Members of the 33 Realty Investment Brokerage team attended Rejournals’ Deconstructing Condo Deconversion Conference held last Thursday, October 18, 2018. At the event, 33’s managing director, Sean Connelly, and other real estate experts discussed the ins and outs of condo deconversions, including “How We Got Here and the State of the Market.”
As pointed out in the keynote, investors have been deconverting condos since as early as 2013 – when the 20-year building trend first reversed. What started out small, with lower density buildings deconverting, has morphed into headline-making deconversions with investors seeking opportunities to deconvert high-rises with 300+ units. Although the trend is entering its fifth year, the group agreed condo deconversions will likely continue into 2019 and beyond.
The group also agreed that while condo deconversions are popular in North Chicago neighborhoods (Uptown, Edgewater, Lincoln Park and the Gold Coast), any building with the right valuation is a potential target for condo deconversion.
“The key to these buildings is that they should never have been condos in the first place,” said Connelly. “Deconversion gives unit owners a once-in-a-lifetime opportunity to unlock their unit’s value through an add value investment approach; an option that would be entirely unavailable if trying to sell through the residential market.”
33 Realty has completed several condo deconversions this year and on average unit owners receive up to 40% more value when they bulk sell. Another advantage from the unit owner’s perspective is that association reserves are distributed as sale proceeds based on share of ownership; in a traditional sale, these funds would remain with the association.
Here are five more takeaways from the group which included professionals with backgrounds in finance, investment, real estate, and law:
- Communication is key. From presenting a deconversion opportunity to closing, open and regular communication with condo owners is essential. Have direct dialog with board members and host forums for owner Q&A. Other suggestions included providing owners net sheets and buyer info packets.
- Do your homework. Connelly advised brokers to “know the temperature of the building before you go in with an offer.” Gauging interest ahead of an offer can help you prepare for owner resistance. On the front end, you must educate the owners about the process and set clear expectations.
- Get an accurate valuation. While the market exists to do better as a Deconversion sale than a traditional sale, make sure the broker you engage is giving the association real feedback on value and not just telling the association what they want to hear. These transactions are difficult and not setting appropriate expectations out the gate can be a giant waste of all parties time.
- Expect to work for it. Panelists said that deconversions can take anywhere from 6 months to over a year. No two deals are alike and deals can be derailed at the very last minute. Section 15 of the Illinois Condominium Property Act clearly lays out provisions for deconversion but that doesn’t prevent dissenters from holding out.
- Partner with an expert team. In order to successfully navigate the nuances of condo deconversion from start to finish, investors need to assemble a team with a proven track record and one that is up-to-date on legislative changes. Currently, in order to pass a deconversion, investors must obtain a 75% vote. The proposed amendment to 765 ILCS 605 would increase this share to 85%.
33 Realty works with a select group of lenders and legal advisors – professionals with extensive experience with condo deconversions. 33 has successfully deconverted both small (less than 25 units) and large (100+ units) condo buildings. Recent condo deconversion sales include 4700-4708 N Winchester, 733 W. Oakdale and 540 W Surf. 33 Realty has also represented sellers in the acquisition of condo deconversion property in Chicago’s suburbs such as Stratford Trails in Glendale Heights, IL. Learn more by contacting our team at firstname.lastname@example.org.