More Chicago Condos Sold Than Added In 3Q

New Story Developers added fewer condominiums to the downtown market than they sold in the third quarter, reversing a troubling two-year trend, if only temporarily. Amid feeble demand, downtown condo and townhome sales continued their slide in the quarter, plunging 34%, to 869 units, from the year-ago period, according to a report by Appraisal Research Counselors, a Chicago-based real estate consulting firm. “Prospective buyers are currently uncomfortable about the market, feel little sense of urgency to make a decision, and are often fearful that market conditions may weaken,” the report says.

But in a sign that developers seem to be getting the message, they launched new projects accounting for just 781 units in the quarter, down 66% from the year-earlier period. As a result, the supply of unsold downtown condos and townhomes fell 1%, to 7,601 units — not much, but the first drop in unsold inventory since fourth-quarter 2005, when the condo market began to sour.

Supply remains a big concern, however. Though downtown developers were sitting on just 64 unsold completed units at the end of the quarter, the supply of unsold condos includes 3,539 units that are under construction and will be completed between now and 2010, according to Appraisal Research.

Moreover, developers have launched several new projects since the end of the third quarter, so the number of unsold condominiums is likely to rise again by the end of the year. “I think the next 12 months are going to be tremendously challenging,” says Harry Huzenis, executive vice-president of Chicago-based Jameson Realty Group, which develops its own condo projects and works as a broker on others. “If you’re a buyer it’s a wonderful time to be out shopping because I think there’s a lot of great values out there.”

Mr. Huzenis says he’s been advising his developer clients to cut prices and move aggressively to make sales before the market worsens. He figures concerns over the subprime debt market and volatility in the stock market sidelined many buyers. “A lot of anxiety crept into the consumer’s mind. When the consumer gets confused, the consumer stops acting,” Mr. Huzenis says. “We saw steady sales throughout the year, but we’ve seen a real strong drop-off beginning with August.”

Developers sold 3,312 downtown condos in the first nine months of the year, down 35% from the year-earlier period, according to Appraisal Research. The firm projects downtown sales will total about 4,000 units for 2007, the lowest since 2003, when 3,433 units sold. “A lot of anxiety crept into the consumer’s mind. When the consumer gets confused, the consumer stops acting,” Mr. Huzenis says. “We saw steady sales throughout the year, but we’ve seen a real strong drop-off beginning with August.”

Developers sold 3,312 downtown condos in the first nine months of the year, down 35% from the year-earlier period, according to Appraisal Research. The firm projects downtown sales will total about 4,000 units for 2007, the lowest since 2003, when 3,433 units sold.

Meanwhile, despite the slight dip in the third quarter, the supply of unsold condos has been moving in the opposite direction, rising 59% since first-quarter 2005. Developers typically must sell about half of the units in a condo project before a lender will finance construction. During the recent boom, many developers hit the 50% sales mark three to six months after opening a sales office.

But the sales process is taking a lot longer nowadays, and some developers are unwilling to take the risk of launching a new project. Earlier this year, Lennar Corp. decided to drop a 1,000-unit condo project in the South Loop and sold the development site to AvalonBay Communities Inc., an Alexandria-Va.-based apartment real estate investment trust.
Source: ChicagoBusiness.com

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