In today’s tumultuous housing market, the downtown home buyer is a coveted but delicate creature, much sought after but easily spooked.
As the selling season starts, developers continue to search for strategies to get skittish buyers off the sidelines.
Ways of attracting them include enhanced fees for brokers, upgraded interiors and other extras that amount to discounted unit prices.
With sales down sharply in 2007 but the supply of new units slated to rise dramatically, many developers are encountering house shoppers like Nirali Shah, a 29-year-old pathologist assistant.
While eyeing a Streeterville high-rise with lake views, this first-time buyer says she won’t commit to purchasing a condominium unless the developer gets into a bargaining mood.
“I’m waiting for the seller to bring down the price at least 10 percent, to include a $65,000 parking space or a year of free assessments,” said Shah, who is prepared to spend about $650,000 for a newly built unit.
“It’s a buyer’s market,” she said with assurance.
Developers might wish it wasn’t so but most see the same reality as Shah.
Amid a slowing overall economy, real estate sales are slumping and values softening, yet the supply of new downtown housing seems destined to overtake demand.
Through the third quarter of 2007, the sale of new downtown condominium units fell 35 percent.
However, 6,274 new units will be completed this year, a 50 percent increase over 2006 completions and 100 percent more than 2005, said Gail Lissner, vice president of Appraisal Research Counselors, a downtown real estate research firm. She said those were two years of record sales.
“We haven’t had a new construction boom like this in my 35 years in the industry,” she added.
Of the units scheduled for completion this year, 1,326 are unsold. A unit is considered sold when the buyer puts down a deposit and signs an agreement.
Of course, this leaves the possibility that a “buyer” may not actually follow through to close the sale.
These days, prospective buyers are fretting.
They fear that they will make a purchase and in a few months someone else will pay less for a similar unit. If they buy pre-construction, they worry that a developer may not get the financing to finish the building.
Once a building is completed, a developer who can’t sell out in a timely way may falter under heavy carrying costs and lose the project to the lender.
That could leave unit owners with headaches like an under-funded condominium association.
“There remains a reluctance to make a decision primarily because buyers fear the market will crash, harming their number one investment,” said Ron Shipka, Jr., president of The Enterprise Companies, a Chicago-based developer with six downtown projects under way.
He tries to reassure consumers by showing them that since early 2007 re-sold units in Enterprise buildings have appreciated in value. His company also offers $5,000 to $7,000 in upgraded finishes for new projects.
For real estate agents, Enterprise pays the fee of a broker who brings in a buyer who signs a sales contract and pays an approximately 10 percent deposit. Customarily, the broker only would receive the fee after the buyer closes the sale.
To motivate prospects, other developers are offering a range of incentives from lower than planned unit sale prices to better appliances, free crown molding and pre-paid assessments or taxes.
“Almost every developer I talk to will offer some incentives, even if they say they won’t,” said James Kinney, president of Rubloff Residential, a high-end brokerage.
One recent study by Chicago Agent magazine found that 71 percent of developers interviewed said they intend to offer upgrades, 52 percent will offer agent incentives and 48 percent mortgage assistance.
Meanwhile, 65 percent said they would offer a combination of incentives.
The extent of the give-aways depends on the developers’ eagerness to sell. Usually, those feeling the greatest urgency to sell want to secure financing to start construction or escape the cost of carrying unsold units in completed projects.
“However you spin the incentives, be it free parking, $25,000 off the purchase price or pick your finishes, it’s $10,000 to $30,000 or more off the purchase price,” said Charles Huzenis, president of Jameson Realty Group, a Chicago-based residential brokerage and developer.
Buyer psychology as well as market conditions are compelling developers to bend.
“In this market, buyers feel they have to make the deal of a lifetime,” noted Huzenis,who is developing a luxury high rise on the Gold Coast without a formal incentive program.”But like any deal in today’s market, there is some negotiation,” said Huzenis.
American Invsco, a developer known for its sales promotions in strong and weak markets, is offering what amounts to $61,000 in incentives on a $350,000 condominium at 200 N. Dearborn St., a building being converted from rental apartments.
It will sell a $50,000 parking space for $5,000, refurbish interiors with new countertops, tiling and fresh paint or pay 12 months of assessments and taxes, said Stefanie Neuman, the sales manager.
These give-aways aren’t gifts; they are the cost of doing business in an anomalous housing market.
“There’s hesitancy out there,” she said. “Buyers are waiting for prices to go lower.”
Free pre-wired surround sound, cherry cabinets, crown molding and a $35,000 parking space are lures that Bluestone Development LLC hopes will bring buyers to Lakeside Lofts, a 96-unit South Loop building it completed late last year.
Meanwhile, at the completed 740 Fulton Street in the West Loop, in a two bedroom, two bath unit priced at $378,000, the Thrush Cos. will include bathroom upgrades like European fixtures and marble clad floors, walls and ceilings that might otherwise have cost the buyer an extra $5,000, said Thrush principal Bill Wolk.
“Every buyer is different and the incentives change from time to time,” he explained.
At the Streeterville high-rise that attracted the interest of Shah, Park View at River East, other buyers are signing contracts with incentives that amount to $5,000 to $15,000 per unit, said a spokesman for the developer the MCL Cos.
For instance Swapan Goddam, a 34-year-old doctor relocating here from Atlanta, has agreed to buy a two-bedroom unit on the 20th floor with a Lake Michigan view.
“They’re offering some incentives like $5,000 off the parking or $10,000 off a $550,000 unit,” he said. “But buildings in Streeterville and Lake Shore East aren’t offering as much as neighborhoods like the West Loop that aren’t selling as well.”
Goddam is willing to pay a premium to be near the hospital where he works, restaurants and entertainment. Furthermore, “with new construction, assessments are lower and resale values higher,” he said.
But Shah’s concerns about the housing market are holding her back.
“What if something happens and I’m not able to re-sell?” she asked. “I’m hoping in the next few months, something will change.”
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The downtown condo market
* During 2008, 6,274 new units will be completed in the downtown area. That is up 50 percent from 2006 deliveries and 100 percent more than 2005, which were two record years.
* Of the units scheduled for completion this year, 1,326 are unsold.
Source: Appraisal Research Counselors
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sdiesenhouse@tribune.com
