It was a golden age for condo conversions in the Chicago area in the 1980s and 90s, but the financial crash of 2008, changing demographics and a hot market for rental units has sent the pendulum swinging in the other direction.
The real estate trend is now toward condo deconversions or bulk sales – where condo buildings are being converted back into rentals – also is taking place in Oak Park.
Bill Planek, president and owner of Greenplan Management, said in a telephone interview that his company purchased a 13-unit condo building at 924 Ontario St. in Oak Park in August and plans to return it to rentals.
“We were approached by a broker, and we accepted the proposal,” he said, noting that only five owners of the 13 units lived in their condos at the time of the sale – the rest were rented out.
Planek said the strong market for rental units has been the driving force behind the condo deconversions. He said it is the only deconversion by Greenplan in recent years, and while he is unaware of how frequent deconversions are taking place in the western suburbs, he is seeing more and more in Chicago.
Planek said that like the property his company purchased, condo buildings often fall into disrepair, and owners who have not kept up on special assessment payments find themselves unable to afford necessary repairs.
He noted that the condo his company purchased needed $120,000 for repairs. Condo associations generally get a bank loan for repairs they can’t afford, but that can be a problem for condo buildings full of rentals.
Planek said the Department of Housing and Urban Development provides guidelines for banks on whether to loan to condo associations. The higher the percentage of rentals in a condo building, the less likely they are to provide a loan, said Planek.
“We manage a lot of condos, and we know that comes up,” he said.
Jonah Hess, director of the Chicago-based Community Initiatives, Inc., a subsidiary of the Community Investment Corporation (CIC), which assists in real estate acquisition with the goal of improving the quality of rental housing, said that in the run-up to the financial crisis of 2008, unscrupulous developers were purchasing distressed apartment buildings in and around Chicago, dividing them up into condos and using fraudulent appraisals to create value that didn’t exist.
“It was not the (housing) bubble; it was just out-and-out fraud,” he said.
Hess said his organization and others pressed the Illinois General Assembly to pass a bill that made it easier to deconvert distressed condo properties about five years ago, giving courts the ability to more easily deconvert problem condos back to rentals and prosecute fraud.
The problem with condos has now shifted “not so much because of the fraud but because of areas where there is a drop in value and owners are underwater,” he said.
He said many of the buildings converted in the 1980s and 90s were older and have costly maintenance issues.
“The challenge we see now on the condo side are non-functioning condo associations,” he said, adding that they often “don’t have the money to pay for the work that’s needed.” Hess said CIC is in the early stages of determining whether to establish a fund to lend to these troubled condo associations.
Though the problem with assessments and repairs is partly driving the trend in condo deconversions, Steven “Sonny” Ginsberg, a real estate and finance attorney with the Chicago-based law firm Ginsberg Jacobs LLC, said more people – young and old – are interested in renting.
“There are a lot of condos built 30 years ago that don’t look like the condos people want to buy today,” he said.
Lenders also are more reluctant to invest in condo buildings because they remember that “for-sale properties took a nosedive” in the financial crisis.
Planek said tenants are steering away from condos in favor of rentals for a number of reasons: high taxes and assessments; increased desire for mobility; and lack of interest in being involved in condo associations.