Why a Chicago developer may be coveting your condo
Crain's Chicago Business
13 June 2015
How hot is the Chicago apartment market? So hot that developer John
McLinden tried to buy all 492 condominiums in a Gold Coast high-rise so
he could convert them to apartments.
“I thought it was a long, long shot,” says McLinden, managing partner of Chicago-based Centrum Partners.
It was. Unsatisfied with his price—$141 million, according to
Centrum—the condo board at 1660 N. LaSalle St. rejected the offer
within days, deciding not even to ask residents to vote on it.
But the attempt illustrates how the local housing market has been
flipped on its head. Instead of converting apartments to condos—an
established strategy you would expect at this stage in the market's
recovery—a group of developer-arbitrageurs is going the other way as
Chicago apartment prices keep climbing.
Some already have pulled it off in smaller buildings. Last August,
Chicago-based Laramar Group paid $7 million for all 24 condos in a
vintage Lincoln Park building, and the firm has more deals in the
works, President Jeff Elowe says.
But a few developers with the money and patience, like McLinden, are
thinking bigger and chasing high-rises with hundreds of units.
“Big-time players are looking at prices and saying, 'I think we could
buy this building lock, stock and barrel and make money by running it
as an apartment building,'” says Chicago attorney David Sugar, a
partner at Arnstein & Lehr and chairman of the firm's condo law
“Hopefully, condo boards will figure out that they can make 50 percent
more selling to these apartment idiots chasing a bubble,” says David
Ruttenberg, principal at Marc Realty Residential, a Chicago-based
apartment landlord. “Hopefully, I'm the fool they call.”
While “de-converting” condos may be the newest way to profit from the
boom, de-conversions are still rare. The biggest obstacle: dealing with
dozens, or in Centrum's case hundreds, of sellers who each have a
different opinion of what their condos are worth. Some are so attached
they won't sell for any price.
Under state law, a developer can buy all the condos in a building if
the owners of 75 percent of the units vote to approve a sale. When that
happens, the dissenting owners are compelled to sell, with disputes
over price and other terms handled by an arbitrator.
Marc Realty Residential, for instance, tried to buy a 108-unit building
in East Lakeview for about $200,000 a unit, or $21.6 million overall.
But it came up short in a vote last fall after owners of 26 percent of
the units voted against the deal, says Ruttenberg, who estimates that
the units were worth about $140,000 each as condos.
Because apartments have a higher value in the current market,
Ruttenberg might make another run at the building. “We're very
patient,” he says.
Indeed, patience is key: After buying 31 unsold units from the
developer of a stalled 38-unit Rogers Park condo project in 2012, Marc
Realty Residential just closed on the last of the remaining seven units
six months ago.
It may be the real estate equivalent of herding cats, but there is a
payoff. Elowe of Laramar estimates that the 24-unit building his firm
bought in Lincoln Park, at 2215-2221 N. Clifton Ave., could fetch as
much as $10 million if it were sold today, 43 percent more than Laramar
paid last August.
“It's a higher and better use as a traditional multifamily building
than as a condo building,” he says. “That location is about as good as
The de-converting trend started after the condo bust, as developers
snatched up unsold condos in failed projects in bulk deals and rented
them out. What's new today is that developers are seeking longtime
condo buildings, trying to buy out lots of individual owners, not a
bank or developer.
For his part, McLinden is pursuing two other condo buildings that could
be good de-conversion candidates, declining to identify them. He's
targeting properties that need major capital improvements. He's betting
that condo owners will be more willing to sell if they are about to be
hit with a big assessment.
“There are a lot of people who just won't pay,” he says.
Editor's note: The story has been updated to reflect the price offered by Centrum Partners for 1660 N. LaSalle St.
Deconverting condos feeds renters’ growing demand
By: Gail MarksJarvis
24 June 2016
stands June 23, 2016, outside the condo building at 915-925 W. Schubert
Ave. that he worked to get sold and deconverted into rental apartments.
(Anthony Souffle / Chicago Tribune)
Stand just about anywhere in the Loop and look up. What do you see?
They reach into the sky throughout the city's core and are constructing
upscale, high-rise apartments to meet the demand of millennials and
empty nesters with urban tastes and plump paychecks.
Demand for rentals is fueling another type of development, too, but
this one doesn't involve cranes. From Lincoln Park to the South Loop,
developers are trying to convert older condo projects into apartment
buildings for people who want rents a little cheaper than those in the
glitzy new high-rises.
You read that right. Condo buildings are being converted into apartment
buildings, not the other way around. The housing market has come full
circle. About a decade ago, developers were scrambling to turn out
condos so they could profit from a mania of home buying. Then, easy
financing and rapidly appreciating home values drove people in their
20s and 30s to rush and snap up their first condos whether they could
afford them or not.
