20-Feb-22 – The deconversion vultures are still circling Chicago, shopping for deals on condominiums that can be transformed into lucrative rental properties.

A 2019 survey by The Home Front revealed that more than 2,500 condo units in more than 20 existing condo buildings have been deconverted and rehabbed into rental apartments over the past three years.

Experts say the deconversion trend started nearly a decade ago after the Great Recession created the condo bust. Developers snatched up unsold condos in failed projects in bulk transactions and rented them for hefty profits.

Over the past few years, the trend has accelerated. The new wrinkle is investors hunting for troubled older condo buildings and attempting to buy out individual owners in such hot neighborhoods as Gold Coast, Lakeview, Lincoln Park, and South Loop.

Among the latest targets are owners at the 12-story Pope Building (left), a vintage 89-unit loft building at 633 South Plymouth Court in the Printer’s Row neighborhood south of the Loop, where the sharks have been circling since 2019.

“I am stunned how little control owners have when a condo board decides they all personally want out,” said a Pope Building unit owner, a woman who did not want to be identified, so we will call her “Sandi.”

“What they didn’t tell owners was that while this building was up for sale, we could not sell – unless it’s a cash deal – because banks do not loan to buildings that are up for sale,” said Sandi.

That puts limits on what unit owners can do with their property, she said. “It’s now going on 14 months of not being able to sell, not being able to renovate, not being able to refinance – basically strung up and waiting.”

Talk about being locked in condo jail. Many of the owners at the Pope Building asked their condo board to take a straw vote before going through this process and they refused, according to Sandi. “In August of 2021, the board finally got an offer they were willing to accept – for a lot less than they originally promised,” she said. “In December, they announced we could all start voting and gave us the attorney’s name to send our vote [to].”

More than two months later, the condo board, she says, still has not:

• Closed the vote on the proposed deconversion and has not disclosed why.

• Disclosed where the vote stands and has not disclosed a timetable for the deconversion.

However, board members do keep reminding unit owners they can change their vote as long as voting is open, said Sandi. “And the board simultaneously keeps threatening that they will be handing down a special assessment when this is all over, without any true bid in hand for the repairs that need done.”

In the meantime, owners received a terse letter from Scott Zwilling, managing principal at Spirit Investment Partners, the investor/deconverter. “If by chance the deconversion doesn’t succeed and you are an owner who wishes to continue their ownership, we appreciate your collaboration with addressing the improvements this building needs,” wrote Zwilling (left).

“Although we cannot be certain, it is very likely that a special assessment will be required to keep the building in good repair. Given that we will have control over the Association, we will ensure operations are transparent and the remaining ownership are clear to what improvements are being completed and the required cost from each owner,” he wrote.

Although Spirit Investment Partners may be offering an above-market price for the units, owners worry that sales commissions will be high and they are being forced out of a neighborhood that is rising in value.

“Several owners have lived at the Pope Building for 20 years or more,” said Sandi. “There’s a real sense of community here. Many artists and creative people reside here.”

Seventy-two percent of the owners are in favor of the deconversion, she said.

Deconversion condo buyers include major landlords, out-of-state investors, and tax-deferred 1031 exchange purchasers who are looking to acquire real estate to defer capital gains on recent property sales.

Under state law, an investor can acquire all the condos in a building if 85 percent of the unit owners vote to approve a sale. Even if some owners vote “no,” the minority dissenting owners are forced to sell. An arbitrator would handle disputes over the appraised prices and terms.