What's Driving the Sale of Downtown Luxury Condos?

By Dennis Rodkin, Chicago Magazine

In the first few months of 2010, as some local developers slashed prices or staged auctions on their newly built condominiums, a small segment at the upper end of the condo market flourished. As Gail Lissner of Appraisal Research Counselors notes, “There are always wealthy people with the ability to buy.” The big difference lately is that those well-heeled folks have been shelling out princely sums to buy luxurious new condos in downtown high-rises. “These are not speculators buying cookie-cutter condos,” says Lissner. “By and large, they are buying to live in these really high-end, unique places.”

Consider these numbers: From the beginning of the year until the middle of May, about 40 downtown condos have been sold for $2 million or more—and most of those condos were in buildings that opened in the last two years. (Some sales may have not yet appeared in public records.) They ranged from an $8.182-million sale at the Elysian—the 60-story tower at 11 East Walton Street designed by Lucien Lagrange—to a three-bedroom unit that went for a little more than $2.24 million at Aqua, the much-praised skyscraper at 225 North Columbus Drive that Jeanne Gang designed for Magellan Development. (The Elysian sale was the highest price paid for a Chicago condo since November 2006, when a 61st-floor unit at the Park Tower—at 800 North Michigan Avenue—went for $8.275 million.)

What’s driving the sales? To update an old real-estate adage: timing, timing, timing. Many of these new elite homeowners made their decision to buy several years ago, while buildings were under construction or still in the planning stage—and before the recession punctured the real-estate boom. With those condo towers now ready for residents, the folks who agreed years ago to buy are finally inking the deals.

That’s generally what’s been happening at the Elysian, according to Caryl Dillon, who was the tower’s sales agent. Since January 1st, at least 16 buyers there closed on condos priced at $2 million or more (in addition to the $8.182-million sale already mentioned, one condo went for $7.25 million and another for $6.9 million). That’s on top of a first round of December 2009 closings at $2 million and up. Meanwhile, at The Legacy (which recently opened at 60 East Monroe Street), three units priced at more than $2 million were among the first closings in the building—and usually the earliest buyers sign off on the earliest closings. (Since condos on a building’s bottom floors are often finished first, some lower-level, lower-priced units bought during construction can also be among the earliest closings.)

Buyers who signed contracts before the bust could have opted to cancel their contracts when the economy soured—as did numerous buyers of medium-priced homes. But “10 percent [the standard deposit on a condo] is a lot to walk away from” on a multimillion-dollar sale, Lissner says. Still, as she suggests, it’s also likely that for many of these rich buyers “their lifestyle hasn’t changed in the downturn.”

Janet Owen, a Sudler Sotheby’s International agent who works exclusively in the luxury market, points out that many rich people have not had to worry about the tight mortgage-financing climate that has contributed to the drag on the larger real-estate market. Mortgage lenders have been requiring bigger down payments, higher credit scores, and more detailed documentation of financial histories from average buyers. “These aren’t issues [wealthy potential homeowners] have to think about,” says Owen. On top of this, she notes, “their buying had nothing to do with the $8,000 federal tax credit.”

That is especially true of well-to-do buyers who made their purchase decisions recently. In early May, someone paid $2.3 million for a previously owned condo on the 51st floor of the Trump International Hotel & Tower (that building, at 401 North Wabash Avenue, opened in 2008). Another buyer spent $3.45 million in April for a 54th–floor condo at 55 East Erie that an investor had held on to since 2003. These new purchasers “are almost always cash buyers,” says Tere Proctor, who was the director of sales at Trump before returning to agency work (at Koenig & Strey Real Living). “They see the value in buildings like Trump and the Elysian, and they’re banking on knowing that whenever the market gets better, they will be holding valuable real estate.”

Read the full article and see building highlights here.