Now, after the housing bust, the allure of owning has faded, and
getting a loan for a starter condo is tough, said Doug Imber, president
of Essex Realty Group. So people — especially millennials — want to
rent, or they must rent because they can't come up with a down payment.
In condo buildings with sizable populations of renters, getting banks
to approve a loan for a condo purchase is especially difficult.
The River City Condominiums in the 800 block of South Wells
(Abel Uribe / Chicago Tribune)
"Who's going to buy when you can't get a mortgage?" Imber said. "You need all cash, and that's not who buys a condo."
Enticed by the opportunity to get a steady flow of high rents, and with
low-interest-rate loans available, developers and investors see an
opportunity. They are scavenging the Chicago area looking for condo
buildings with a lot of units occupied by renters. In a process called
deconversion, they offer to buy every condo in the building at a price
that presumably is higher than individual condo owners could get on
Under Illinois law, if a developer convinces 75 percent of a building's
owners to sell, unwilling owners can be forced to go along and must
sell their units. Then the developer buys all the units, brings in the
remodelers, spruces up the building, and attempts to rent the units at
prices above what amateur landlords were getting for their individual
But it's not an easy process, said David Ruttenberg, a partner at Marc Realty Capital.
He thought condo owners at 458-unit River City Condominiums in the
South Loop would go for a deal in which they were offered $225 a square
foot, or a total of $83.1 million. The offer, he said, topped the $125
a square foot he figured they'd get if they tried to sell their own
units. But the remnants of the housing bubble stood in the way.
Ruttenberg estimates half of the condo owners had so much mortgage debt
left to pay off they couldn't afford to sell.
Instead of getting 75 percent to approve the deal, only 60 percent
voted for it, he said. The deal didn't go forward, but Ruttenberg says
"we're still talking," while he looks at other buildings to deconvert.
He thinks that when interest rates increase, this cycle's round of
deconversions will come to an end because they will be less profitable.
As investors push to get deals done now, the easiest to accomplish are
those in smaller buildings filled with renters, Imber said.
That was the case with 915-925 W. Schubert Ave. in the Wrightwood
Neighbors area near Lincoln Park, a 29-unit building recently sold to a
partnership of Chicago-based Golub & Co. and Boston's Alcion
Ventures for about $5.1 million, said Larry Kanarek, the building's
former condominium association president.
Even though he owned 13 units, and owners were offered far more than
they were getting when trying to sell on their own, Kanarek said it
still took him six months to get 100 percent to approve the deal.
Ultimately, owners were looking at about $170,000 a unit, compared with
recent sale prices in the building of $90,000 to $115,000, Imber said.
"Even if you have no intention to sell, when you think your condo is
worth $100,000 and you are offered $170,000 you rethink it," he said.
Most of the units in the Schubert building are small studios, around
325 to 350 square feet, and all but three units were being rented out
by the condo owners, Kanarek said. He figures that after all are
remodeled, monthly rents will be raised to $1,200 or even $1,400
compared with the $850 or $900 a unit some condo owners had been
Kanarek sought an investor who would buy the entire condo building when
he decided after 33 years as a landlord that he wanted to retire. He
purchased his first condo in the building in the 1980s and slowly added
units. Over the years, he did everything from writing classified ads
for available rental units to doing remodeling himself, he said.
Given soaring rents and rental demand in Chicago, he thought this was
an opportune time to find a buyer who would deconvert the condo
building to apartments, which was its original state when built around
100 years ago.
Kanarek isn't sure when the peak in the apartment market will come, but
as he watched the level of apartment construction in the city he
decided the time was right to make his exit.
Gail Lissner, vice president of Appraisal Research Counselors, has been
watching the apartment market for a sign that it is getting overbuilt
and sees no evidence of a peak. Even when a peak is reached, she said,
the glut that may arrive by 2018 will be in the luxury new high-rise
buildings that have been added in record numbers downtown, not the
older, lower-priced units.
The number of deconversions is relatively small, and they serve a
different market than the massive new apartment towers, she said.
Meanwhile, condo development isn't dead, but it is different.
Homebuilders are focused on relatively small condo buildings for the
very high end, said Alan Lev, president of Belgravia Group. He and
others are building mostly large three-bedroom units hovering around $1
million. The "sweet spot" now for new condos is over $600,000, he said.
But eventually, he noted, every cycle in the housing market turns, and
when that happens he assumes more moderately priced condos will be
built — and apartments will be converted back to condos.
