Small Condo Developments Are Here to Stay
Condo sale prices have returned to their pre-crash levels, but not everything is back to the peak: Developments in the pipeline remain midsize and investors are not as willing to risk their money on condos this cycle.
That’s what 300 guests who attended Bisnow’s Condo Development and Residence of the Future event yesterday at the Loews Hotel learned from our panel of experts in a lively and funny discussion.
Belgravia Group CEO Alan Lev says there's demand in Chicago for condos, but with the ongoing focus on building apartments, undersupply is an issue. Condo buyers in this cycle tend to be older. They're either empty nesters returning to Chicago from the suburbs, or want a second home. While apartments are downsizing unit space and adding cool shared amenities, the opposite is true with condos. Buyers aren't as concerned about amenities, and they want more space in their units. Belgravia's average unit size these days is 2k SF. Alan told Bisnow it quietly pre-sold 15 units in its latest offering in the West Loop before opening sales to the public. Belgravia also plans to build a 16-story, 52-unit condo building atop an underground parking garage at 403 N Wabash, and is negotiating with Waterton to secure the air space above the garage.
Avison Young principal Jim Hanson (left, with AY marketing manager Andrew Fredricks) says one factor keeping today's condo developments smaller is that pre-sales are too risky to find financing. The large condo developments that dominated the previous cycle are no longer cool. Developers don't want to be heavily leveraged in case a downturn occurs. Jim says he won't compete with a developer looking for land to build an apartment tower, and tends to look off the grid for land in AY's future condo projects.
Chicago Development Partners principal Howard Weiner (left) says this cycle is being dictated by past mistakes such as flipping a condo for profit, and investors aren't inflating product demand as in the previous cycle. LG Development Group partner Brian Goldberg agrees, and says there's money for condo developments available from a variety of sources, and adds that banks are screening projects more thoroughly. Howard says developers are finding alternative sources of financing like hedge funds, and there's an availability of non-recourse debt.
One financing source that seems to be lacking, however, is foreign capital. Unlike apartments, condo developers are having a hard time enticing overseas investors to add skin to their projects. JDL Development CIO Yale Dieckmann (second from right, with microphone) says the lack of overall foreign interest is eye-opening (JDL has successfully courted foreign money for their projects) and could speak to a lack of excitement with developments in the pipeline. Alan says Asian investors have reached out to Belgravia seeking to make equity investments, but they're unfamiliar with the Chicago market and are seeking outsized returns. That may change as investment opportunities in more lucrative condo markets dwindle.