The Market Report by Diana M Peterson, J.D., August 2010 Issue


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The Market Report by Diana M Peterson, J.D., August 2010 Issue

  1. 1. THE MARKET REPORT By Diana M. Peterson, J.D. Trends and News in Chicago Residential and Commercial Real Estate PAGE 1 CONTENTS MARKET OVERVIEW market indicators suggest that single family homes in Lakeview QUARTER 2 | 2010 may soon suffer the same fate. For clients who plan to sell in Lakeview, I recommend listing their property as soon as pos- Market Overview: sible, in order to avoid a potentially substantial loss in market Residential As compared to this time last year, average sale prices of value. luxury properties in the Gold Coast/Streeterville/Old Town Mortgage News (Near North) and Lincoln Park and Lakeview areas are down With most luxury properties in the city holding their value, this only nominally in some cases and up in others, depending on is still a good time to sell. It is also a great time to purchase a Property Taxes the type of property. Specifically, average sale prices of luxury home on the North Shore, where average sale prices are down single family homes were down only 2.5% in the Near North as much as 15% to 30% over last year in Deerfield (down Market Overview: area and down only 3.7% in Lincoln Park. The best performing 19.5%), Kenilworth (down 21.8%), Lake Forest (down 19.5%), Commercial luxury properties, with average sale prices higher than the pri- Northbrook (down 15.8%) & Winnetka (down 27%). The cur- or year, were luxury condos in the Near North area (up 3.7%) rent differential between many of the downtown and North Legal Issues and Lincoln Park (up 6.7%). Hardest hit this past year were Shore luxury home values likely reflects both the economy in co-ops in the Near North area and Lincoln Park (with average general and the significant downturn in the financial services sale prices down 14.8% and 24%, respectively) and Lakeview sector, more particularly. The economic downturn has put pres- single family homes (with average sale prices down 16.8%). sure on developers who built mega mansions speculatively and Market times (number of days on the market before a property are now carrying the costs of land purchase, demolition, con- sells) this past year for Near North single family homes were struction, property taxes and financing, while desperately seek- up substantially (28.6%) and for Lincoln Park co-ops were up a ing buyers. The downturn in the financial services sector has whopping 47.9%. In this environment, initially pricing a prop- put pressure on over extended and underemployed financial erty correctly is even more crucial than ever. services executives and others who must now downsize and sell their homes on the North Shore. For clients willing to leave Where we saw the most substantial decline in city sale prices the city, or those already on the North Shore and interested in this past year was in the market for more modestly priced con- upgrading, these distressed properties, both existing and new dominiums ($400,000 and under). The primary reason for this construction, present a huge opportunity. decline was the sizeable increase in the number of foreclosure, By Diana M. Peterson, J.D. © short sale and bank owned property sales that occurred and continue to occur in increasing numbers. Because these dis- LAKEVIEW ($1,000,000+) tressed sales are growing and often include many units within TYPE MEDIAN+ % CHANGE* MARKET TIME** % CHANGE* a given building, appraisers and lenders are now using them CONDOS $1,606,875 -3.5% 148 +18.2% to establish market value of comparable, non-distressed prop- SINGLE FAMILY $1,463,235 -16.8% 245 +6.1% erties; instead of being discounted as aberrations, and not NORTH SHORE ($1,000,000+) included in the appraiser or lender’s analysis, as they would TYPE MEDIAN+ % CHANGE* MARKET TIME** % CHANGE* have been in the past, these distressed sales are now the norm DEERFIELD $1,090,625 -19.5% 412 +43.9% and counted as true comparables. This substantially reduces EVANSTON $1,303,452 +0.7% 187 +38% the market value of non-distressed properties that close within GLENCOE $1,820,450 +6.8% 304 +9.9% the following three to six months. While this trend primarily GLENVIEW $1,339,525 -3.3% 291 +15.8% has occurred in the lower priced condominium market, current HIGHLAND PARK $1,562,631 +7.5% 372 +0.3% KENILWORTH $1,789,666 -21.8% 346 +8.4% GOLD COAST/STREETERVILLE/OLD TOWN (NEAR NORTH) ($1,000,000+) LAKE BLUFF $1,289,464 -8.2% 280 +9.6% TYPE MEDIAN+ % CHANGE* MARKET TIME** % CHANGE* LAKE FOREST $1,745,320 -19.5% 249 -20.8% CONDOS $1,809,541 +3.7% 217 -5.5% NORTHBROOK $1,284,005 -15.8% 482 +26.8% CO-OPS $1,640,250 -14.8% 413 -42.4% NORTHFIELD $1,785,000 +17% 370 +45% SINGLE FAMILY $2,673,500 -2.5% 433 +28.6% SKOKIE $1,082,500 -5.1% 880 +93.9% LINCOLN PARK ($1,000,000+) WILMETTE $1,436,060 +1.3% 170 -24.2% TYPE MEDIAN+ % CHANGE* MARKET TIME** % CHANGE* WINNETKA $1,690,509 -27% 229 +10.5% CONDOS $1,667,692 + 6.7% 146 -2.0 % +Median is the Average Sale Price during the last 12 Months (8/09 to 8/10). CO-OPS $2,283,333 -24% 280 +47.9% *% change represents the difference between data from 8/08 to 8/09 and 8/09 to 8/10. **Market Time is the number of days on the market before property is sold. SINGLE FAMILY $1,964,600 -3.7% 186 -6.5% This information is based on data obtained from MRED 8/5/10. DIANA M. PETERSON, J.D. Commercial and Residential Real Estate Broker, Attorney 312.218.6102 | | QUARTER 2 | 2010
  2. 2. THE MARKET REPORT By Diana M. Peterson, J.D. Trends and News in Chicago Residential and Commercial Real Estate PAGE 2 MORTGAGE NEWS PRODUCT INTEREST RATE APR MORTGAGE RATES REACH NEW 4.58% LOW. Rates CONFORMING for 30 year fixed loans continue to move down from 4.8% 30-Year Fixed 4.50% +0.7% at the beginning of June, reaching 4.58 for the week end- 15-Year Fixed 3.75% +6.8% ing 7/1/2010. Among the lowest in 2010, mortgage 5-Year ARM $1,339,525 -3.3% rates continue to increase the affordability of homes and JUMBO $417,000 - $2,000,000 put pressure on buyers in every sector. 30-Year Fixed $1,789,666 -21.8% 5-Year ARM $1,289,464 -8.2% FHA 30-Year Fixed $1,284,005 -15.8% By Jim Foeller, Home Mortgage Consultant Rates as of 8/11/2010. Conforming rates are based off a 25% down payment and minimum loan amount of $250,000. Jumbo rates are based off a 30% Home Services Lending down payment and a maximum loan amount of $2,000,000. Some restrictions An affiliate of Wells Fargo Home Mortgage apply. The displayed annual percentage rates (APRs) include total closing cost 900 N. Michigan Ave. Suite #1700 and additional prepaid finance charges. On adjustable-rate loans, rates are subject to increase after consummation. Rates are subject to change without Chicago, IL 60611 notice and depend in part on your unique credit history and transaction char- 312.893.8120 phone acteristics. 773.304.2372 fax 773.412.2969 cell PROPERTY TAXES the county Board of Review (applicable to all counties), an ap- peal may be filed before the Illinois Property Tax Appeal Board ›› UND ERSTAND I N G or the county’s Circuit Court depending on the circumstances THE APPEAL PROCE SS surrounding the appeal. Grounds for a successful appeal typically include, but are not All residential, industrial, and commercial property is entitled limited to, a recent purchase price lower than the market value to be properly assessed under the Illinois Property Tax Code assessed by the county Assessor, commercial or industrial prop- (35 ILCS 200/1 et. al; the “Property Tax Code”). If you do erty that suffers from vacancy, property income generated war- not believe that your property is fairly assessed, you have the rants a lower market value (commercial and industrial proper- right to an appeal. ties only), or a recent appraisal indicates a lower market value. If you believe that your property is over-assessed, you should In Cook County, all properties are assessed on a Triennial As- consider filing an appeal, as there is no need to pay more sessment Cycle, or every three years. For example, if your taxes than necessary. property is located in Cook County, the property received a proposed assessment for the 2009 tax year, which will remain By Anita B. Mauro, Tax Attorney in effect through the 2011 tax year. The property will be re- Thompson Coburn LLP assessed again in 2012. Counties other than Cook County are assessed on a Quadrennial Assessment Cycle, or every four years. While properties are assessed according to the relevant assessment cycle, an appeal may be filed before the Thompson Coburn LLP appropriate governmental agency for each tax year. In Cook Chicago | St. Louis | Southern Illinois | Washington, D.C. County, appeals are filed initially before the Cook County As- sessor, and then the Cook County Board of Review. In all other counties in Illinois, appeals are filed directly before that This information is intended for information only and should not be considered legal advice. If you desire legal advice for a particular situation you should consult an attorney. county’s Board of Review. If the appeal is unsuccessful before DIANA M. PETERSON, J.D. Commercial and Residential Real Estate Broker, Attorney 312.218.6102 | | QUARTER 2 | 2010
