Congratulations! You’ve made the decision to buy a new condominium and you’ve been approved for a mortgage.
Everything is running smoothly. You assume you’re on a fast-track to homeownership.
Then it happens. The builder of your new loft condo announces that there will be “an unavoidable delay.” You won’t be able to move in on the day originally promised.
The fallout from such delays can hit buyers hard. Some may have to scramble for interim lodging, others may need storage for their furniture, still others may have to reapply for a mortgage. At the very least, the inconvenience generates major stress.
Delays can happen in any construction project, but the impact is greater in large developments, like those going up downtown, because more buyers are involved.
Builders fall behind for many reasons: They may lose construction financing, run into shortages of building materials or labor, underestimate the time to finish a project, encounter unforeseen construction problems, or have to wait longer than anticipated for city building permits or inspections.
The pace of early sales also can affect the ultimate completion date. After a developer buys a building or a piece of land, the project is announced and sales begin. But construction does not begin until presales reach about 30 percent. At that point the lender will make the construction loan.
While single-family homes may take an average of three to four months to build, loft conversions of old warehouse and industrial buildings and new high-rise condos require 18 to 24 months for completion. The longer timeframe increases the possibility that a delay could crop up in these structures that are literally jigsaw puzzles of thousands of pieces that must fit together.
“If there is bad news about a delay, communicate it fast and often. Never lie about a delivery date,” advises Susan Tjarksen, project manager at Kinzie Station, the CMC Heartland Partners residential development being built on former railroad land just northwest of the Loop.
Some developers, including Tjarksen, will work with buyers to alleviate some of the problems caused by a late delivery.
“Delays can be expected in loft conversions. Because of the extensive rehab, builders can’t always predict how long a project will take,” said David Sugar, a Chicago attorney who specializes in condominium law at Schwartz & Freeman.
He says that those who buy early in a project will have to remain flexible.
“Most loft buyers don’t understand what they’re getting into. Lofts can be riskier, but they also have appreciated in value,” Sugar said.
He noted that developers put “a lot of wiggle room in their contracts. They aren’t bad guys, but they know how difficult it can be to rehab old buildings. The contract usually says the closing is when the builder says the unit is ready. And there are no penalties for late delivery.”
But Sugar emphasized that developers want to close as soon as possible in order to get their money.
Some buyers, however, are not overly concerned about delays. This group includes investors, who are buying for future appreciation; suburbanites who plan to keep their single-family homes but want in-town residences; and first-time buyers who could use more time to save for their new home.
One downtown project that hit a snag was Michigan Avenue Lofts, the 262-unit conversion of a 20-story office building at 910 S. Michigan Ave.
Ganesan Vish, president of Vilas Development Corp., the developer, has had to struggle to keep the project afloat.
“After we opened for sales in 1996, the lender pulled out; the construction loan never materialized,” said Vish.
“But we stuck it out and finally got a loan in late 1997. In the meantime, we lost about 50 percent of our original contracts.”
Now the project is rolling again, with 80 percent of the residences sold.
Vish pointed out that the delay has had an upside for early buyers: “The one-bedroom units were going for $125,000 when sales began. Now they’re at $160,000 to $170.000,”
He explained that the very strength of the old office building, which dates from 1911, compounded the delays.
“Not every downtown office building can be easily converted to residential use. This one has thick, reinforced concrete floors that we had to core for the residences. But I’m an engineer and I loved the challenges.”
Some of the buyers at Michigan Avenue Lofts have had challenges of their own. Two art collectors sold a house in Santa Fe, N.M., in July, 1997, and were supposed to move into their new condo the following September.
Because of delays, they weren’t able to take occupancy of their 4,000-square-foot residence, a combination of three units, until the end of last month. In the interim, they lived in a small Astor Street apartment.
Their delay of more than a year nearly caused psychological and financial hardships, according to one of the collectors. Storage for their art works was a main concern, though they did receive a monetary consideration from the developer for part of the $1,200-a-month storage cost.
On the positive side, the price they secured in 1997 was considerably less than what the units cost today.
Another residential project that has been slowed is Randolph Place, the largest loft conversion development in Chicago, with 360 units in a million square feet of space that previously was used for offices.
“Delays are not surprising to me in a building this size,” said one buyer at Randolph Place.
