“With the strengthening of condo resale prices, the number of resales taking place, and the lack of new condominiums available for sale, the feasibility of new condo development is improving and is expected to strengthen,” says Gail Lissner, vice president of Appraisal Research Counselors, Chicago’s top condo appraisal firm.

With that in mind, Appraisal Research Counselors has published a new report, The Condo Developer’s Dilemma: What, Where, and When to Build.

The report contains and in-depth review of the new-construction condominium market from 2004 to 2014, a decade which saw the construction of 15,896 new units in 82 buildings in downtown Chicago. “This report – which studies sub-markets, product size, and per-square-foot resale price patterns over ten years – should be helpful to developers in analyzing the best opportunities for new condo development in the near future,” says Lissner (left).

“At the present time, sales absorption is still a major consideration and no one has yet been ready to embark upon a development which would have a very ambitious pre-sale requirement,” said Ron DeVries, vice president of Appraisal Research Counselors.

The company’s Downtown Benchmark Report for the first quarter of 2015 noted the following developments in the marketplace…

• Downtown Recovery. There has been a rebound in condo sales downtown but the volume is extremely modest with barely 400 new units sold in 2014.
• Boutique projects. While a few developers are beginning large condo buildings, smaller boutique projects with less than 50 units are very popular.
• Affordable condos scarce. “No condo units priced below $700 per square foot, or with average square footage of less than 2,000, are being marketed north of the Chicago River,” Lissner said.
• Pipeline is growing. “Numerous condo projects are being planned by developers in various stages of the pre-development process,” according to Lissner. “While most are smaller developments and boutique in nature, some are more ambitious.”

For example, The Wanda Group and Magellan Development are planning 400 luxury condo units above a five-star hotel in the Lakeshore East community south of the Chicago River.

Related Midwest is planning a mixed-use condo/retail building in Streeterville. On the downtown neighborhood’s eastern edge, the company also has acquired the failed Spire site, where a 1,200-unit luxury high rise was planned. “Related is in the process of developing a plan for this high-profile site, which likely will include a condominium component,” said DeVries (right).

With little or no new condo inventory being added to the downtown market, and developer-owned inventory being sold, prices of resale units are beginning to rise.

“At the end of 2014, resale condo prices hit $399 per square foot, only four percent below the $414 per square foot peak price level of 2008,” said Lissner.