This big Lakeview condo complex is poised to go rental
Crain's Chicago Business
17 October 2016
The Barry Quadrangle
A big North Side condominium complex has gone up for sale, another prospect for developers that convert condos into apartments.
The board of Barry Quadrangle, a 116-unit property at Barry Avenue and
Dayton Street, has hired CBRE to sell it, joining the condo
deconversion trend that's gaining momentum throughout the city.
The board put the vintage Lakeview complex on the market after
receiving an unsolicited $28 million offer for the property from a
developer, according to a June email that condo board President Sylvia
Franke sent to owners in the building.
“The initial offer was rejected as too low, but this led to homeowner
interest in investigating the sale of the property as a whole and our
hiring CBRE to market the property. That is where we are now,” Franke
wrote today in an email to Crain's.
One person familiar with the complex said the board is seeking as much
as $40 million, or $345,000 a unit, for the property. Franke did not
respond to a follow-up email to confirm that figure.
Historically, developers have profited by converting apartment
buildings into condos, but Chicago apartment values have jumped so much
the past few years that the trend has reversed. With developers willing
to pay up for entire condo buildings, many condo owners have been happy
to cash out.
In possibly the biggest deconversion so far in the city, Strategic
Properties of North America, an investor with offices in Chicago and
New Jersey, is buying a 133-unit condo building at 2625 N. Clark St.
Built around 1916, Barry Quadrangle is about a block from the Belmont
CTA train station and a block from the intersection of Halsted and
Clark streets. The property, which includes two buildings on the south
side of Barry Avenue and two on the north, was converted from
apartments to condos in 1979, according to CBRE marketing flier.
Why are more developers drawn to condo deconversions?
21 December 2016
Condos in Chicago during our current recovery are usually of interest
to high-income buyers or families. But with an aging inventory of older
condos in North Side neighborhoods, more investors and developers are
enticing condo owners with deconversion offers.
Last week, Strategic Properties of North America agreed to buy Bel
Harbour, a 207-unit condominium building at 420 West Belmont Ave, and
Strategic intends to deconvert the building into condos. This would be
the second condo deconversion Strategic is undertaking in Chicago. It
previously paid $35M for Clark Place, a 133-unit condo tower at 2625
North Clark St in Lincoln Park and successfully deconverted the condos
into rentals. If Bel Harbour's condo owners approve of the plan, it
would be the largest condo deconversion in Chicago.
In neighborhoods like Lakeview and Lincoln Park, the real estate
fundamentals make sense to pursue condo deconversions. New multifamily
development in these markets has lagged, especially when compared to
all the cranes in the air in the downtown core and central
neighborhoods like River North and the South Loop. And Chicago has
added affluent renters at a faster rate than their homebuying
counterparts; high-income Chicago renters increased 36% between 2014
and 2015, versus a 9% increase in high-income new homeowners. Condo
deconversions would also allow new owners to capitalize on growing rent
spreads. Rents in remodeled former condos can increase $300 to
$400/month. At Bel Harbour, 45.4% of the total condos are rented out.
But the process to deconvert condos to rentals is not for the faint of
heart. Under Illinois law, 75% of condo owners in a building must
approve a deconversion. And while apartment activity has led to
Chicago's multifamily resurgence, many condo owners who bought their
units prior to the 2008 real estate collapse are still struggling to
recover. They either have too much mortgage debt to sell or they intend
to hold on to their units in case the market shifts back in favor of
condos. For those owners renting out their condos, those tenants will
have to vacate the units once a condo board approves of a deconversion.
Take the case of River City. Marc Realty offered to buy the condos in
the building for $83.1M, but only 58% of owners supported the plan.
Marc Realty principal David Ruttenberg said his firm's offer of $225/SF
was much higher than what he felt owners would get for their units on
the market, but the River City experience hasn't deterred him from
seeking other deconversion opportunities across the city.
Strategic Properties of North America completes large condo de-conversion in Chicago
22 December 2016
Strategic Properties of North America, a client of law firm Taft,
recently completed its acquisition of the 133-unit residential building
at 2625 N. Clark St. in Chicago.
The former rental property was converted to a condominium building in
2005. Strategic Properties of North America has now de-converted that
condo building back into rentals, to take advantage of the strong
demand for apartment projects in Chicago.
Strategic Properties spent $35 million to buy out the owners of the
condo building. That sales price came out to about $263,000 for every
condo unit. The company now plans to spend about $6 million renovating
and updating the building, including adding common-area elements such
as a gym and other community rooms.
Taft’s Kathryn Kovitz Arnold, chair of the law firm’s condominium and real estate groups, led the de-conversion effort.