatched up unsold condos in failed projects in bulk transactions and rented them out.

Over the past three years the trend has accelerated. The new wrinkle is investors hunting for troubled older condo buildings and attempting to buy out individual owners in such hot neighborhoods as Gold Coast, Lakeview, Lincoln Park, Logan Square, Old Town, South Loop, and Wrigleyville. Now, the deconversion movement is spreading to Albany Park, Avondale, Lincoln Square, South Shore, and Uptown.

Clark Place

The big players in the deconversion game include New Jersey-based Strategic Properties of North America, New York-based ESG Kullen, and Marc Realty Capital, a Chicago investment firm. Essex Realty Group is a major player in marketing smaller walk-up buildings that generally are priced from $3 million to about $7 million for 18 to 41 units.

In 2016, Strategic Properties paid $35 million for the 133-unit Clark Place high-rise (left) at 2625 North Clark Street in Lincoln Park, and $51.5 million for Bel Harbor, a 207-unit tower at 420 West Belmont Avenue in the Belmont Harbor section of Lakeview.

In 2018, Strategic Properties targeted the 268-unit Kennelly Square, a 22-story tower at 1749 North Wells Street in Old Town, for deconversion. The company offered as much as $78 million to buy the property and 75.8 percent of the building’s unit owners voted to approve the sale.

ESG Kullen recently took over the 250-unit condo building at 1140 North LaSalle Drive and is close to completing the deconversion of the 391-unit tower at 1400 North Lake Shore Drive in a $112 million deal. Now the company is targeting the 309-unit 2 East Oak and has offered $92 million. However, only 69 percent of the owners voted for the sale.

Owners at the 202-unit 1250 North LaSalle Drive have hired the firm of Avison Young of represent the condo association and market the 18-story building to an investor.

Another recent major deconversion was at River City (right), a 448-unit South Loop condo complex designed by famed architect Bertrand Goldberg.

Photo by Steven Dahlman

In late 2017, owners voted to sell the complex to Marc Realty Capital. The deal closed in early 2019.

Dozens of condo boards have received offers from developers who want to deconvert their buildings by purchasing all the individual units, upgrade them with new granite kitchens, fancy baths, and wood floors, and turn them back into rental apartments.

Ironically, many of the high-rises now in demand for deconversion were originally built as rental properties, then converted to condominium ownership during the conversion boom of the 1970s.

Deconversion can make sense economically

Why would condo owners vote to dissolve their association? It is simple economics, experts say. Here are the facts...

• Condo resale values plummeted during the Great Recession and prices have not fully recovered in most buildings. For example, a typical one-bedroom unit that originally sold for $294,000 in 2005 resold for only $170,000 – a 42 percent resale price decline – a decade later, according to Cook County property records.

• Many of the lakefront buildings were built in the 1960s and converted to condos during the boom of the 1970s and 1980s. These aging properties are showing infrastructure wear and tear, and need new roofs, elevators, windows, and mechanical systems. As a result, owners currently are being hit with hefty special assessments for repairs ranging from $25,000 to $75,000-plus per unit.

• Buildings with low owner-occupancy rates signify trouble as traditionally financed sales and refinancing grind to a halt.

Sara E. Benson

“Deconversion of a financially troubled condominium building is one way for owners to recoup some cash and escape from condo jail,” said Chicago Realtor Sara Benson, co-author of Escaping Condo Jail.

“It is a national trend,” said Benson (left). “Tens of thousands of condominium units have been deconverted to rentals.”

As apartment rents continue to rise, the market value of rental buildings is soaring. So, investors are willing to pay top dollar for a building they can quickly deconvert, renovate, and start the flow of rental cash.

Regardless, apartment investors hoping to take advantage of the rental boom in Chicago still have hundreds of units from which to choose in large and small condo buildings, and sellers are asking top dollar.

Deconversions spread to the neighborhoods

Developers and investors are targeting smaller walk-up condominium buildings for deconversion to rental apartments. Here is a list of recent deconversions grouped by neighborhood...

  • Albany Park – 4954 North Ridgeway Avenue (22 units)
  • Avondale – 3507-3511 North Elston Avenue (12 units)
  • East Lakeview – 659 West Aldine Avenue (9 units)
  • Gold Coast – 159 West Goethe Street (14 units)
  • Lincoln Park – 915 West Montana Street (18 units), 2317 North Cambridge Street (7 units), and 915-925 West Schubert Street (29 units)
  • Lincoln Square – 4459 North Campbell Avenue (18 units)
  • Logan Square – 2601-2607 North Hamlin Avenue (11 units)
  • North Center – 1946 West Bradley Place (10 units)
  • South Shore – 7420 South Colfax Street (27 units)
  • Uptown-Sheridan Park – 4630 North Beacon Street (41 units)
  • Wrigleyville – 1050 West Dakin Street (18 units) and 1244 West Byron Street (21 units)

By Don DeBat | Loop North News | debatnet@aol.com

Published 8-Jul-19 9:58 PM

Loop North News

FREE WEEKLY EMAIL UPDATE

What’s news in the Loop and Near North neighborhoods of downtown Chicago.

Signup for our weekly email. No ads and no charge. Just enter your email address here...

Number of subscribers:
See this week’s update

More stories


Today
Public opening of the Chicago Architecture Biennial, the largest platform for contemporary architecture in North America. 10:00 a.m. to 7:00 p.m., Chicago Cultural Center, 78 East Washington Street. Runs through January 5, 2020. Free and open to the public. Map. More info.

Today
Museum of Contemporary Art hosts Vernissage, the opening night preview of EXPO CHICAGO. Organized by the MCA Women’s Board, this extraordinary benefit is the city’s most anticipated art event of the year. General Reception, 6:00-9:00 p.m. Patron Reception, 5:00-7:00 p.m., will feature a premium bar and cuisine from some of Chicago’s finest restaurants. Tickets start at $125 ($300 for the private reception) and will be available for sale in August. Proceeds will benefit education,exhibition, and performance programs at MCA. Festival Hall, Navy Pier, 600 East Grand Avenue. Map. More info.
More events

Biggest Gainers & Losers

BOEING CO.
386.41 UP 2.21

CBOE HOLDINGS INC.
115.66 UP 2.18

JBT CORPORATION
108.00 DN 1.77

MB FINANCIAL INC.
42.38 DN 1.52

Downtown Chicago Stocks