  3. 3. THE MARKET REPORT By Diana M. Peterson, J.D. Trends and News in Chicago Residential and Commercial Real Estate PAGE 3 MARKET OVERVIEW is now $16.13 psf (an increase of $0.31 psf from last quarter and an increase of $0.18 psf from one year ago). Significant retail lease transactions from this past quarter in- RETAIL clude: Hy-Vee Foods (90,000 sf at NEC Rt. 23 and Oakland, After seven months of increases in retail sales activity, retail Sycamore); PT Fitness, LLC (52,000 sf at 555 W. Madison); sales volume fell in May and June. This reduction reflected and Goodwill Retail Service, Inc. (22,000 sf at 6300 Robert consumer confidence which dropped to its lowest level since Kingery Highway, Willowbrook); Nordstrom Rack (39,000 sf March, 2010. Construction activity in the Chicago retail mar- at 730 North Michigan Avenue); Mastro’s (20,000 sf at 520 ket slowed significantly this past quarter, decreasing by 42% North Dearborn Street); AllSaints Spitalfields (11,000 sf at since one year ago. Many previously planned projects are 700 North Michigan Avenue); American Apparel (5,000 sf now on hold, including the much talked about redevelopment at 39 South State Street) and Disney (4,500 sf at 108 North of the Esquire Theater (which has been closed since September State Street). 2006) and its adjacent lot comprising 58 to 104 East Oak. Significant investment transactions included: Carson Pirie Scott Despite these signs of weakening, there has been some positive (847,000 sf at Charlestowne Mall); Home Depot (260,000 sf at news as established retailers have been given such favorable South Elgin Crossing); Marshall’s (107,800 sf at the Pointe at Clark deal terms that several have begun opening up new locations Street); Whole Foods Market (48,835 sf at 500 East Ogden Av- along the Magnificent Mile. The overall average vacancy rate enue); and Apple Inc. (18,000 sf at 801 West North Avenue). for the Chicago retail market also fell for the first time since 4th quarter 2006, settling in at 11.9 percent (down 20 basis RETAIL SPACE ($/PSF/YEAR) points from the previous quarter). While this vacancy rate is SUBMARKET VACANCY RATE AVG. NET* RENT RANGE still 30 basis points higher than one year ago, when the vacan- CITY NORTH 6.5% $23.06 to $30.33 cy rate was 11.6 percent, the City North submarket currently CITY SOUTH 10.8% $16.31 to $19.43 has a much lower vacancy rate of just 6.5 percent (the low- NORTH SUBURBS 8.9% $14.85 to $18.34 est vacancy rate in all Chicago retail submarkets). The overall FAR NORTH SUBURBS 14.2% $15.01 to $21.23 average net asking rental rate for retail space in the Chicago N.W. SUBURBS 13.6% $13.33 to $18.04 metro area has increased for the second consecutive quarter; it FAR N.W. SUBURBS 10.9% $14.81 to $17.46 WEST SUBURBS 8.9% $14.02 to $16.43 FAR WEST SUBURBS 11.7% $13.87 to $16.96 SOUTH SUBURBS 21.5% $11.97 to $15.71 S.W. SUBURBS 9.4% $15.77 to $17.09 FAR S.W. SUBURBS 9.3% $14.55 to $17.99 *Net rental rates do not include building taxes, operating expenses, & common area maintenance (these are additional rent expenses tenants must pay in their proportionate share) CBD OFFICE After six consecutive quarters of negative absorption, the After M Development’s Mark Hunt failed to gain zoning approval central business district experienced positive absorption of for a boutique hotel on the Esquire Theater site in 2008, he pro- 255,000 square feet of office space in the last three months. posed a three story luxury shopping complex. On July 16, 2010 This positive absorption reflects a decrease in sublease space The Chicago Tribune reported that Don Wilson Jr., a trader and owner of DRW Holdings, LLC, had purchased the property when coming on the market and increased occupancy derived from Anglo Irish Bank Corp. moved against M Development to fore- new tenants entering the market. BP, the largest of these new close and collect on a $33.2 million loan. Now sources say that tenants, leased approximately 240,000 square feet at 10 S. Mr. Wilson only infused capital and that Mr. Hunt is currently Wacker and 30 S. Wacker. marketing the site as a proposed two story luxury shopping com- plex; however, construction is not expected until leases are signed with at least one anchor tenant. Other significant leases signed during the quarter include: Neal Gerber & Eisenberg (179,000 sf at 2 N. LaSalle); Getco DIANA M. PETERSON, J.D. Commercial and Residential Real Estate Broker, Attorney 312.218.6102 | | QUARTER 2 | 2010
