Revisiting ‘Condomania’ In Chicago
Chicago Business looks at a past and current condo craze. “Sara Benson acquired her first condominium in the city at the peak of the boom, back when speculators traded condos like stocks and the value of some units doubled in as little as a year. It turned out, she paid too much: $24,000.”
“That became clear when she sold the one-bedroom walkup in Buena Park for $13,000 four years later, after the Chicago condo market crashed. ‘It was a bloodbath,’ recalls Ms. Benson, a residential broker who was working as a property appraiser at the time. ‘So many developers got caught up in the excitement and frenzy of the market. During the price plummet, ‘there were owners in tears,’ recalls Ms. Benson.”
“The Chicago area led the nation in condo conversions, with almost 70,000 units converted during the 1970s. At the peak in 1979, buildings sold out in a single day. Some people bought units without seeing floor plans. The condo market ‘became the same type of cocktail-party chatter that we have today,’ says Herb Emmerman.”
“Speculators intending to quickly flip units got stuck, either selling at a loss or renting them out. Developers were forced to hire auctioneers to sell off excess units in the glutted market. ”
“After adding 13,820 condos to the downtown market in the 1970s, developers added just 5,429 in the 1980s. The nation’s top converter in the 1970s, Chicago-based American Invsco Corp, which aspired to become the ‘General Motors of real estate,’ saw its far-flung empire shrink to a fraction of its size as the market tanked. ‘In ‘80 and ‘81 it was a disaster,’ recalls its chairman, Nicholas Gouletas. ‘Before that it was wonderful.’”
“More than a quarter-century after the city’s first condo craze, or ‘condomania,’ as it was called at the time, Chicago is several years into another condo boom fueled by low interest rates, the growing appeal of city living and plenty of speculative activity.”
“In one respect, however, the market is riskier today. Most developers back then were converting apartments into condos, adding little to the overall supply of housing stock. Today, condo developers mostly are building new high-rises, adding more than 26,000 units, excluding conversions, to the downtown market since 2000. Another 8,600 units are on the drawing board for this year alone.”
“The question now is whether they should be worried about the supply of new condos. ‘There’s a lot out there,’ says appraiser and broker Mr. Howey, ‘and prices are going to have to adjust. It’s a commodity.’”
From Realtor Magazine. “Destin, Fla. based Condo Cruise Lines, which has sold out its first luxury cruise ship condominium project, says it’s already working on converting two more medium-sized ships.”
“The first ship’s condo prices started out at $349,000 and went as high as $529,000 last January. But after two price increases, the condos that are left range from $562,000 to $1,280,000, says Thomas Blackburn, the company’s senior VP.”
“‘We didn’t sell a single $349,000 suite as most people were looking for the higher rental income from the larger suites,’ he says. ‘So we eliminated the small, single suites and converted them to larger three-room penthouses and sold out.’”
Thanks to the reader who sent in the Chicago link.
“The nation’s top converter in the 1970s, Chicago-based American Invsco Corp, which aspired to become the ‘General Motors of real estate,’ saw its far-flung empire shrink to a fraction of its size as the market tanked.”
I’d say that’s mission accomplished.
This nonsense really blows my mind. In a world full of need how can anyone justify paying $300K to $1M for a condo on a boat. Have we become this depraved and self indulgent. No wonder the rest of the world has contempt for us.
I hate to sound like a whiny bleeding heart or something but I just become sick reading stuff like this. How can this type of bacchanalia resolve itself well. It can’t.
Do the buyers wonder why the developers aren’t renting it out themselves, if it is so profitable?
Any input from Chicago folks that remember the last bust is appreciated.
A lot of developers ARE renting out their own (unsold) condos, and have been doing it a few years now. Many of the new buildings downtown have giant “NOW LEASING” signs down the side.
The neat thing about renting in downtown Chicago is that thanks to all the supply, it’s only about 10-20% more than renting in the farther-out neighborhoods anymore (Lincoln Park, Lake View, Bucktown etc).
As I’ve said several times here, the hirise boom downtown seemed to peak in 2000-02, and while there’s been steady development since then, it hasn’t been anywhere near as intense. Everyone in country knows about the Trump tower; it’s going up VERY slowly.
As for what the buyers must be thinking, I have no idea. I don’t think like them.
I have friends who live in downtown Chicago. They bought the studio condo next door to their two bedroom unit and are currently renting it out with plans to tear out the common wall and expand into it. They’ve increased their square footage, but it’s hard to imagine that they’ve raised the value of their unit to what they paid for the two separate units. They’re fairly well off so they’ll survive, but it seems foolish to me—-if you want a bigger place, buy a bigger place.
In a building that I lived in, buying the adjoining unit and tearing out the walls was fairly common.
Lots of the units were junior one bedrooms and studios, with 2 bedroom unit on the ends of the hallways. There were no “organic” 3 bedoom units in the building (it was 42 stories). It was a fairly expeditious way of getting more living space.
