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Downtown condo sales hit new low in 2010

(Crain's) — Last year ended on a negative note, literally, for the downtown condominium market.

Developers of downtown condos and townhomes lost more contracts than they inked in the fourth quarter, posting a -19 net sales figure, down from 111 in the third quarter and 148 sales in the fourth quarter of 2009, according to a report by Chicago-based consulting firm Appraisal Research Counselors.

The annual sales tally sank to a new low of 498, compared with 572 sales in 2009.

It marked the fifth consecutive annual decline and the third straight year of fewer than 600 sales since the market dropped off a cliff in 2008. There had never been less than 3,200 annual sales in the 10 preceding years, according to Appraisal Research data.

While the federal government's tax credit fueled some sales activity last year, pricing was a big part of the story. Developers that discounted units fared better, says Appraisal Research Vice-President Gail Lissner, who expects discounting to drive the market again in 2011.

“Everybody who sold well (last year) repriced their units. People who held firm on pricing saw very little sales absorption,” Ms. Lissner says. “I would think we would start seeing some movement on price for the unsold inventory, which will generate more sales. I mean, how long can you sit holding firm?”

Ms. Lissner figures it will take two to three years for the market to absorb the roughly 3,000 unsold units downtown, many of which are in the South Loop and West Loop. She expects sales to perk up a bit in 2011.

“I've been predicting 1,000 for the last three years,” Ms. Lissner quips.

Chicago-based Belgravia Group Ltd. notched more than 180 sales last year, thanks to an aggressive discounting and marketing campaign launched at the beginning of 2010 at its 565 Quincy condo building in the West Loop and its Union Row townhouse project in the East Pilsen neighborhood.

“I'm not sure if I should laugh or cry,” Belgravia President and CEO Alan Lev says upon realizing his firm accounted for more than one-third of the total market's sales last year. “I feel a hell of a lot better in 2011 than I did a year ago.”

Mr. Lev says the sales generated by the discount program (which included the memorable slogan “Prices that don't suck” for 565 Quincy) allowed Belgravia to pay off its mortgages at 565 Quincy and Union Row. The firm is now focused on seeking distressed condo projects to buy, with plans to either discount and sell units or convert them to apartments, Mr. Lev says.

He says Belgravia is now pursuing about 20 so-called broken condos and hopes to get a deal done for one or two of them.

“You've got to look at a lot of those to get to the finish line,” Mr. Lev says.

One investor that crossed the finish line on a broken condo project, the Trio at 670 W. Wayman St. in the West Loop just off the Kennedy Expressway, later this month will launch a new sales effort — with new pricing — for 13 of the 21 unsold condos in Trio's two seven-story buildings. Those units had all been off the for-sale market, and some were rented out.

The new owner, a venture of Naperville-based Marquette Cos. and Boston-based AEW Capital Management L.P., also plans to rent out all the units in Trio's 23-story tower as apartments.

To bolster sales of the condos in the low-rise buildings, the units now include a free garage parking spot, newly installed smart home features and an offer from the owner to pay mortgage points so a buyer can secure a lower interest rate, says Christine Lutz, a senior vice-president with the Chicago-based residential marketing firm Garrison Partners.

Ms. Lutz says one-bedroom units will now start in the $190,000s, while units with two bedrooms and two bathrooms will start in the low $300,000s.

“Doing the same thing over and over again in this market is a form of insanity,” she says. “You're not going to get a different result.”

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