By Robert Carr, Editor

With condos performing as the hottest property type in downtown, converting older apartment and office buildings into for-sale residential units has become as popular as Chicago White Sox jerseys.

The reasons for the condo boom are numerous, including low interest rates, a demand for urban living by empty nesters and improved parks and public amenities.

Conversions, a few developers say, are the easiest and fastest way to attract condo buyers, and provide a cheaper, more aesthetic version of downtown living than moving into a new building.

“There’s a lot more risk in a new building,” says Steven Gouletas, president of American Invsco, a local and national condo builder. “Your construction cost can jump, or you could have a significant challenge; these are things you have to worry about as well as hoping the buyers haven’t walked by the time it’s finished.”

With converting, a developer can get in and out much faster, Gouletas says, and be much less vulnerable to interest rate changes. Plus, less rent can be changed for the same profit. Research shows Chicago conversions are hot, he says.

“On average in the last five years, there were about 1,000 strict conversions from rental to condo each year,” Gouletas says. “For 2005, based on what has happened in the first quarter and what’s being told about the second quarter, we’re predicting a 400 percent increase over the average.”

Site must meet conversion criteria
Gouletas’ firm has handled multiple projects in the city, including the conversion of The New York on North Lake Shore, building Millennium Centre and recently purchasing Ontario Place on East Ontario Street, to convert the building into condos.

He says many owners are seeing positives about putting struggling properties on the market. But not every project is going to be a winner, Gouletas says.

“It all depends on how you bought it,” he says. “It’s easy to buy and pay too much. Sometimes the best purchases you can make are the ones that you don’t. There are currently a number of buildings going on the market that we believe that the buyer significantly overpaid. Only the market is going to tell us if it will support the new pricing, or whether we were right in our bids.”

Keith Giles with Frankel & Giles, a partner in redeveloping a 90-year-old retail building at the corner of State and Monroe streets into The Metropolis condo building, says a site has to meet all the criteria for conversion.

“For example, the floorplate can’t be too big or have too much empty space, or it just won’t meet code,” Giles says. “At our project, we’ve got a 14,000 square foot floorplate. We’ve had to move stairways and the elevators, both very common, and add windows and balconies to the north side. The balconies are pretty unique for inside the Loop, and you just couldn’t duplicate these windows because of how much it would cost today.”

Giles is part of Metropolis LLC, which includes Jerry Karlik with State Street Development and Bill Warman with Warman Development. James McHugh Construction Co. is the general contractor on the $28 million project to turn the 19-story building into 169 condos.

The project started in January and will only take a year to complete, much faster than a new development would take to build, Giles says.
“You just don’t have to worry about building all that brick and mortar,” he says. “There’s some cost, you might have to cut some holes in floors or walls, but you don’t have to start anew. You have to fix the façade, not build a whole new façade.”