Friday, September 2, 2016

18 Condo Units In Sunnyside Building "De-Convert" To Rentals

Photo courtesy @ Properties
How tight is Chicago's rental market right now? Chicago's 3.8% vacancy level is just slightly higher than Manhattan's, at 2.87%.

On a practical level, it means that many residential buildings are being built and/or rehabbed specifically as rentals (as we see happening all over Uptown).

It has also created a market for "deconversion," which Crain's describes as "the local housing market flipped on its head. Instead of converting apartments to condos—an established strategy you would expect at this stage in the market's recovery—a group of developer-arbitrageurs is going the other way as Chicago apartment prices keep climbing."

And so it happens that a 20-unit building at 921 West Sunnyside is deconverting 18 of its units to rentals. By selling as a group, the owners averaged $239,166 per unit, a number that the broker says is "significantly more than any of them would get if they'd been sold alone." The buyers paid $4,305,000 to purchase the 18 units.

The building will have two privately owned units (those who chose not to sell) and a mix of apartments ranging in size from 1-bedroom to 4-bedrooms. Here's how it breaks down:
  • Seven 1BR/1BA apartments, 529 square feet, renting for $1,118
  • Four 2BR/1 BA apartments, 1132 square feet, renting for $1,639
  • Six 3BR/2BA apartments, 1191 square feet, renting for $2,317
  • One 4BR/3BA apartment, 2185 square feet, renting for $3,250
Crain's notes that about half the units were already rented out when the buyer acquired them, and the new owner re-leased them to their existing occupants without raising rents.

Update: Uptown resident and real estate broker Mark Zipperer commented on UU's Facebook page:

"De-conversions becoming more frequent. Likely a function of the down market and many investors buying and/or owner renting their units and moving on. In this case owners seem to be getting more $$ than the current fair market value. Issue for the 2 owners who aren't selling - if they try to sell under current lending conditions, new buyers could not get loans as lending is an issue in assn's where 1 owner/entity owns more than 10%. So those 2 that didn't sell have already lost $$, unless lending changes. As for the rents-$1100 is on the low side for a 1br in the area. Adding more rentals to the neighborhood could/should stabilize rental prices."


  1. Capelman had a lot to do with this being done. The crime, terrible schools, and high taxes forced this group to be smart and run. This is first of many

  2. De-conversion is an attractive option for owners in condo buildings that are not working terribly well as condos- the building is too small to "scale" and cannot afford to hire the maintenance people and management needed for it to run smoothly, and too much work falls on the shoulders of a few owners. Another factor is a large percentage of investor-owners- buildings with a preponderance of investor owners don't work at all. It is extremely difficult to obtain a mortgage for a unit in a building with more than 30% investor owned units, and the association in such a building often cannot function at all, as the amateur landlords who own the units are far less likely than owner-occupants to want to shoulder the work and commit the time to managing the building and doing the physical maintenance that a larger building can hire staff to do.

    The deconversion is usually a win-win, and the few remaining owner-occupants usually end up being grateful for an easy exit from a bad situation, at a substantial premium over what their units would ordinarily fetch.