Chicago has always been more famous for its pizza that its elite housing. But the revival of skyscraper construction and the rise in real estate prices have given rise to the development of the luxury housing market in the Windy City. Developers have begun a battle for wealthy buyers to fill the new high-rise buildings.
Sales of luxury homes worth more than $5 million were up in Chicago last year, said Coldwell Banker in a report. The largest transaction was the sale of a 7,900 square foot penthouse in Park Tower at 800 North Michigan Ave at the end of last year. The deal was worth $15 million.
Coldwell Banker forecasts that such demand could lead to significant growth in property values this year. This is especially true for single family homes and luxury apartments.
The biggest demand is for real estate that offers a wide range of services, like the Trump Tower and the Ritz-Carlton on Michigan Avenue. Craig Hogan, Previews Luxury Director at Coldwell Banker’s Chicago office, says that most of the buyers are people living in Chicago’s suburbs but who want to move into the city center. This is because large companies are moving their offices from the suburbs to the center. Another segment of buyers are investors who want to make money on Chicago’s growing real estate market.
It’s still too soon to say that Chicago’s luxury real estate market has come out of the crisis. Luxury home sales fell 41% five years ago, with the largest declines in areas like Lincoln Park and the Gold Coast. But in 2013, the U.S. economy began to improve, unemployment is down, and the real estate market has started to make a comeback. All of this stabilized prices for luxury properties.
“In the $3-5 million price range, the average sales price is just over $3.6 million, depicting a very stable market. Many sales closed over $5 million. This one fact alone sent a message to the market that high-net-worth buyers are out there and willing to pay a premium for a property in Chicago,” Hogan said.
“There are limited opportunities in an urban market to purchase a luxury home near excellent schools and amenities,” explains Hogan. “The condominium market in downtown Chicago – and specifically
Gold Coast – has seen such a dramatic increase of record-breaking sales and price per square foot that a connection to amenities and services continue to set the bar and draw buyers to our most expensive and outstanding towers.”
The Hunt for the Rich
The number of new apartments in the Windy City is growing and developers have started a real battle for buyers. They are trying to attract new clients with modern comforts, like elevators for individual use or an integrated sound system throughout the apartment.
A 45-story building on North Lake Shore Drive is one of those where a struggle for tenants is being waged this Spring. The building, built by Related Midwest developers, has 500 apartments. And in the West Loop region, Fifield opened the K2 apartments. These projects had seven designers working on them. Like many players in the Chicago luxury real estate market, the owners of these buildings seek to capitalize on the attractive architecture, the good location, and working with developers that have a proven track record.
Developers have had to undergo large-scale transformations in order to find wealthy buyers. The sellers of a Lincoln Square mansion required a lot of time to build the project up to its price. First, they turned the two-apartment building into a single-family house, having paid $417,000 for it in 2001. The house was remodeled into a six bedroom home with a wine cellar and several garages.
In 2011, this house was put up for sale for $1.3 million. Selling it at that price was only possible thanks to its good location, north of Forester Avenue. The house lingered on the market for 20 months, but was eventually sold.
Another building opened its doors for wealthy Americans this year. Apartment owners in the high-rise Lakeshore East building offered tenants several months of free rent in the downtown Chicago apartments. This allowed them to build large demand from wealthy clients, and in just three weeks, the owners had already leased 57 apartments. Experts attribute their success to building’s unique location on the lake shore. Another big bonus is the building’s expensive decor – tenants couldn’t help but be excited about the high ceilings and luxurious wooden floors.
“Luxury home owners have recently begun using wood for finishing floors and are using highend finishes for the bathroom and kitchen. This is significant for large apartments located in the prestigious areas of Chicago,” say specialists at Luxury Living.
Located about 18 miles north of downtown Chicago, Glenview has emerged as a popular suburb for affluent city dwellers over the last decade. The town caught the attention of Chicago Magazine in 2010, which ranked it among its “20 Best Towns and Neighborhoods in Chicago and the Suburbs.” Glenview attracts buyers because of the topnotch school, world-class golf courses, and its convenient location near express train lines. Investors are quickly investing in the opening of restaurants and shopping centers in Glenview.
The average cost in Glenview is $286 per square foot, whereas in Chicago’s Lincoln Park a square foot costs $355. The average sale price for luxury housing per square foot in Chicago is up 12.6% this year.
No Bubble Yet
New governmental policies that came into effect in 2013 have had a strong impact on the U.S. luxury real estate market. Wealthy buyers sought to close out transactions by January 1, 2013 before tax breaks expired in anticipation of the financial cliff. Craig Hogan points to an 18-room lakefront mansion in Winnetka that sold for $12.25 million on December 31, making it one of the single highest-priced residential sales in Chicago-area history.
Hogan cautions that “the significant increase in activity that was witnessed cannot be explained by that alone. The market was and has continued to show signs of new strength and stability.” He believes there is very high potential for Chicago’s affluent housing sector. Developers are working on new projects in the Gold Coast and other wealthy neighborhoods.
Redfin CEO Glenn Kelman is sure that buying housing in Chicago right now is worthwhile. A “minibubble” is gradually inflating the city’s housing market. The market is regaining on losses from the past few years.
According to Redfin experts, the real estate bubble in several American cities, including Chicago, is similar to the U.S. housing market situation in 2005-2006. But this time, there is tougher market competition among buyers. “If you are buying housing in Chicago, there is no need to worry about shortterm price declines. But over the next few years, the market frenzy will start to subside. Buying real estate in Chicago is a very good idea since prices could rise before they stabilize at historic highs,” emphasizes Kelman.
Owners of luxury housing can also make good returns on rent. Luxury Living comments that “the most common inquiry we are receiving is clients looking for a one bedroom apartment for $2000. Any upgraded apartment in downtown Chicago is closer to $2,200-$2,500. The high price of rent is contributing to the surge in sales of homes. Reason being, monthly mortgage, taxes and assessments for a condo cost much less than you pay to rent an apartment per month.”
Text: Vera Kozubova