Rumors flew for weeks among the residents of 70 W. Huron St., a high-rise in Chicago’s River North neighborhood, before a letter was sent confirming the news: The building was going condo.
Recalling how some people reacted, Shannon Taylor, who lived in a one-bedroom unit, said: “It was bad. People were so angry. They were scratching things.”
Taylor, and her husband, David, had leased in the building for just six months. Instead of packing their bags, however, they decided to buy their unit.
“We weren’t even looking to buy. It just fell into our laps,” she said.
Taylor, who has owned her condo for five years, confirmed the line that developers also tend to repeat: Condo conversions offer opportunities for renters to buy their units at prices that are lower than those offered to someone new to the building.
A discounted price on a home sounds attractive, but look before you leap into what may be the biggest purchase of a lifetime: It requires tenants to do their homework.
– Review the developer’s plans for adapting the building;
– Look at the marketplace to learn what other units are selling for; and
– Realize there may be drawbacks to buying in a building that is going condo (living through the construction phase, for example).
However, renters who become buyers of their apartments also may be able to take advantage of benefits that outsiders cannot. They may be able to work with developers in the pre-construction phase to customize their units, design floor plans or select from a menu of upgraded finishes, cabinets, counters and other elements.
Harold Manie said he saved $20,000 on the two-bedroom, two-bathroom unit he and his wife, Vidalia, bought in December at Stratford at South Commons, a 24-story building at 2605 S. Indiana Ave. on Chicago’s Near South Side.
The Manies, who had been tenants in the building for five years, believe their choice to become homeowners was a good one. They received a letter about a year and a half ago from Chicago-based Habitat Co. informing them that the building was going condo.
“We talked about what the advantages [of buying] would be,” said Harold Manie. “It’s an investment; they did a lot of upgrades; it’s an up-and-coming area and we saved $20,000.”
Marsha Bynum, sales manager for Stratford at South Commons, said the prices for tenants who bought their units were lower than those offered to outside buyers.
When a building converts to condos, some renters usually will be displaced. Contrary to popular conception, however, developers are not in a hurry to see renters move, developers agreed.
“It’s a misnomer to say that we want to see the place to empty out. We want them to stay, either as renters for a certain amount of time or as buyers,” said Nicholas V. Gouletas, president of sales and field operations for Chicago-based American Invsco.
To protect the rights of renters, there are laws that developers must follow when a building goes condo, said Michael Friman, a partner with Horwood, Marcus & Berk, a Chicago law firm. He also is co-chairman of the Chicago Bar Association’s condominium subcommittee.
The state has laws governing condominium conversions, as do some municipalities, including Chicago, Evanston and Oak Park.
Developers are required to give notice to tenants that the building is going condo. However, if a tenant’s lease expires within 120 days of being notified of a condo conversion, a tenant can extend the lease by notifying the developer, within 30 days of receiving the notice that the building is going condo, of his or her desire to stay.
At the time of giving notice to convert to condos, the state also requires developers to inform tenants whether they intend to terminate or extend their leases.
“It [receiving a condo conversion notice] won’t cut short a lease and may extend it,” said Friman.
In addition, renters are given first dibs on buying their units. After receiving a letter notifying them of conversion plans, tenants have 30 days under state law during which they have the exclusive right to buy their unit.
Once the 30 days expire, renters are allowed another 90 days during which they have the right to match a bona fide offer for their unit. In Chicago, people who are 65 and over have 180 days to match the offer.
Developers of buildings that have more than six units are required by Chicago’s condominium ordinance to supply a property report.
“It’s definitely a consumer-protectionist document,” said Friman, noting that these reports can be lengthy and include such information as floor plans, surveys, purchase agreements, price lists, estimated taxes, operating budgets and closing costs.
Buyers can use this document to determine whether they like the developer’s plans for the building and whether the plans seem realistic or appropriate. If he were representing a buyer, Friman said he would want to be sure, for instance, that the developer has set aside a cash reserve in the budget.
“Is there money to handle future expenses?” he asked. “What if the roof needs to be replaced? You don’t want to be tagged with the bill to do that.”
Friman noted that under state law a building is turned over to the homeowner’s association no later than 60 days after 75 percent of the units are sold or three years after a declaration that the building is turning condo is recorded with the county where the building is located.
Tenants who buy their own units may realize a savings, but the discount is not due to law, but to marketing pressures.
“A developer will usually give preferential prices to tenants because he won’t have to market [the unit],” Friman said. “It’s not a rule. But it’s a typical scenario.”
Jeff Prosapio, project manager at River Place in Naperville, said about half of the renters at the 240-unit complex opted to buy their units as the two buildings have converted to condominiums over the last few years.
“They’ve gotten a pretty substantial discount on the price,” he said.
The average price of the units, which include one-, two- and two-bedrooms with dens, was $180,000. If renters chose to buy their units, they received a credit of 10 percent, or an average of $18,000.
