CHICAGO, IL - The developer of one of the South Loop's most ambitious residential projects is preparing to tear up contracts with condominium buyers and convert the property into an apartment building. Such a switch by the 342-unit Lofts at Roosevelt Collection would portend a larger shift as a downtown condo glut turns into an apartment glut.
With new condo sales stuck in a funk and many buyers who signed contracts a year or two ago unable — or unwilling — to close on their units, more developers are mulling the move as a way to survive the worst housing market that many have experienced.
"We're not actively considering it, but developers these days would be crazy not to be keenly aware of what all the alternatives are," says Marty Paris, president of Sedgwick Properties Development Corp., which has a half-sold condo project under construction in the South Loop. "It's not a good option, because you're going to lose money."
Chicago-based Centrum Properties Inc., the lead developer of the 12-acre Roosevelt Collection project at Roosevelt Road and Wells Street, was to start closings this month on the almost 190 units under contract. But no sales have occurred, according to property records, and one buyer who was to close in June or July says she and her husband haven't heard from Centrum in months.
"We haven't been told anything," says Marcy Grim, 41, who with her husband, Stephen, agreed in 2007 to pay just less than $400,000 for a unit they had been planning to rent and ultimately sell.
A source familiar with the matter says the decision to convert ultimately rests with a group of six lenders led by Bank of America Corp., and that while Centrum is in talks with apartment management firms, the deal isn't done and might not materialize.
Executives of Centrum and its main investment partner, New York-based Angelo Gordon & Co., didn't return calls and e-mails seeking comment.
Converting to rentals is tough medicine for developers. Typically, it requires restructuring construction loans and can wipe out an equity investment because buildings are worth less as apartments. Also, condo buildings have more two- and three-bedroom units, while the highest demand from renters is for one-bedrooms; and condos are costlier for developers to build, making them less profitable to rent than conventional apartments.
"When developers look at the alternatives between whether to start closing and risk contract fallout or cancel contracts and move ahead with a rental program, the numbers don't look pretty either way," says Gail Lissner, a vice-president at Appraisal Research Counselors, a Chicago-based consulting firm.
The Roosevelt Collection project also is struggling on the retail front. The more than 400,000 square feet of retail space planned there is now slated to open in summer or fall 2010 rather than later this year, although an executive of the Kerasotes cinema chain confirms that a 16-screen movie theater is to open around November or December.
Roosevelt Collection is one of eight new condo buildings to be delivered this year in the South Loop. If they all go ahead, that would add 1,880 units, more than in any other downtown neighborhood, according to Appraisal Research data. There also are three new apartment buildings coming to market, including Burnham Pointe, a former condo development that converted its 298 units last year.
As other projects approach their delivery dates, there's a good chance more will convert, adding to the roughly 400 new apartments in the South Loop already available for lease. "The good news is there'll be more people living and shopping in the South Loop," says Gregory Mutz, CEO of AMLI Residential Partners LLC in Chicago, which owns a new apartment building at 900 S. Clark St. that's about 60% leased. "The bad news is there is more rental supply in an already competitive marketplace."
Source: ChicagoBusiness.com