She put $1,000 down on a two-bedroom unit in October 1997, with occupancy targeted for August 1998.
As it turned out, she had to wait another six months to move into the rehabbed vintage building overlooking the Chicago River between Lake and Randolph Streets.
Luckily, she was able to extend the lease at her apartment. But, as the delay dragged on, she had to reapply for her mortgage.
“That took a lot of paperwork, but I was able to get a lower rate, below 7 percent,” she said.
Representatives of Jameson Realty Group, which is handling sales at Randolph Place, told her that there were several reasons for the delays, including the fact that her unit is located where an old elevator shaft used to be, so a new floor and ceiling had to be constructed.
Michael Lerner, president of MCZ Development Corp., developer of Randolph Place, said one reason the project was delayed was because “the city required the installation of sprinklers and fire alarms in the whole building before anyone could move in. We had thought we could get temporary occupancy of part of the building. But city officials can’t be criticized for supporting life safety issues,” he said.
Lerner added that a shortage of drywall, a building material, last fall also slowed construction: “On average we’re two months behind in deliveries, but everyone should be in by the end of the year.”
Ronald Shipka, president and chief executive officer of Chicago-based Enterprise Development Co., who has extensive experience with large city residential projects, added that delays sometimes result because of the complexity of scheduling the 25 subcontractors who work on a job.
While delays can be frustrating and potentially costly for buyers, there can be a silver lining. Those who purchase early, especially before construction starts, receive the lowest prices.
Lerner said that the first wave of buyers got units 10 percent cheaper than later buyers.
In addition, the units of early purchasers may actually appreciate in value while they wait to move in.
While developers may encounter surprises in old loft buildings, there also can be roadblocks in the construction of new high-rise condos.
This was the case in the first phase at Kinzie Station, a 163-unit high-rise condo.
Tjarksen, project manager at Kinzie Station, said the four-acre project has been delayed because it has taken longer than expected to obtain city building permits.
Sales began in the fall of 1997. Even though the project is about two months behind schedule, no buyers have bailed out, according to Tjarksen.
“In a rising economy, if buyers think their unit has appreciated, they will stay with it and wait.”
First move-ins are projected for February 2000.
“Builders have to be realistic and staightforward in setting completion dates for their projects,” said John Aiello Jr., vice president of marketing for Sundance Homes.
“At Erie Centre Tower (a development of Sundance’s Chicago Urban Properties division) we’ve been on time for the most part, though some units have been finished early and some late.”
Aiello added that “because it is difficult to predict the exact completion date for each residence, we give buyers a time period.”
In January, the first residents began moving into the 24-story condo at 425 W. Erie St. in city’s River North neighborhood in January.
Herbert Kessel, a Chicago attorney with Beermann Swerdlove Woloshin Barezky Becker Genin & London, moderated a Chicago Bar Association seminar last year on loft conversion and development in the city. He commented: “The Building Department is swamped, especially with requests for permits in the central core. I hear that the department is still having problems keeping up. It’s understandable, with the boom in the last few years.”
However, the city maintains it has turned the corner.
Chicago Building Commissioner Mary Richardson-Lowry said changes implemented last June have streamlined the construction permit process.
“Now the permit process is not an impediment to building,” she said.
The changes were in response to the building boom that has swept the city, with permits for all types of construction rising from 10,000 in 1995 to more than 25,000 in 1998.
Changes include the addition of 29 employees in the department and formation of a new team that involves all trades in one inspection, rather than separate visits by each trade.
She added that any builder with a time-sensitive project can request a preliminary review to expedite the process.
The Sexton, another large city residential project, has been slowed, not by a lack of city permits, but because a major business tenant in the 309,000-square-foot building moved out later than expected.
“We thought that Tripp Light, which occupied about two-thirds of the building, would move out in the fall of 1997. Actually, the firm didn’t leave until April, 1998.” said Roger Mankedick, executive vice president of sales and marketing for Palatine-based Concord Homes, developer of the Sexton, located at 360 W. Illinois St. in Chicago’s River North neighborhood.
“We were delayed getting into the building (a six-story brick and terra cotta structure dating from 1916), but we were able to do tuckpointing of the brick on the exterior, and get access to the fifth floor to build models and later to the sixth floor.”
Mankedick said most buyers knew about the delay in advance, so it has not been a problem.
The first move-ins at the Sexton are scheduled for May.