  4. 4. THE MARKET REPORT By Diana M. Peterson, J.D. Trends and News in Chicago Residential and Commercial Real Estate PAGE 4 (105,000 sf at 350 W. Mart Center); Information Resources Inc. (105,000 sf at 150 N. Clinton); Synovate (88,000 sf at SUBURBAN OFFICE 222 S. Riverside Plaza); Travelers Insurance (79,000 sf at 161 Demand for suburban office space remains weak; however, N. Clark); Help at Home/Oxford Healthcare (48,000 sf at 1 there are signs of improvement, including some large lease North State); Dyson (38,000 sf contraction at 600 W. Chicago); transactions in recent months, increased investment activity Brewer Investment Group (31,000 sf at 303 E. Wacker); XO and positive employment numbers. Investors believe that the Communications (30,000 sf at 303 E. Wacker); Neutral Tandem market is near the bottom and continued increased invest- (28,000 sf at 550 W. Adams); Huron Consulting (26,000 sf at ment activity is likely as foreclosures abound and landlords 550 W. Van Buren); and JBT (24,000 sf at 70 W. Madison) struggle to attract new tenants. Asking rental rates continue to fall and are currently the lowest since the second quar- Major tenants currently reported to be in the market and ter of 2007; the average rental rate for Class A space ex- evaluating their options for 2013 and 2014 include: Citadel perienced the greatest decline, falling $0.28 per square (350,000 sf); PricewaterhouseCoopers (280,000 sf);Wells Far- foot to $25.67 per square foot. The overall vacancy rate go (250,000 sf); Draftfcb IPG (250,000 sf); Fifth Third Bank is the highest it has been in recent history, at 21.7%, and (225,000 sf); Sonnenschein (200,000 sf); Integrys (150,000 the availability of large blocks of office space is up 22% sf); and McKinsey & Company (100,000 sf). since the recession began. The best news of the quarter for some suburban landlords is that the Class A vacancy rate Recent large building sales include: 180 N. LaSalle (sold for for direct space fell 10 basis points to 18.9% and there $72.3 million or $94 psf); 203 N. Wabash (sold for $6 million was positive absorption in the O’Hare and North Suburban or $32 psf in a distressed sale); and 29 N. Wacker (sold for submarkets. $13.4 million or $104 psf). Significant leases signed during the quarter include: Hewitt Buildings currently under contract include 300 N. LaSalle and Associates (222,000 sf at 475 Bond Street in Lincolnshire); 300 S. Riverside. Buildings currently on the market include: Verizon Wireless (127,000 sf at 777 Big Timber Road in 600 W. Chicago; 353 N. Clark; and 550 W. Jackson. Elgin); Verizon Wireless (123,000 sf at 1515 E. Woodfield Road in Schaumburg); Harris Bank (98,000 sf at 700 E. CBD OFFICE SPACE Lake Cook Road in Buffalo Grove); APP Pharmaceuticals SUBMARKET VACANCY RATE AVG. GROSS* RENT RATE (85,000 sf at Schaumburg Corporate Center); PrimeSource CENTRAL LOOP 15.6% $30.73 Healthcare (77,000 sf at Riverwalk II); Comp TIA (32,000 Class A 10.8% $37.88 sf at Esplanade II in Downers Grove); and Class B 18% $30.16 (29,000 sf at One North Arlington in Arlington Heights). Class C 19.1% $24.55 EAST LOOP 21.3% $29.99 Major tenants currently reported to be in the market and Class A 29.9% $34.47 evaluating their options include: Navistar (East/West Cor- Class B 19.1% $31.72 ridor requirement of up to 1.4 million sf); Follett (O’Hare Class C 16.5% $24.24 and East/West Corridor submarkets under consideration); NORTH MICHIGAN AVE. 16.1% $33.06 Harris Bank (250,000 sf); HAVI Global Solutions (110,000 Class A 11.9% $35.16 sf); US Cellular (possible O’Hare expansion); and United Class B 18.8% $33.30 Health Group (65,000 sf in the Northwest suburbs). Class C 11.1% $21.09 RIVER NORTH 15.1% $22.47 Recent large building sales include: Continental Towers in