How To Tap Into The Demand For Luxury Condos
There are over 8,000 apartments under construction, ready to be delivered in the next two years. The number of luxury condos in the pipeline is a mere blip on the radar, by comparison. But demand for condos is just as hot.
@properties co-founder Michael Golden (right, with co-founder Thad Wong and The Jeanine Wheeler Group's Jeanine Wheeler) tells Bisnow there's ample demand for condos but economics are dictating what's being built, and where. Construction, materials, labor and land costs continue to rise as sites in marquee multifamily submarkets become harder to come by. It's hard to find condo product on the market that can be built for $450/SF. Unless a condo development is low-rise, the only way to make the numbers work for condo construction in this market is to go big and go expensive.
The luxury condo market is underserved, which Michael (a speaker at Bisnow's all-day multifamily conference Nov. 30) is proven in the brisk sales at projects like Vista Residences and 9 West Walton. The condo market, unlike apartments, isn't at risk of being overbuilt.
Another project Michael says is proof of the demand for luxury condos is the Ritz-Carlton Residences. @properties took over its sales and marketing, and improved pre-sales by making some pricing adjustments. Sponsorship is important and Michael says he doesn't want to risk @properties' time and resources on projects that aren't viable. Other downtown condo projects that @properties is marketing include The Legacy at Millennium Park, 4 East Elm, Opera Lofts in the South Loop and the upcoming 1000 South Michigan, which Michael believes will be the best building in Chicago once it's completed, with its amenities and design.
1000 South Michigan is being developed by JK Equities, Oak Capitals and Time Equities. JK Equities' principal, Jordan Karlik (right, with Southway Builders VP Willy Moore, center) believes the pendulum is slowly swinging back in favor of luxury condo demand, at least in Chicago. Jordan (another speaker at BMAC West) likes that people returning to the city are staying there longer, and want to buy larger units. 1000 South Michigan will contain 335 condos.
Jordan agrees that rising costs are capping the level of luxury condo construction. He anticipates condo developers will have a harder time financing their projects because of a shift in the capital markets and tightening lending from banks, and he believes pre-sale requirements will need to be between 30% and 50%. The better sponsors, however, will be able to fund their projects because there are other capital sources entering the market, looking for developments to back.
Jordan is bullish on Chicago's condo market. He says it's a world-class city with a solid populace and unbelievable amenities. But he's not seeing that demand for luxury expanding to other Midwestern markets, at the moment. In Minneapolis, there are more rentals in the pipeline as condo laws in that city put developers at enhanced risk. The landscape is much better in Detroit, where more people are being convinced to rent downtown. Jordan believes if this pattern continues, people will be compelled to buy in the Motor City.
To find out more from Michael, Jordan and our other experts, attend Bisnow's BMAC Midwest annual conference, Wednesday, Nov. 30, at the JW Marriott Chicago. Register here.