I think I disagree with you on that 00-02 peak. The article stated that between 00-05 26,000 units went online. That’s an average of 4300+ per year. It went on to say that there are 8600, DOUBLE, in the pipeline for 06. Add that to the forclosures we’ll be seeing and inventories will shy rocket.
I’m to young to really remember the 1980’s Chicago crash but a quick look at this graph ( http://www.housingbubblebust.com/OFHEO/OFHEO-MidWest.html ) would indicate that homes in the 70’s weren’t nearly as overvalued as they are today. Burn baby burn!
I remember the Chicago housing market in the late 70s and early 80s. The condo conversion craze peaked in ‘78 or ‘79. 16% mortgages in 1984 caused prices to drop. Many (or most) sellers took back the mortgage at 12% or so.
Keep in mind it isn’t just the US doing this.
Human beings are human beings. Transplant them anywhere and they’ll behave the same in groups.
True, humans are humans — but us Americans are famous in taking everything, be it rocket science, porn, or greed, to their absolute, over-the-top levels.
I really don’t understand your comment. I see nothing wrong with a condo on a cruise ship. I knew some people who would live on a cruise ship; a condo for them would make a lot of sense. Furthermore, the article indicated that the buyers were people intending to rent out the unit. This would make them no more or less moral than the people who built the ship or the ones who operate it.
In a world full of need, people who build and operate cruse ships create jobs, employee people, purchase raw materials, etc., etc. They allow others to earn a living. I don’t care if their choices are not ones I would make. They aren’t killing anyone or sewing salt into fields.
I recently saw a story about a wedding that cost over $350,000. Now I thought that was nonsense, but I suppose a lot of people got to work that night. Maybe they did all right with the tips. I hope so. The $350,000 that was ‘blown’ went into lots of different people’s pockets; maybe some of them needed it.
That’s a pretty dull-witted view of things. It’s called mis-allocation of resources, and it has drastic consequences. Watch and learn.
I agree. It’s downright trashy.
My comment was in reference to txchick57’s observation regarding ship condos.
I’m sure that drug dealers keep a lot of innocent people working, too (how about investigators, for example?), but what they’re doing is still immoral. At what point does living the good life become the grossest form of conspicuous consumption?
Greed may be the most important driving force behind almost everything, especially inventions, but when is enough enough?
This is what is what greed is doing to our national parks:
http://tinyurl.com/loh4f
…”Herpes you can give away.” Free Chicago condos for everyone!
In a couple years all those condo cruise ships will be anchored in the Bermuda Triangle, hoping they’ll “disappear” so they can at least collect insurance.
Like many other places, rents are up as of late in Chicago. However, I can’t help but wonder what will happen to rents as all this capacity comes on-line in the next few years. My sense is there is a particluar glut in the $500k-750k range (soon to be $400-$600k range).
I’ve spoken with several people recently who bought last summer who now admit they “overpaid”. I don’t think they even realize how bad it could get, though.
26K condos in Chicago!? 12K in Miami, 12K in San Diego, 20K in LA, 25K in Las Vegas, has anyone every added up all the downtown condo units currently be planned across the US? 200K, 300K, 500K, ….? Lunacy at its peak, a lot of these things that get built and bought at the peak will lose 50-70% in value.
I think your numbers in Miami and San Diego are light. And no one seems to care that the number of condos in Miami absorbed over the past 10 years in Miami was 10,000.
Build it and they will come. I mean aliens and not illegal aliens. Maybe that is how they plan to sell all these condos. They are crazy and screwed.
Have any of these condo developers ever stopped and wondered how this country is supposed to come up with enough rich home-buying residents in the next few years to fill all these new $500K condos and houses that are going up everywhere?
I don’t know how anyone can pay $500K for a high rise condo. You have no land with a condo. You have neighbors on either side of you and above and below you. You don’t get much square footage. Parking is usually poor or extra. You have to pay condo fees.
I just don’t get it. Is it really that hard to find someone to cut grass on a house ?
I don’t know how anyone can pay $500K for a high rise condo.
Well, it depends what you want… I don’t live in a condo, but I do live in high-density urban housing (NYC.)
You have no land with a condo.
I don’t want land. I want parks and playgrounds in walking distance. It’s easy to host a picnic in a nearby park, and I’ll probably meet a few new neighbors — that beats a backyard barbeque.
You have neighbors on either side of you and above and below you.
I like it - last dinner party I went to required walking down a flight of stairs. Heating costs are much lower due to shared walls/floors - NYC is the greenest environment in America.
You don’t get much square footage.
True, but you need much less stuff in an urban environment: stores are within walking distance, entertainment likewise.
Parking is usually poor or extra.
I don’t have a car. Walking/Subway/Taxi/RentalCar does the job and is a minor expense.
