Like stock-market investors sitting on the sidelines, major downtown Chicago condominium developers are scratching their heads and wondering whether or not to jump into the game.
“With the strengthening of condo resale prices, the number of resales taking place, and the lack of new condominiums available for sale, the feasibility of new condo development is improving and is expected to strengthen,” noted Gail Lissner, vice president of Appraisal Research Counselors Ltd., Chicago’s top condo appraisal firm.
With that in mind, Appraisal Research has published a new report titled: “The Condo Developer’s Dilemma—What, Where and When to Build” in the near future.
The report contains and in-depth review of the new-construction condominium market from 2004 to 2014—a decade which saw the construction of 15,896 new units in 82 buildings in downtown Chicago.
“This report—which studies submarkets, product size, and per-square-foot resale price patterns over 10 years—should be helpful to developers in analyzing the best opportunities for new condo development in the near future,” noted Lissner.
“At the present time, sales absorption is still a major consideration and no one has yet been ready to embark upon a development which would have a very ambitious pre-sale requirement,” said Ron DeVries, vice president of Appraisal Research.
Appraisal Research’s Downtown Benchmark Report for the first quarter of 2015, noted the following developments in the marketplace:
• Downtown Recovery. While there has been a rebound in condo sales downtown, the volume is extremely modest with barely 400 new units sold in 2014, Appraisal Research reported.
• Boutique projects. While few developers are beginning large condo buildings, the smaller boutique project with less than 50 units is very popular.
• Affordable condos scare. “No condo units priced below $700 per square foot or with average square footage of less than 2,000 are being marketed north of the Chicago River,” Lissner said.
• Pipeline growing. “Numerous condo projects are being planned by developers in various stages of the pre-development process,” Lissner said. “While most are smaller developments and boutique in nature, some are more ambitious.”
For example, Wanda Development is planning 400 luxury condo units above a five-star hotel in the Lakeshore East community south of the Chicago River.
Related is planning a mixed-use condo rental building in the Streeterville neighborhood. The company also has acquired the failed Spire site on the eastern edge of River North. Earlier plans called for a 1,200-unit luxury condo high-rise.
“Related is in the process of developing a plan for this high-profile site, which likely will include a condominium component,” DeVries said.
• Condo resale prices rise. With little or no new condo inventory being added to the downtown market, and developer-owned inventory being sold, prices of resale units are beginning to rise.
“At the end of 2014, resale condo prices hit $399 per square foot—only 4 percent below the $414-per-square-foot peak price level of 2008,” Lissner said.
Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. For more information, visit www.escapingcondojail.com.