What many condominium shoppers want today is something that feels more like a home than a cookie-cutter apartment. And they want it in a good location.
What real estate developers who serve this finicky market want is a building with the amenities that impart that homey feeling-enticing features such as a formal foyer, high ceilings, elegant woodwork, full dining room, big living room with a fireplace and a master bedroom suite with baths-whether it be a vintage property or a more modern high-rise.
Both the buyers and the builders are getting their wishes, as a new wave of condominium conversions washes over the Chicago area.
While not up to the level of the “condomania” of the late 1970s and early ’80s, the growing number of apartments being turned into for-sale units is bringing a renewed attention to the process of condo conversions.
“Over the next two to four years we’ll see more buildings converting,” said Charles L. Cornelius, marketing director for Coldwell Banker’s development marketing services division, which evaluates condo conversions. “Low interest rates brought borderline buyers into the marketplace. The lakefront has seen an increased demand with travel time from the suburbs as a big issue.
“In our marketplace today, some buildings will have more appeal than others,” Cornelius said. “You can’t just convert any building.”
According to Howard Robinson, president of Atlantis Properties, a real estate development firm, the conversion business is attracting a lot of players, but without proper experience the conversion game can be fraught with peril.
“The experienced developer looks for location, number and mix of units, amount of deferred maintenance, the integrity of the building, percentage of commercial space and the ease of maintaining the building,” Robinson said.
Cornelius said that when evaluating whether to convert or not, “we look at the existing units as rentals and see if the size and the quality of those units have condo configurations. We make recommendations to owners whether to improve kitchens, baths, work on the exterior areas, garages and elevators. Then we see if it’s (economically) feasible to convert a building.”
In recent months, three prestigious apartment buildings have changed from rental units to condo homes-1250 N. Dearborn St., 3400 N. Lake Shore Dr. and 1519 Hinman Ave. in Evanston. They provide a case study for what drives developers to convert a building.
In each case, the building is rather elegant and devoid of flashy modern architectural elements. The 1250 building is hard by the Gold Coast, the 3400 building overlooks Belmont Harbor and the third building is close to downtown Evanston, Northwestern University and Lake Michigan.
Targeting older, handsome rental buildings or even well-designed newer apartment buildings for a successful conversion requires a heavy investment by developers, who must scrutinize an apartment building to see that it doesn’t cost a fortune to replace vital elements such as roofs, heating plants, elevators, masonry or other mechanical systems.
But developers must also have a sizable investment in their own marketing skills, because successful conversions require a near certainty that units will sell quickly so the principals can recoup their money.
That is why a top location becomes such a key selling feature, something all three of the case-study buildings have in common.
The conversion of the 100-unit luxury rental building at 1250 N. Dearborn St. involves a 1989 building with vintage qualities.
“We’re trying to sell a smaller building with five units per floor. Owners feel less like a number and more like a person,” said Jonathan Berger, vice president of Berger Realty Group, which owns the building.
“In this day and age, there are real questions whether you can sell a 300- to 600-unit project.”
Berger cited several factors that led to the conversion of 1250. The project was built in 1989 to be a condominium, but the timing was off because interest rates were higher, he noted.
Instead, “we rented all the units in six months. When we came on line, the two-bedroom, two-bath market in the Near North area was 97 percent occupied and rented.”
But Berger said that when those first-year leases came up for renewal, there was more competition in the market generated by new rental buildings built in Streeterville and River North.
“With today’s lower mortgage interest rates, the time was right to convert 1250,” he said.
The two-bedroom condominiums, which vary in space from 1,100 square feet to 6,250 square feet (for a custom-built unit), were priced from $159,750 to $272,000 (more for a customized unit.)
Before converting a building, Berger identifies the market and what drives pricing.
“You also have to identify the universe of your renters. And you also have to go through the lengthy process to create the condo (legal) documents, then develop a marketing scheme and hope renters buy units,” he said.
Berger said 55 percent of his project is sold and he expects the entire building will be close to a sellout by the end of March.
In weighing whether to convert a building, two fundamentals stick out: the location and the quality of the building, said Jeff Himmel, vice president of Himmel Corp.
Himmel, in an $8 million joint venture with Jackson Associates, restored 3400 N. Lake Shore Dr. The 10-story, 1922 vintage building began life with 24 apartments, but was subdivided into 75 studio and one-bedroom rental units after World War II. The conversion meant consolidating it into approximately 50 homes.
“What we attempted to do,” Himmel said, “was to provide things that people are looking for-central air conditioning, modern kitchens and bathrooms.” Other desirable elements already were there-big rooms with high ceilings, he said.
“False ceilings were removed, original marble fireplaces were repaired and restored, vintage ornamental plaster and moldings were preserved or restored, and original oak floors were refinished,” Himmel said.
The work, he added, was accomplished over three years because the building was never empty.
With six basic floor plans, the units range in size from 1,640 to as large as 6,000 square feet when two units are combined.
Prices for a two-bedroom unit start at $144,500, three-bedroom plans from $318,500 and four-bedroom residences from $398,500. Add to those prices $12,500 for an outdoor parking space and $22,500 for an indoor space.
In deciding to convert a building, Himmel stressed the targeting of potential customers, noting that it would be difficult to sell a building with studios and five-bedroom apartments.
“When you deal with two- (to) four-bedroom units, you have a target market. It makes getting buyers more cost effective.”
Himmel described the conversion market as “good now because of the economic environment-favorable interest rates and a new income tax structure. People find it more favorable to own than to rent. (In) that situation, it’s time to consider a conversion.”
Himmel also emphasized the importance of engineering reports “so we can advise potential buyers of the work that’s going on now and the work that will need to be done in the future.”
“We’ve had a tremendous response, beyond my expectations, especially with the lower-priced units,” Himmel said. “What’s left are three- and four-bedroom units. About half the building’s units are still available.”
In the case of the newly converted Waterford East Condominiums in Evanston, the rental building had been family-owned, explained Walter Kihm, president of Cyrus Realtors, which bought the building for conversion.
Originally the seven-story building had two three-bedrooms units per floor, but after World War II some of the larger units were divided into one- and two-bedroom apartments. In 1967 the owner added a penthouse. Rents ranged from $1,000 for a one-bedroom to $2,800 for a three-bedroom.
As part of the conversion, “we restored as much of the building as we could, redecorating halls and the entrance way,” Kihm said. “We also did needed electrical work, roofing, tuckpointing, storms and screens.”
“We appreciated the building as much as the owner did. (The building was sold by Fran Cauley, who grew up in the building and was an architect.) We liked the architecture and the quality of the workmanship that went into the building. It was from a different era of construction, with high ceilings, moldings, fireplaces and lots of space,” Kihm said.
“We’re selling the units `as is.’ People like the vintage look,” Kihm said. “There’s no great demand for new kitchens and baths.”
Kihm said the market was right to convert an upscale building.
“Empty nesters are selling their homes and moving into large three-bedroom condos. The one- and two-bedroom units are attractive to singles and young couples, who like the proximity to downtown, transportation and the lake,” he said
One-bedroom units at Waterford East start at $105,000; two-bedroom, two bath units at $135,000 and three-bedroom, three-bath units at $230,000. Price tag on the penthouse-with two bedrooms, a den, three fireplaces, 3 1/2 baths and two terraces-is $450,000.
