Condo Deconversion Vultures Are Still Circling Chicago
The “deconversion vultures” are still circling Chicago, shopping for deals on condominiums that can be transformed into lucrative rental properties—at a time when multi-unit buildings are selling at an all-time high.
A 2019 survey by The Home Front column revealed that more than 2,500 condo units in more than 20 existing condo buildings have been “deconverted” and rehabbed into rental apartments over the prior three years.
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 for hefty profits.
Over the past few 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 the Gold Coast, Lincoln Park, Lakeview, and the South Loop.
One of the latest targets are owners at the 12-story Pope Building, a vintage, 89-unit loft building at 633 South Plymouth Court in the Printer’s Row section of the South Loop, where the sharks have been circling since 2019.
“I am stunned how little control owners have when a condo board decides they all personally want out,” said Sandi Smith (not her real name), a single woman and an owner at the Pope Building.
“What they didn't tell owners, was that while this building was up for sale, we could not sell (unless it's a cash deal) because banks do not loan to buildings that are up for sale,” the owner complained.
“It also means we cannot refinance, or remodel,” Smith said. “So, it’s now going on 14 months of not being able to sell, not being able to renovate, not being able to refinance—basically strung up and waiting.”
Talk about being locked in condo jail? Many of the owners at the Pope Building asked the condo board to take a straw vote before going through this process and they refused, Smith said.
“In August of 2021, the board finally got an offer they were willing to accept—for a lot less than they originally promised,” Smith said. “In December they announced we could all start voting, and gave us the attorney’s name to send in our vote.”
More than two months later, Smith said the members of the condo board still have not:
• Closed the vote on the proposed deconversion, and have not disclosed why.
• Disclosed where the vote stands, and have not disclosed a time table for the deconversion.
However, they do keep reminding us “we can change our vote as long as it's open,” Smith said.
“And the board simultaneously keeps threatening that they will be handing down a special assessment when this is all over, without any true bid in hand for the repairs that need done,” she said.
In the meantime, owners received the following terse letter from Scott D. Zwilling, principal of Spirit Investment Partners, the investor-deconverter:
“If by chance the deconversion doesn’t succeed and you are an owner who wishes to continue their ownership, we appreciate your collaboration with addressing the improvements this building needs,” the letter said.
“Although we cannot be certain, it is very likely that a special assessment will be required to keep the building in good repair. Given that we will have control over the Association, we will ensure operations are transparent and the remaining ownership are clear to what improvements are being completed and the required cost from each owner.”
Although Spirit Investment Partners may be offering an above-market price for the units, owners worry that sales commissions will be high and they are being forced out of a neighborhood that is rising in value.
“Several owners have lived at the Pope Building for 20 years or more,” Smith said. “There’s a real sense of community here. Many artists and creative people reside here.” Seventy-two percent of the owners are in favor of the deconversion, she said.
Deconversion condo 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 condos in a building if 85% of the unit owners vote to approve a sale.
Even if some owners vote “no,” minority the dissenting owners are forced to sell. An arbitrator would handle disputes over the appraised prices and terms.