Condos Go Rental
“People may not be buying, but they’re still moving downtown,” says a manager at a development company. “Now they can rent a place that was built to be a luxury condo.”
by Dennis Rodkin
The condo boom was still rolling along in December 2006, when Terrapin Properties broke ground for a 29-story tower at Clark and Polk streets in the South Loop. Of the 298 planned condos, 150 had sale commitments, which in those days was enough for a lender to give the go-ahead to start building. Terrapin, which had a portfolio of about 1,700 condos (either built new or converted from rentals), expected to have this latest building, Burnham Pointe, ready for move-ins by August 2008.
But by September 2007, nine months after construction had begun, sales at Burnham Pointe were still stuck at 150. Time for Plan B. “I wanted to protect my lenders and investors and protect myself as well—more reputationally than financially,” says Jake Geleerd, a managing partner at Terrapin. “I wanted to save the deal, protect the value of this building as an asset.”
Construction on a half-sold tower can’t very well be halted at the midpoint, so Geleerd and his partners canceled the sale contracts and turned the building into rental apartments. (Nobody complained, Geleerd says; in fact, he notes that a handful of prospective buyers chose to rent units in the building.) It was largely a paperwork and financial change; the units still got the granite countertops and big balconies they would have had.
“People may not be buying, but they’re still moving downtown,” Geleerd says. “Now they can rent a place that was built to be a luxury condo,” with decorative finishes and amenities higher in quality than those typical of a place built expressly for the rental market.
As of midsummer, Burnham Pointe, which is now fully built, was 75 percent rented and on track to be full by December—the same month that Terrapin had originally hoped to sell the building’s final units and complete the project. Rents start at around $1,500—and, according to Geleerd, the company throws in a free month and a half on every lease. Leasing the apartments is not as lucrative as selling them would have been, but at least it provides an income stream, and, as Geleerd points out, leasing keeps the development from being “one more troubled condo building in this city.”
Somewhere down the line, the company might switch the building back to condos and sell off the units. “There will be a day again when that makes sense,” Geleerd says, “but it’s more than five years out.”
Photograph by Todd Urban