You have to pay condo fees.
That’s just a cost you factor into your residence choices. Owners pay property taxes, etc. I pay doormens’ Christmas gifts, etc.
I just don’t get it. Is it really that hard to find someone to cut grass on a house ?
Many people will never understand high-density living, and many wouldn’t like it.
My father, upon seeing how I lived, recognized it immediately: the lack of privacy, mind your own business attitude, knowing your neighbors, knowing the local shopkeepers, most back doors kept unlocked, etc, pointed out that it is like living in a small village. He was quite right, and it is a really good environment for some people.
Add in 20 decent restaurants within walking distance, a few museums for the kids, parks, bookstores, et al, and it’s hard not to love this way of life. When I waited at the busstop last week with my daughter, the other passengers greeted her by name - that has to be a better experience than loading her into an SUV and dropping her off at school.
I can see the advantages of living in a condo, I just can’t see why prices for one would be any more than a fraction of the cost of a real house.
Well, the prices reflect demand. Take away all the nice amenities and high paying jobs in walking distance, and the condo would be worth much less. That’s the reason people are paying $1000/sqft.
“That became clear when she sold the one-bedroom walkup in Buena Park for $13,000 four years later,…..
This reminds me of my first time RE buy.
I bought a 1/1 condo in Chandler, AZ in Aug 89 for $23,500 through HUD. Apparently the previous owner had bought it brand new for $52,000 back in 1985.
At the time I was young and didn’t fully appreciate the deal I had gotten. All I knew was that I was paying the same as rent for only $500 down.
I have an Ivy league MBA (recent vintage) and I feel like I’m a bit priced out in Chicago (we owned a condo here which we sold before I went back to school a few years back). Granted I have a family and my wife works part-time, but my sense if that if I feel priced out, then either a lot of other people are feeling the same or being fiscally irresponsible, or both.
I vote for fiscally irresponsible/ignorant. ARM adjustments will trigger LOTS of pain.
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Condo Cruise Ships … The Next Real Estate Boom?
With developers slowly running out of waterfront property, a Florida entrepreneur has found a way to create new ‘land’
DESTIN, Fla., Jan. 13, 2006
http://www.ereleases.com/pr/20060113001.html
an excerpt:
The investment condo market may experience a lull, but some experts feel the best is yet to come.
And the industry is not dependent on the baby boomers. It’s a fact that there are 700,000 more millionaires in America this year than there were at the same time just last year. The trend has continued for the past three years and is expected to continue for years to come, and real estate is a staple in the investment portfolios of many of these nouveau riche.
Neither the cruise nor the investment real estate industry is expected to decline dramatically as their stability is grounded in two common truths, Americans love to travel, and Americans love to make money.
…
A benefit for pre-construction real estate condo investors is that the condo development is already built and the units are, for the most part, priced under the current average price tag for real estate condos. The condo suites rent for roughly $3-6,000 a week year-round. The condo fee is about the same as a beachfront condo, between $7,000 and $10,000 a year, and most importantly … you never worry about hurricanes … the ship simply moves out of harm’s way.
“I have spoken of the rich years when the rainfall was plentiful. But there were dry years too, and they put a terror on the valley. The water came in a thirty-year cycle. There would be five or six wet and wonderful years when there might be nineteen to twenty-five inches of rain, and the land would shout with grass. Then would come six or seven pretty good years of twelve to sixteen inches of rain. And then the dry years would come, and sometimes there would be only seven or eight inches of rain. The land dried up and the grasses headed out miserably a few inches high and great bare scabby places appeared in the valley. The live oaks got a crusty look and the sage-brush was gray. The land cracked and the springs dried up and the cattle listlessly nibbled dry twigs. Then the farmers and the ranchers would be filled with disgust for the Salinas Valley. The cows would grow thin and sometimes starve to death. People would have to haul water in barrels to their farms just for drinking. Some families would sell out for nearly nothing and move away. And it never failed that during the dry years the people forgot about the rich years, and during the wet years they lost all memory of the dry years. It was always that way.”
- John Steinbeck, East of Eden
Good post John in V.A.
“The $350,000 that was ‘blown’ went into lots of different people’s pockets; maybe some of them needed it.”
And the divorce will generate even more moola, but mostly for lawyers.
The California housing downturn from about 1979-1983 was really hard on the condo market also . Condo’s were just toast .Interest rates were just so high that everything came to a standstill .During that time there was a lot of seller financing and second trust deeds written behind a assumed first trust teed ,(regardless of the lender approving it or not ),just to avoid getting new financing .
I had to sell my Father’s house during that time and the buyers thought they were doing good by getting a 12.75% fixed ,(the rate went higher after that sale to about 16% ).
Talk about a dead market ,but the market had been really hot right before it tanked back in those days .
I believe the early 1980″s market was worst than the 1990 one . turndown .