Bret Broaddus Chicago

1. Home  News March 05, 2005 06:00 AM Condo ?ippers keep busy Gallun  TWEET SHARE  SHARE  SHARE  EMAIL  Ronald M. Fajerstein worried about an overbuilt downtown condominium market, but the temptation to buy and flip a condo was too strong to resist. So he signed a contract in 2002 to pay about $1.1 million for two three-bedroom units at the Lancaster, a then yet-to-be-built 29-story high- rise built on a former golf course site at Lake Shore Drive and the Chicago River — an area Diamond importer Ronald M. Fajerstein just dove into the downtown condo market, hoping to turn a Create PDF in your applications with the Pdfcrowd HTML to PDF API PDFCROWD

2. $200,000 profit by flipping a $1.1 million property. Photo: Brett Kramer knows as Lakeshore East. Even before closing on the 16th-floor units, scheduled for later this month, he has combined them and put them back on the market for $1.3 million, hoping to turn a quick profit. It's the first condo he has tried to flip. "I believe in real estate," says the 52-year-old diamond cutter and importer. "I believe in hard assets." With downtown condo sales surging once again, speculators are getting a second wind — and renewing concerns about an overheated market. Downtown developers sold 6,298 condos last year, up 84% from 2003 and breaking the previous record of 5,625 in 2000, according to Appraisal Research Counselors, a Chicago-based consulting firm. It's unknown exactly how many units went to speculators, investors who try to profit by buying at lower pre-construction prices and selling immediately after a unit opens. Yet the frenzied sales activity over the past year — reminiscent of 1999 and 2000, when developments would sell out over a weekend — suggests that speculators are as busy as ever. Perhaps the best evidence is on the Multiple Listing Service, where many flippers will list condos several weeks before units become available for occupancy. For instance, buyers only recently began moving into the Heritage at Millennium Park, a 57-story high-rise in the East Loop at 130 N. Garland Court. Yet 34 of the building's 356 units were already listed for sale by mid-February, with more listings expected. Create PDF in your applications with the Pdfcrowd HTML to PDF API PDFCROWD

3. Who speculates on downtown condominiums? Real estate brokers and people who want to diversify their investments. More recently, the speculator set seems to include an increasing number of suburbanites and out-of-towners, says Appraisal Research. It seems like easy money when the market is going up. Residential real estate broker Tricia Fox says one of her clients signed a contract in 2003 to pay $1.9 million for a condo at the yet-to-be-built Trump International Hotel & Tower at 401 N. Wabash Ave. Based on price increases on similar unsold units, she estimates it is worth about $3 million now. Last year, Bret Broaddus sold a three-bedroom condo in a tower at 55 E. Erie St. for $1.1 million, about two years after signing a pre-construction contract to buy it for $765,000. "It's not a bad little side business," says Mr. Broaddus, whose day job is running a commercial real estate firm in Chicago, Alliance Capital Services. Yet things can turn out badly. While many investors like to flip to another buyer the same day they close, some get stuck holding units for several months or even longer. That usually means renting it out, often at a loss. Mr. Fajerstein is prepared for that possibility at the Lancaster. "Even if I have a slightly negative cash flow, we'll rent it out for a year and put it on the market then." Developers aren't making it any easier to speculate. While condo speculators are a blessing for developers, generating the sales needed to obtain a construction loan for a project, they're also a curse because they'll often put Create PDF in your applications with the Pdfcrowd HTML to PDF API PDFCROWD

4. their units back on the market before the project is sold out, providing unwanted competition. Most developers now prohibit buyers from selling their contract for a unit before the closing date, a practice common in the late '90s. ©2005 by Crain Communications Inc. RECOMMENDED FOR YOU Cushman & Wake?eld snags CBRE's property sales brokers Tribune Tower owner buying Michigan Avenue o?ce building Chicago's HQ2 legacy: Megaprojects Sponsored Content: MAGNIFICENT. LUXURY. ESTATE. Create PDF in your applications with the Pdfcrowd HTML to PDF API PDFCROWD

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