Wednesday, July 29, 2009

Why walk away from a downtown Chicago condo?

Another article which caught my attention is one from the Chicago Sun-Times about the rising number of potential buyers walking away from downtown Chicago condos just before the delivery date. The story does go on to cite examples, and also to anticipate how this trend might go as some important openings (including Chicago’s Trump Tower) come up before the end of this year.,CST-NWS-roeder29.article

The article quotes one developer about how they have been very successful with overall sales and how that includes significantly fewer “walk aways” for a specific building. One of the major points of this column is to tie the concern about diminishing downtown condo sales to the current real estate marketplace.

Naturally, the story goes on to associate the downturn it reports on to the current conditions in the real estate market. That could be taking the easy way out. I, for one, question that.

We don’t know exactly how many condo developers or sales offices were contacted in total for the story. Yet, of the few that are mentioned, one reports successful sales to the tune of millions of dollars. A success story within a couple of miles of the area covered in this story.

I’m not here to pick on the reporter from this story. It seems to be the same mindset as when realty associations keep pumping out the “latest decline in sales from a year ago” statistics and blame the market instead of only reporting how many hundreds or thousands of homes have sold during the previous month. Yet, if that were “my” story to write, it would have come out completely different. I would be investigating what made the one development quoted in there so successful, whether or not compared with other condo buildings and developments in the same area. But since I am not an agent or developer, I’ll leave that research for someone else.

Some will counter this point because the article refers to people “walking away”, which could refer to their ability to secure or close on a mortgage. I can appreciate that viewpoint. However, the point is that a nearby development is not experiencing anywhere near as much of this same occurrence.

Instead, I’ll offer up my theory, and that is that I would closely examine the pricing of condos in downtown Chicago Within that 3 to 5 square mile area there is plenty of public transportation, retailers, restaurants, and services. . If one development is doing well, the reason for the others to be struggling is not location location location. This leaves price and value.

In other words, the “struggling” developers in the same area either do not have their units priced right for the buyers it hopes to attract, or are not offering enough in value. By “value” I refer to amenities which apply based on the location and the type of property. A major downtown condo best serves when it has parking, proximity to bus and train, grocery store, and plenty of businesses. Other factors such as the size of the units, views, number of stories, and exercise facilities. Is it possible that the “walk away” people did more research and the results told them to back off due to future resale concerns?

While I can’t answer that, I think that is a question that should be addressed with regard to pricing a listing or a development. But for now, we should be looking for reasons why these “walk aways” are happening at some locations but not at others nearby.


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