In addition, about half of the buyers opted not to update their units, that is, to take them “as is.” They received an additional credit of between $11,000 and $13,000, Prosapio said.
One of the drawbacks of buying a unit in a building that is undergoing a conversion, however, may be living through the inconvenience of the construction phase. Although the daytime sound of buzz saws or hammers may be inescapable for a time, Prosapio said his company had a plan in place to ease the pain, at least for people who were displaced while their units were being renovated.
“We emptied a couple of units of furnishings so people could stay there,” he said.
Harold Manie, who works at night as a postal employee, said living through the construction phase at Stratford at South Commons was difficult, even though Habitat arranged for contractors to work hours that would allow him to sleep.
He said his night work schedule means he goes to bed at 3 a.m. and gets up around 9 or 9:30 a.m. For about nine months of renovation work, contractors worked in the building from 8 a.m. to 2 p.m.
“I have to admit it was touch and go for a while,” he said. “But they did everything they could to accommodate me.”
Geoffrey Ruttenberg, president of The Brixton Group in Chicago, said his company also tries to accommodate the needs of residents who want to buy their units.
His seven-year-old company does condo conversions and also owns apartment buildings. When a gut rehab is being done and a unit must be vacated, Brixton will offer to temporarily relocate a buyer to a rental unit in another apartment building they own.
“We do everything we can to accommodate them,” said Ruttenberg, adding that the company can offer short-term leases that expire when the buyer’s condo is ready for move-in.
Over the last four years, Brixton has done 14 condo conversions in the Chicago area. While older buildings may have vintage appeal, they also frequently have old-fashioned floor plans or lack the modern amenities that buyers want today, prompting The Brixton Group to do extensive rehabs.
“If it’s a Victorian building, they have small rooms. That’s not what people want nowadays,” Ruttenberg said.
It may be inconvenient for a buyer to have to relocate temporarily, but tenants who buy their units can save about 5 percent to 7 percent of the public market price and have more input on how the space is renovated, Ruttenberg said.
American Invsco gives a 10 percent discount off of the market price to buyers who buy their units and put down earnest money within 45 days of receiving a letter informing them of the intent to convert their building.
If they make a decision within 30 days, they receive the 10 percent discount plus one month’s rent that goes toward paying closing costs, Gouletas said.
People who decide to stay put, but want a larger unit, can opt to buy an adjacent unit from American Invsco at a 7 percent discount.
Knowing early that some units will be bought by tenants gives developers a sense of security and may help them sell units to outsiders who are encouraged to buy because others have already confirmed the building’s appeal.
Shannon Taylor said one of the advantages of buying her first home was that it was in a building that she already knew and liked. She had the opportunity to take it for a test drive.
“There were no surprises,” she said. “We already knew the place. We knew the layout of the building and what the water pressure was.”
Bynum, of Stratford at South Commons, agreed that being familiar with the building is another benefit that renters who become buyers enjoy.
“They’ve already sold themselves on the building. All the things they appreciated are still there — but better,” she said.
To protect themselves, however, tenants who buy their own units should be sure to investigate the marketplace, learn what similar units are selling for, hire an attorney and have an home inspection done, Friman said.
“You should look at the market conditions and get comparables [of prices of similar units that have sold recently],” he said.
An attorney will be able to help a tenant negotiate a deal and will review the paperwork, such as the property report, he said. A home inspection will help uncover any problems that might arise from the building’s condition.
“As familiar as a tenant is with the building, they probably haven’t been up on the roof or seen the boiler room in the basement,” Friman said. “Wouldn’t you want to know what potential expenses are out there?”
As great as buying a condo at a discount sounds, it may not be for everyone –particularly if the purchase is not anticipated or planned, said Judith Roettig, executive vice president of the Chicagoland Apartment Association, a landlord organization.
Anyone presented with a chance to buy their apartment needs to consider their own personal situations –such as evaluating their job security and how long they want to stay in the neighborhood, she said.
“The biggest thing to consider is that now [with a condo] I may have an asset that doesn’t give me as much flexibility,” she said.
As unexpected as it was, Taylor said buying their unit at70 W. Huron has turned out to be a good decision for her and her husband, David.
Manie, who bought the condo at Stratford at South Commons is looking forward to another opportunity presented by ownership. He plans to run for a spot on the condo board.
“Then I can have a voice on what goes on here,” he said.
Rights of the renter in a condo conversion
Under state law:
When buying a condominium in a conversion:
1. Developers must give notice to tenants that the building is going condo.
2. If a tenant’s lease expires within 120 days of being notified of a conversion, a tenant can extend the lease by notifying the developer, within 30 days of receiving the notice that the building is going condo, of his or her desire to stay.
3. The developer must inform tenants, at the time they receive conversion notice, whether leases will be terminated or extended.
4. A tenant has the exclusive right to buy his or her unit for 30 days after receiving a conversion notice.
5. Once the 30 days expires, renters have another 90 days to match a bona fide offer for their unit. In Chicago, those 65 and over have 180 days to match the offer.
