Big Sale Of Deconverted Condo Tower Could Be A Sign Of Things To Come
Jerry Mead said he could not have been happier back in 2018 when he agreed to sell his lakefront condo to an investor committed to transforming his building into apartments. He and his neighbors voted to accept a $27.2M offer from New York-based Greenstone Property Group for their 188-unit building at 5815 North Sheridan Road in Edgewater.
It was part of a wave of condo deconversions in the Chicago region by buyers aiming to take advantage of the hot rental market and create new apartments without the costs of new construction. Mead ended up buying another condo a couple of doors south at 5757 North Sheridan.
“I got a good deal for my unit and now I have a balcony and a panoramic view of the lake,” he said.
But last week’s news that Chicago-based TLC Management stepped in and plunked down $43M for 5815 Sheridan, a roughly 58% per unit increase over what Mead and his neighbors received was a surprise, he added. And now the retired police officer wonders if he could have gotten a better deal.
“It seems like the prices were depressed more than they should have been,” he said.
It may be the first sale of a large Chicago condo building that had been converted into apartments, according to The Kiser Group’s Lee Kiser, who brokered the transaction. While it could mean some condos have a higher market value than first thought and encourage their owners to test the market, the amount paid for 5815 Sheridan does not necessarily mean those owners can expect huge windfalls.
If the property had not been converted into apartments, it would not have traded at such a high price, he said.
The buyer pool of those willing to go through a condo deconversion is not as deep as the buyer pool for apartments, Kiser added. It takes more time to complete the acquisitions of condo towers, which, according to state law, can’t go through until 75% of the owners agree to sell. Many condo buildings on the market also have a lot of deferred maintenance, scaring off some potential investors. And for Chicago properties, the Chicago City Council in 2019 toughened the rules, with buyers now needing to secure approval from 85% of the owners.
Reaching the new threshold is possible. ESG Kullen acquired the eight-story, 250-unit 1140 North LaSalle Drive in the Gold Coast at the end of 2018 for $38M, a proposal approved by more than 85% of owners.
But TLC CEO Stuart Handler said he is not interested in trying to take over existing condo buildings. The campaigns needed to convince individual owners to sell are a headache and, frequently, not worth it.
“There are investors who are willing to try it, but sometimes they don’t understand how hard it is, and at the end of the day, it often doesn’t work out,” he said.
Yet TLC’s purchase of 5815 Sheridan could be good news for the buyers who did the work to acquire condo buildings during that first wave of deconversions between 2017 and 2019, according to Kiser. The small buyer pool helped many successful investors secure their acquisitions for manageable prices.
“I believe we’ll see more and more of these deconversions change hands,” Kiser said. “There are many that are midstream right now.”
With its beachfront location, Kiser said he thought for years that Greenstone’s 5815 was one of the most desirable and could quickly sell to an apartment investor.
“That was a really fortunate acquisition for Greenstone, so I started calling six months after they bought it,” Kiser said. “I asked, ‘Do you understand what you have and do you understand what the building is worth?’”
The calls paid off, he added. Greenstone had already rehabbed about 130 of the units and replaced its elevators, among other renovations, when it received the unsolicited offer from TLC Management. Company officials asked Kiser to handle the sale.
“They were surprised that the offer was so high, but I told them we could do even better,” Kiser said.
Handler said the final price, about $228K per unit, was still a great deal, at least for a building with 5815 Sheridan’s attributes.
“It’s right on the lakefront and has its own private beach, which is very unusual,” he said.
That helps give it unrealized, upside potential, Handler added. TLC Management now owns about 40 apartment buildings with a total of about 5,700 units across Chicagoland, and it will spend an additional $5M upgrading 5815 Sheridan’s landscaping, lobby, hallways and fitness center, as well as finishing the unit rehabs. He won’t disclose what the final rent levels will be, but he does have a clear goal.
“We’re going to complete the process of making this a luxury building,” he said.
That worries Gene Hendricks and his husband, Scott Free. The pair now live in 5757 Sheridan, but owned a condo in 5815 Sheridan in 2018 and fought Greenstone’s offer. That fight, along with the subsequent sale to TLC, has them concerned the small, affordable lakefront homes provided by the dozens of towers along this stretch of Sheridan Road could be under threat.
“The sale doesn’t surprise me, but it is upsetting,” Hendricks said.
Available apartments in 5815 Sheridan range in size from 530 SF to 728 SF, and rent for between $1,250 and $1,730, according to Apartments.com.
“A lot of buildings along Sheridan are still being targeted by investors,” Hendricks added.
Sandy Chaet, president of the Association of Sheridan Condominium/Co-op Owners, a collection of several dozen North Side buildings near the lake, told Bisnow it was Hendricks, a registered nurse, who helped push the tougher rules through Chicago’s city council. Now Hendricks and Free, a music producer, hope to make it even harder for investors to deconvert condo buildings.
They are working with state Sen. Sara Feigenholtz and state Rep. Margaret Croke to make the 85% threshold statewide, Free said. He and Hendricks would also like to see other reforms, including a ban on investors influencing sales by buying up large numbers of individual condos, and no longer allowing one broker to represent both the condo association board and the potential buyer in a sale.
“We want to give the owners a chance because, right now, too many are pressured by their condo boards and left feeling like they have to sell,” Free said. “Owners of individual condos are not real estate investors and sometimes don’t know their units’ value.”
Mead said he’s done moving.
“I’ll never find another spot like this,” he said. “There’s only one way to get me out and that’s to pay me $1M.”