Developer's Closeouts In The South Loop's Columbian – Good Deals?

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As I mentioned last week I recently got an email promoting the high cooperating commissions being offered by The Columbian at 1160 S Michigan, in Chicago’s South Loop. As I’ve previously posted, such offers don’t make a lot of sense to me and reek of desperation so I was very interested to attend their open house and check out their most expensive penthouse listed at $1.9 MM – unit 4101. And while I was at it I wanted to check out the overall values in a building that claims to have the “best priced condos on Michigan Avenue”.

The Penthouse Unit

Unit 4101 is a 2 bedroom, 3 1/2 bath, 3483 square foot unit with 2 parking spaces and $1510 per month in assessments. It was originally designed as a 3 bedroom unit but it was under contract at one time and the buyer had requested that one of the bedrooms be converted to a (I assume) media room. Obviously it can be returned to a bedroom.

As soon as I walked in I was underwhelmed with the finishes – plain vanilla. Engineered hardwood floors, no crown molding, flat doors, plain trim, very basic kitchen and bathroom fixtures and counter tops. Check out the photo gallery below and tell me what you think. Are these the kinds of finishes you would expect in a $1.9 MM penthouse? The sales director said that they chose to go with the engineered flooring because of the expansion and contraction of the underlying concrete. But….I’ve seen real hardwood floors over concrete before.

The photo gallery below also shows the views from this penthouse. Unfortunately, it was a pretty hazy day (seems like we get a lot of hazy days in Chicago these days) but you get the idea. Most of the views were pretty good except there is a rather ugly building due north. I didn’t bother to shoot that view since it would be rather boring and you can get an idea of what you would be facing by looking at my northwest photo.

Relative Values In The Columbian

The developer has 40 units remaining to be sold, out of 220 total units in the building. Here is a pretty good sample of what is currently available (not all of which are on the MLS):

The price per square foot shown in the table above removes the cost of parking, which I valued at $30,000. You will see a pretty broad range of prices from $284/SF on a lower floor to $528/SF on a much higher floor. At $528/SF you are starting to approach the prices in premier buildings downtown.

You will notice from this list that unit 4001, directly below the penthouse unit I saw, is $150,000 cheaper than 4101, has 3 bedrooms instead of 2, and is bigger with 3690 square feet. Supposedly 4101 has lots of upgrades that 4001 doesn’t have. Hmmm.

I ran a regression analysis on the developer’s pricing and was able to explain 95% of the price differences between the units in the table above. However, keep in mind that the remaining 5% can actually result in huge differences attributable to level of finishes, view, and pricing anomalies. What the analysis shows is that on average each additional square foot is going to cost you another $408 and as you go higher in the building each additional floor adds another $3.00 to that per square foot price. In other words, if you are comparing two 1,000 square foot units on adjacent floors you will pay about $3,000 extra for the higher floor on average. You know what? That’s actually extremely typical and it’s pretty cool that the analysis comes up with that number.

So they tout closeout prices in their emails and on the entry page to The Columbian’s site but many of these prices have been in effect for over a year. Well, I guess you can be closing out for more than a year.

While their prices might be comparable to similarly sized units in other buildings in the area, those other buildings have a higher level of finishes and they have pools, which The Columbian does not. However, in reality people rarely use their pools and I got the distinct impression from the sales director that his prices were highly negotiable.

The current pricing seems to be in line with what has sold in the last year in the building. However, keep in mind that condo prices in Chicago have been plummeting over the last year so their pricing should have gone down accordingly.

The current developer pricing is also in line with what is currently for sale in the building’s secondary market. That’s actually surprising because you would think that “used” units would carry some kind of discount.

How To Overpay For A Condo

In looking at the pricing in The Columbian I saw an example of a very common pattern with new developments. I stumbled on one sale in particular over the last year that really stood out as a case where the buyer might have way overpaid for the unit. Unit 907, with 3 bedrooms and 2 baths and 1909 square feet, sold for $675,000. Adjusted for the 1 parking space that comes out to $353/SF, a higher price/SF than any other unit sold in the last 12 months, including units on much higher floors. While there might have been extentuating circumstances (e.g. lots of upgrades or the contract was signed during the bubble peak and only now closed for some reason) this is a huge outlier.

Well, no surprise, the buyer apparently did not have a real estate agent and worked directly with the developer. That’s fine if you have decided that you absolutely have to live in one particular building and you are totally capable of analyzing all the different dimensions of pricing. However, when I dig into closings at high prices I often see that the buyer did not have their own real estate agent.

Short Sales At The Columbian

And of course there are the short sales. While only 2 of the 21 units currently listed on the MLS (not all developer units are on the MLS) are short sales, in the last year 6 out of 21 closings were short sales, with 2 more under contract right now. So what does that tell you about what has happened to the values in The Columbian? Of course, that’s no different than any other Chicago condo building.

One of those short sales was truly astounding – by far the cheapest sale in the building for the size of the unit, given the floor it was on. Unit 3504, a north facing, 2 bedroom, 2 bath, 1200 square foot unit closed for $245K with one parking space. Compare that to the original sale price of $650K or the final list price of $449K. Interestingly the listing agent was on both sides of the deal. An inside job? How did the bank let that happen? Unfortunately, buyers see these deals and then think there are thousands of them out there. In reality they are pretty rare and often unethical.

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