Hot Rental Markets, Deferred Maintenance, and Deconversions
Recently, a condominium community in Chicago, by a vote of almost 80% of its owners (75% was required by the governing documents), accepted an offer to sell the building to an investment group that will turn its 188 units into apartments. According to the Chicago Tribune, the sale will be one of the largest deconversions in the city’s history. Why is this noteworthy? Let me count the ways …
First, what is a deconversion? This is a term used to refer to the process of converting a condominium project to apartments. The deal that the Chicago owners approved is worth $27 million dollars. According to the article from the Community Associations Insitute, owners will receive approximately 40-50 percent more on average for their units than if they were going to sell them on their own. That’s a HUGE incentive to approve the sale.
Second, the building is from the 1950’s. If you are doing the math along with me, that means that the building is in its 70’s. I have recently taught a few classes to managers and board members about aging communities and how to finance necessary repairs for those buildings. Updates, modernization, code compliance, and capital improvements in an older community are not inexpensive. Often times, the association’s solution to pay for the needed repairs is a large special assessment, or over time, many large special assessments for its owners. In this case, the owners were able to see a solution to the problem of deferred and/or necessary maintenance (sell the building rather than fund costly repairs/replacement).
Third, the rental market in Chicago, like in Denver, has been strong. The need for quality, affordable housing and the limited availability of our land resources, is leading developers toward more creative options of buying older condominium buildings and turning them into apartments. Given our state’s construction defect laws, development on condominiums had all but stopped. Changes to the laws in 2017 were made in an attempt to reinvigorate the market. Look for a resource from Cornerstone on that soon!
Deconversion may not be the right solution for your aging community, but it’s certainly something worth considering – especially if you have 27 million reasons to do so!