Downtown condo sales ‘kind of glued in place’

(Crain’s) — The downtown condominium market still has a pulse, but it’s hard to find.

Downtown developers sold 111 condos and townhomes in the third quarter, down from 150 in the second quarter but up from 56 a year ago, according to a report by Appraisal Research Counselors, a Chicago-based consulting firm.

Developers are on pace to end 2010 with about 600 sales, matching the depressed levels of the past two years and about a tenth of boom-era annual sales.

“Right now, we’re just kind of glued in place,” says Appraisal Research Vice-President Gail Lissner. “We’re just not seeing a lot of movement.”

What little movement there is can be found in less-expensive projects that cater to first-time buyers, or in developments that have slashed prices or hired auctioneers to spur sales. The market has lost momentum since federal homebuyer tax credits expired in April, and few observers see anything on the horizon to give it another push. Many would-be buyers are renting apartments for the time being.

“Due to the expiration of the tax credit, continued concerns about the economy and job market, worries about the stability of housing prices, and the difficulty in selling an existing residence and securing financing, many buyers continue to remain on the sidelines for the near term,” the Appraisal Research report says.

Many developers are still sitting on dozens of unsold condos in buildings they completed in the past few years, preventing them from paying off overdue construction loans.

The distress has attracted vulture investors like Crescent Heights Inc. circling the market for bulk condo sales. The Miami-based developer plans to acquire about 200 unsold units in the Astoria Tower, a 30-story building at 21 E. Ninth St. that opened last year. A Crescent Heights executive declines to comment.

But the condo glut is shrinking. Developers had 3,402 unsold units at the end of the quarter, down from 7,689 in third-quarter 2007, according to Appraisal Research.

Construction has all but stopped, allowing demand, as weak as it is, to catch up with supply. The inventory of unsold units also has dropped as developers have cancelled projects before breaking ground or switched over to rental; developers have taken 1,420 condos and townhomes off the market this year after removing 1,041 in 2009, according to Appraisal Research.

“There are fewer and fewer competitors every quarter,” says Colin Kihnke, president of CMK Development Corp., the Chicago-based developer of a 46-story tower at 235 W. Van Buren St.

Buyers have signed contracts for about 460, or 64%, of the building’s 714 condos and closed on roughly 40% of the units, he says. With about 250 condos left, CMK isn’t out of the woods yet, but it has plenty of time to get the job done. The project’s construction loan doesn’t come due until 2013, including extensions written into the loan agreement, Mr. Kihnke says.

In addition, 235 W. Van Buren offers lower-priced units that appeal to first-time buyers, the strongest segment of the market. Condos in the building start at $179,900 for a studio and run up to $1.1 million for a penthouse, with an average price of $319 a square foot, according to Appraisal Research.

Still, sales have been slow at the building, which has reported just 20 purchase contracts in the past year. And the tight lending climate remains an obstacle, even though mortgage rates are near historic lows.

“You’ve got to work with a purchaser who may need to pay off a credit-card bill or pay off a car (to qualify for a loan) — crazy stuff,” Mr. Kihnke says. “It’s a different world.”