Downtown Chicago condominium developers “are building for the well-heeled buyer” and generally ignoring young Millennials shopping for an affordably priced urban dream home, experts say.
New downtown condominiums, adaptive-reuse condos and townhomes priced below $500,000 are virtually an endangered species, notes the “Downtown Chicago Benchmark Report,” the latest analysis of the condo market by Appraisal Research Counselors Ltd.
That pretty much sums up the marketplace if you are shopping for a brand new condominium in Chicago’s Loop, West Loop, South Loop, Streeterville, River North, River West, Gold Coast and Near North Side neighborhoods, reports Appraisal Research, Chicago’s top condo appraisal firm.
Out of an inventory of 843 newly built condos, Appraisal Research found only six units priced below $500,000 as of the fourth quarter of 2016. That amounts to only 1-percent of the market.
Forty-five percent of the market—376 available condos—is priced at $2-million plus, while 32 percent of the inventory—271 units—is priced between $1 million and $1,499,000. Another 20 percent of the market—167 condos—is priced from $1.5 million to $1,999,000.
The lion’s share of the available 843 new condos are found in four neighborhoods—the Loop (281 units), Gold Coast (187 units), River North (167 units) and West Loop (117 units).
“The condo inventory being marketed for sale by developers is heavily weighted towards the ultra-luxury segment of the market,” said Gail Lissner, vice president of Appraisal Research.
“Currently, 96 percent of the units being marketed are in developments with an average price of over $1 million, up from 75 percent in the second quarter of 2016,” Lissner noted.
Eighty-one percent of the unsold new-construction condo inventory downtown is in buildings priced at an average of $700-plus per square foot. This ultra-luxury segment of the market is targeted exclusively to affluent buyers, Lissner said.
Some 14 percent—or 114 of the 843 available units—are priced in the $400 to $699 per-square-foot bracket. Only 5 percent—or 41 units—are priced affordably from $200 to $399 per square foot.
“Developers are building for the well-heeled buyer,” Lissner said. “There is great potential for demand at lower price points, but this is a challenging segment of the market.”
The epitome of the “well-heeled buyer” can be found at the 94-story, ultra-high-end Wanda Vista Tower hotel and condominium complex now under construction at 363 E. Wacker Drive.
About one-third of the 406 condo units are under contract, including six of the tower’s 21 penthouses priced in the $8 million to $10 million range, reports Magellan Development Group, co-developer with China’s Dalian Wanda Group. The tower also will have 191 hotel rooms.
However, Lissner said if downtown developers deliver an expanded range of lower-priced condos they also would have great sales success. “They need to figure out how to do this and still generate a reasonable profit,” she said.
The strong demand of affordable new condos downtown is best illustrated by the great success CMK Development had building the 144-unit 1345 South Wabash project, noted Ron DeVries, vice president of Appraisal Research.
“The developer grand opened sales at 1345 South Wabash late in the first quarter of 2014 with prices averaging $321 per square foot,” DeVries said. “With little fanfare, the project sold out in the second quarter of 2016.”
DeVries noted that pricing at 1345 South Wabash was modest, and condo sizes averaged only 891 square feet—significantly smaller than units in other new developments.
Appraisal Research also noted that The Guild, a 176-unit, 14-story high-rise at 1555 S. Wabash, was another affordable downtown condo that posted sales success after rebranding following the Great Recession.
Originally built in 2009, developers of 1555 S. Wabash sold 35 units then got caught in the economic downturn. Units were rented, then extensively renovated five years later making the project comparable with new construction, noted DeVries.
“Targeted to first-time buyers, The Guild features units with an average of 1,007 square feet, and prices in the mid-$300 per-square-foot bracket,” DeVries said. “Ownership is reporting that 97 percent of the 176 units are now sold or under contract.”
More downtown developers should learn “how to generate a profit by building small unis and selling them at prices which target the first-time buyer,” DeVries said.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.