A few years back, when investing in residential real estate seemed like a fast money-maker, two guys went in together on three condos at the Metropolis, a terra cotta-clad building at State and Monroe Streets that was being converted from office and retail into 169 condos.
But when the condos were ready for their investors to take possession, the market had changed and the guys couldn’t sell their three units as fast as they had counted on; they ended up in foreclosure. This month, a real-estate agent working for the guys’ lenders sold one of those condos, a two-bedroom unit with parking included that the investors had originally bought for $310,000. The new sale price: $285,000. “That’s hands down a bargain,” says Peter Boland, the @properties agent who sold the condo for the bank.
There are countless other “bargains” available right now, as many of the people who got in early on new condo developments put their units on the resale market. Not all of them are foreclosures. Some are units that investors bought intending to flip, or resell, at a hefty profit. The only problem is that they don’t command the big prices they once might have. In the case of other condos, the buyers’ personal circumstances have changed—for instance, as the result of a divorce or a job transfer—in the two or three years since they bought a condo that was then under construction. They can’t move in after all, and they want to unload the property soon rather than carry two housing payments. And in many cases the developers have units left to sell (or sell again, if buyers opted out at closing time or failed to get financing).
The advantage to buying one of these units is that, unlike a home that is the seller’s current residence, the condo is costing the seller every day but not providing shelter. The seller doesn’t have the option to just stay put until the unit sells. And while many investors are opting to rent their condos until the market improves, the instant tenants move in, those units lose their never-used, new-home appeal.
“You can do a squeeze play on a lot of these people,” says Jim Kinney, the president of Rubloff Residential. “They bought at preconstruction prices and thought they would get out of it before they had to start paying carrying costs. Now that they’re paying, they want to get out.” Many of those who didn’t buy with an eye toward flipping—those who fully expected to move in but now can’t—are offering good prices as well. They will want to recoup the commissions and other fees they paid, but “unless they’re out of touch with the market,” Kinney says, they won’t be asking for a big markup.
Not all resale units in new buildings are value-priced. Kinney says that at a hot property like 340 on the Park, the handsome and ecologically friendly new tower that overlooks Millennium Park from the north, resales may get a normal-year markup of as much as 10 percent. At 600 Fairbanks, the sleek tower designed by Helmut Jahn (and praised this past Sunday by the Chicago Tribune’s architecture critic, Blair Kamin), at least 18 units are on the resale market now. Some of them are priced very close to what the purchasers paid two or three years ago—meaning buyers could move into new, never-lived-in condos for about the same price that they would have paid a few years ago, before developers stair-stepped the prices upward.
Finding these resale units isn’t difficult. Ask your real-estate agent to look for listings in buildings that have been complete for less than 18 months. There is a good chance that most listings there are never-used resales. (A unit that is also listed as a rental is almost certainly a vacant resale.) Your agent can research what preconstruction prices were to get a good idea what the seller paid and then figure in commissions and fees to help you come up with a reasonable offer.