Class A 18.9% $32.80 Rolling Meadows; Highland Pointe in Lombard (sold for Class B 15.4% $22.70 $33 million or $90 psf); Cantera I and III in Warrenville; Class C 14.0% $21.00 The East Building at 955 American Lane in Schaumburg WEST LOOP 17.4% $33.64 (sold for $30 million or $159 psf); and 6400 Shafer Court Class A 17.4% $37.50 in Rosemont (sold for 11.5 million or $67 psf). Class B 16.8% $31.68 Class C 18.8% $23.55 Buildings currently under contract include: 400 Skokie Bou- *Gross rental rates include tenant’s proportionate share of building taxes, oper- levard in Skokie; 5515 NE River Road in Chicago; and Pine ating expenses and common area maintenance Meadow Corporate Center in Libertyville. DIANA M. PETERSON, J.D. Commercial and Residential Real Estate Broker, Attorney 312.218.6102 | | QUARTER 2 | 2010
  5. 5. THE MARKET REPORT By Diana M. Peterson, J.D. Trends and News in Chicago Residential and Commercial Real Estate PAGE 5 Buildings currently on the market include: Alcatel’s two-build- enjoy their cupcakes with coffee. Because the landlord already ing campus in Lisle; Triangle Plaza in Chicago; Naperville had granted an exclusive right to sell coffee to its anchor ten- Woods; Atrium Corporate Center in Rolling Meadows; 747 ant, Starbucks, my client was less interested in the space than E 22nd Street in Lombard; One Energy Center in Naperville; it would have been otherwise and the space remained vacant Lisle Executive Center; and Ten Parkway North in Deerfield. for some time. SUBURBAN OFFICE SPACE If the Landlord had limited the exclusive right it gave Starbucks SUBMARKET VACANCY RATE AVG. GROSS* RENT RATE to one that only prohibited other tenants whose primary use EAST WEST TOLLWAY 22.7% $21.63 is the sale of coffee, the Landlord would have been less lim- Class A 21.7% $26.47 ited and able to attract a greater number and wider variety of Class B 22.8% $20.44 tenants, more quickly. Alternatively, the Landlord could have Class C 24.2% $16.70 limited the exclusive right it granted Starbucks to permit other NORTH SUBURBS 21.1% $22.56 tenants to sell coffee in a small portion of their stores. In either Class A 17.9% $27.63 case, a cupcake shop that also sells coffee would be an al- Class B 21.6% $21.68 lowed use that arguably is complementary to Starbucks, which Class C 25.9% $18.91 primarily sells coffee drinks and only secondarily sells baked N.W. SUBURBS 25.6% $21.12 goods. Class A 22.8% $24.15 Class B 27.2% $19.93 Interestingly, another cupcake shop ultimately leased the space Class C 30.2% $16.40 next to Starbucks, despite the lease restriction excluding their O’HARE 25.8% $22.31 sale of coffee. Now, one year later, a cupcake shop with a Class A 23.5% $27.23 seating area and coffee for sale has opened up less than two Class B 28.7% $21.82 blocks away and is so popular there is a long line outside the Class C 27.7% $16.60 door on a daily basis. If this new cupcake shop puts the one SOUTH SUBURBS 24.5% $17.09 next to Starbucks out of business, the Landlord that granted that Class A 24.8% $19.41 exclusive right to Starbucks will be looking for a new tenant Class B 25.2% $15.80 and spending more money on another tenant build-out. If it Class C 23.6% $17.84 had not granted such a broadly stated exclusive right to Star- WEST COOK 34.6% $14.80 bucks, both the Landlord and its cupcake shop tenant would Class A 0.0% N/A likely be in a much better position. Class B 14.5% $19.25 By Diana M. Peterson, J.D. © Class C 36.4% $14.65 *Gross rental rates include tenant’s proportionate share of building taxes, oper- ating expenses and common area maintenance By Diana M. Peterson, J.D. © LEGAL ISSUES ›› EXCLU S IVE R I G HTS L AND LO RDS G R ANT TO TENANTS In order to attract tenants, Landlords often grant them exclusive rights. To protect the Landlord, and give the Landlord more flex- ibility, the lease clauses granting these rights should be drafted Swirlz Cupcakes | as narrowly as possible. Consider the following example. A 705 W. Belden, Chicago, IL | 773-404-CAKE (2253) retail client of mine wanted to lease space in a Gold Coast building with several retail spaces on the ground floor. My client wanted to primarily sell cupcakes and secondarily sell coffee, so patrons could linger in a small seating area and DIANA M. PETERSON, J.D. Commercial and Residential Real Estate Broker, Attorney 312.218.6102 | | QUARTER 2 | 2010