charlie-cohen - Tumblr blog

charlie-cohen · 3 years

Text

The Illinois Condominium Property Act was passed in 1963 and with it came a whole new way to look at urban housing. Residents who rented for years or sometimes decades could now own their apartments for the same or sometimes less than what they paid in rent every month. Cities liked condos too. Multiple pieces of property within one building resulted in a higher tax yield than a single 1 PIN building. This first condo wave saw new build projects like the corridor of high rises on North Sheridan rd as well as recently completed large scale rental projects like Marina City and Sandburg Village go condo.

As this first wave of “condomania” grew, the next step after posh mid century high rises was the conversion of the privately owned, turn of the century low rise apartment buildings. Long time landlords were happy to ditch the growing overhead like taxes and energy costs eating into their rental profits and the prospect of selling each unit rather than the whole building for a higher net return was sounding pretty great. This trend started to kick off in the early to mid 70s in neighborhoods like Lakeview, Lincoln Park, Edgewater, Hyde Park, Kenwood and Uptown. Back then, it was common practice for these smaller landlords just to sell the unit without rehabbing it to the tenant and if the tenant wasn’t interested(even under pressure, which was commonplace) they’d exercise the very lax pre-1978 tenant kick out rules to find a buyer.

The reason so many of the condos in these areas so closely resemble how they did when they were built over 100 years ago is economic over aesthetic. These small landlords wanted to have to do as little possible work to maximize their profits when the building went condo and after the articles of incorporation are issued and the control is shifted from the landlord to the HOA, changing a unit layout and moving common plumbing and electric around to accommodate a single unit is extremely difficult to orchestrate considering this level of construction in one unit depends on the cooperation of the entire HOA who all have a shared interest in the building’s utilities.

In the late 1970s turbulent inflation caused the Fed to raise interest rates pushing the average mortgage rate to the high teens and causing a recession, pumping the brakes on condomania and the housing market in general. The 1980s, largely fueled by a new wave of suburban sprawl by the first generation of baby boomers starting families, Chicago saw its biggest net population loss(10.7%) since its incorporation.

Early abuses by landlords and builders in condo conversions had seen several amendments to the 1963 ICPA act since its incorporation. These extra compliance hoops meant that what was once could be a process of landlord selling direct to tenant/buyer with some assistance became landlord taking the easy buy from developer who dealt with the tenant move outs and then did the conversion, construction and flip themselves.

By the time the 1990s rolled around condo conversions were back and by mid-2000s they were bigger than ever. The 90s saw the start of the loft conversion boom beginning with the conversion of huge manufacturing buildings lined Chicago’s river and surrounded its central businesses district. As the American economy at large began to move away from heavy manufacturing especially in core urban neighborhoods, these vacant buildings presented an interesting conversion proposition. The problem was the scope of turning an industrial warehouse into a a residential condominium meant zoning changes and huge construction budgets. This laid outside of the capability of the average old school industrial landlord. This was a challenge for developers with the money and political capital to realize these projects.

At this point, the lore of the downtown New York artist type and their massive raw loft spaces had now grown to epic proportions and eventually began to become the vanguard model of this new yuppie urban living takeover. These long suffering 100 year old industrial buildings in River North, South and West Loop, West Lincoln Park and Bucktown were converted by developers to huge(and eventually tiny and more palatable to non-artist buyers) “soft” lofts ushering into the mainstream open concept with all the living and kitchen space in the open and on display, a look that remains prevalent in condos today.

The early 2000s saw a tremendous rise of Sub-Prime loans. What was originally financed by FHA conforming condo loans in the 60s and 70s gave way to the Sub-Prime market, which with their ridiculously lax borrower qualifications and deliberately confusing interest structures significantly broadened the base of perspective home buyers and those looking for cheap money for investments. Demand for more and more of these mortgages to securitize from investment banks pushed rate structures and qualification standards from originators even lower.

2005 saw the biggest year for condo conversions since the late 1970s with 3,975 units going condo. But what housing stock ripe for buyers was left to convert after the 2 previous conversion waves? Along with the conversion of the “B” stock of 70s and 80s downtown high-rises, rumbles of gentrification saw developers begin to look west. Similar to the mid 1970s, turn of the century apartment buildings in Logan Square, Humboldt Park, Near West Side, Albany Park were in developer’s crosshairs. What was different this time for conversions? Interest rates were sitting at an all time low. Builders were now thinking less about simply parceling off the existing units and selling them like we saw in the 1970s, they were thinking: money is cheap, land in these neighborhoods is cheap why not gut the building, give buyers that of the moment “loft feel” and fatten the margins even more? After all, you know the buyer will get a loan which will in a matter of days be sold to an investment bank which will then be securitized and sold back to investors. We remember how it all came crashing down from there.

One of the visible reminders locally of the sub prime mortgage crisis locally is the sea of these hastily converted, remarkably similar condos, many of which were still underwater from their initial sale price until just last year. You know which I mean. The brown cabinets, the Brazilian cherry floors, weirdly placed exposed brick, huge bedroom in the back where the dining room was and the kitchen plopped in the center of the living room. Many in real estate communities call them “The Recession Special” and if you had one of these listings in the 2010s you knew how difficult they could be to sell especially considering a renewed interest in competing vintage units and their respective layouts.

Demand for certain types of converted condos was so low in the last decade that many HOAs found selling their buildings in their entirety to private equity who would then DE-convert them back to apartments was a better chance to get out from under their pre recession buy price.

The tide has finally turned for many of these units with condo demand the strongest it’s been since 2006. The recession specials are moving within days with often times with multiple over-asking offers. If demand continues as new construction remains cost prohibitive, Chicago will need new condo stock for the first time in decades. What will it look like this time?

0 notes