CHICAGO, IL - It's not just a chance to see how the other half lives. It's a chance to live there yourself. A bumper crop of chic rentals, coupled with a lack of demand, a crippled economy and a typically sluggish time of year for real estate, is creating some of the best downtown deals in at least five years. An added wrinkle , much to the chagrin of landlords, is the growing market of individually owned and aggressively priced to rent condos in premium buildings such as the Trump Tower, the Helmut Jahn-designed 600 North Fairbanks and 600 North Lake Shore Drive.
None are priced like third-floor walk-ups. Rents start at around $1,300 for the smallest studios to $5,000 for sprawling, furnished three-bedroom units. But if you've got the cash, this may be the time to move in and move up in status. Chicagoan Bob Balanoff has been among those on the prowl for a new place. Six months ago he investigated downtown rental possibilities and decided to wait, figuring prices would fall. A month ago, he again began scouring Web sites listing rentals and found he wielded a lot more negotiating power.
Last week, Balanoff spotted an ad for a $3,500-a-month one-bedroom condo on Lake Shore Drive in Streeterville. Sight unseen, Balanoff offered $3,000 a month, and the two sides settled on $3,025. But before signing a lease, he also toured three other condos in the year-old luxury building, including one unit, on the market for more than five months, whose rent had been cut by more than $1,000 a month.
Balanoff went with his first choice, which a year ago rented for $3,200 a month. Soon he'll trade his $2,200-a-month apartment with linoleum floors and old cabinets for something with far more panache and style and located across the street from the beach. "I'll take a slight price bump, but it's a whole new world," he said. "I'll be able to live in an $800,000 or $900,000 condo."
Francesca Rose, an agent at Prudential Preferred Properties, likens the current apartment environment to today's ability to rent an Hermes handbag or a Jaguar convertible. Renters get a tony address, high-end appliances and a full slate of amenities, and no one knows whether they have a lease or a mortgage. "It's this whole idea of renting luxury," she said. "To be in the building with people you imagine [are] in the building. You're at the sun deck and the pool. Who knows who your neighbors might be?"
Part of the inequity in the market is simple supply and demand. Last year, almost 2,000 high-rise apartment units were added to the market. Meanwhile, in the 12-month period ended in October, 894 new apartments were rented, according to Appraisal Research Counselors. More projects will come online this year. They include Streeter Place and Aqua, two amenity-filled buildings that will add nearly 1,000 more apartment units to downtown. Neither development has set its rents.
The current inventory of downtown apartments is similar to 1999, before the market shifted to condos and conversions. "The unfortunate thing is it's happening at a time when the job market is at the worst, according to economists, since the 1930s," said Ron De Vries, a vice president at Appraisal Research Counselors. "Jobs lead to changes in population and household growth. Without the jobs, people are going to be moving out, moving in with relatives, doubling up, and your demand for housing falls."
As a result, the deals haven't been this good in five years. The good times for renters are likely to continue, since more high-end apartments are on the way. Last month, MR Development broke ground on Parc Huron, a 221-unit luxury apartment building in River North that originally was to be developed by Lennar Corp. as condos. Other buildings on tap, many in River North, are expected to add almost 2,500 rental units to the market next year.
The supply of condos available for rent is expected to increase too. Investors who bought condos at pre-construction prices a few years ago and planned to resell them are finding their plans quashed by higher down payment requirements and the credit market's meltdown. Personal circumstances are forcing other owners to abandon their plans for a second home in the city. And buyers who planned to use them as rental properties are finding themselves having to deal, given the competition. Just along the Gold Coast, there are 64 condo properties that have been on the rental market for at least 180 days.
In the nine ZIP codes that comprise the core of downtown Chicago, more than 950 condos, town houses and houses are listed as rentals, according to Midwest Real Estate Data LLC. That doesn't include countless others advertised on Web sites like Craigslist. "We don't know how many condo rentals are out there and how many deals are being cut under the table," said Tannie Schnell, managing director at Meridian Capital. "It's the curve ball in the numbers. I think it's a problem that's going to get worse." Appraisal Research Counselors estimates 4,000 condo units were rented between the third quarter of 2007 and 2008; that's more than double the number in 2005.
Savvy shoppers are working the situation to their advantage. "Last year and over the summer, I never negotiated a price on rentals," said Collin Walker, a luxury leasing specialist at Prospect Equities. "This winter it's been a non-stop negotiation on everything I do. There's definitely deals to be had."
Brian Sorice used his interest in two buildings, one an apartment high-rise in the South Loop and the other a condo unit in Streeterville, to his advantage, making each building aware of what the other one was offering. In November he moved into the Streeterville condo, after the owner agreed to knock $300 off the rent for 18 months and $100 off the monthly cost of a parking spot.
In the South Loop, real estate agent Maria Sabatini is trying to find a tenant for a crisp-looking one-bedroom unit with a clear view of the museum campus. Originally marketed at $2,000, it's been vacant for a month. Now the rent has been dropped to $1,800. At either price, the owner wouldn't be covering the expense of the mortgage, taxes and the assessment.
"It'll stop the bleeding and we'll take the loss and see what we can do in the future," said Sabatini, an agent at Rubloff Residential Properties. "We're trying to take renters who might take a 14-month lease or a 15-month lease or even a six-month lease. Because there is so much to choose from in the high-end market, investors are seeing they can't get top dollar for their units any longer.
Traditional apartment high-rises aren't cutting rents, that impedes their ability to raise rents when the lease is due for renewal, but are offering concessions like one, two, even four months of free rent and parking that is credited over the term of the lease. In return, building managers frequently ask for longer lease terms. They also tout their advantages over a condo rental, such as the on-site management available when a disposal breaks and the fact that an apartment unit will never end up in foreclosure like a condo could.
Next Friday, Daniel Deutscher will leave his apartment near Taylor Street for a high-rise apartment at Roosevelt Road and Michigan Avenue that will cost him about $1,200 per month for 18 months, after accounting for four months of free rent. The large one-bedroom with a bunch of luxury upgrades is more than he ever expected. "I didn't think I was going to be on the 26th floor of Michigan Avenue, overlooking Soldier Field," he said. "I'm very happy."
Source: ChicagoTribune.com