Offer to Purchase Real Estate in Ny

							    Market Study:
Residential Real Estate
Chicago’s South Loop

    Condomania.

      Megan Kelley
      Chad Kreindler
       Dario Napoli
        Elliot Segal
       Paul Vranas
              Chicago’s South Loop




Roosevelt (12th) to Cermak (22nd) & River (Or Kennedy) to Lake Michigan
Chicago’s South Loop




   A View Looking South West
Chicago’s South Loop
                           Chicago’s South Loop
                    – Residential Real Estate Market
Realtor Owned Multiple Listing Service creates liquidity in marketplace


Monopolistic Competition- “ Many firms and consumers…concentration measures
are close to zero…each firm produces a product that is slightly different from the
products produced by others”

Substitutes: Other For Sale Homes, Other Neighborhoods, Rental Properties

Normal Good

Price Elastic

Px= Square Footage + Views + Location Desirability + Finishes + Amenities –
       Cost of Borrowing + Income

Developer Supply vs. Individually Owned Supply
Cost Issues
     Chicago’s South Loop
– Residential Real Estate Market

 A Look At Some Numbers
    Supply and Demand – Causes of
                Shifts
   Interest Rates (Supply and Demand)
     – Cost of capital for developers to build
     – Cost of borrowing for homeownership
   Expected Price Appreciation (Supply and Demand)
     – Maximize profits for firms
     – Ability to re-sell at a profit
   Land available for development (Supply)
   Personal Income (Demand)
   Availability of substitutes (Demand)
     – Homes for sale in comparable neighborhoods
     – Rental units vs. Ownership
   Abundance of Complements (Demand)
     – Schools, Supermarkets, Infrastructure
         Effects of Shifts in Supply and
                    Demand
   With interest rates historically low, supply and demand will shift to the
    right.
     –   Increase from 4,500 condos in South Loop in 1991 to 13,500 in 2006
     –   Expected to be ~18,500 condos in South Loop by 2009
   Land is more available in the South Loop than other affluent
    neighborhoods (i.e. Gold Coast, Lincoln Park, Lakeview)
     – Centrum Properties (Roosevelt Collection) developing 12 acre site with 2.5 acre
       park
     – Kargil Development Partners building $250 million project on 2.23 acres on Prairie
       Ave. between 16th and 18th Streets
   Personal income is increasing in the South Loop
     –   Average closing price in 2000 - $225,000
     –   Average closing price in 2006 - $364,000
   Substitutes are available but at a higher cost
     –   Rental prices have increased dramatically (River North – 7%, Streeterville – 11%)
     –   Average listing price of $510,000 similar to Lincoln Park / Lakeview
   Complements have grown at a rapid pace
     –   Target, Whole Foods, Jewel, Linens „n Things, DSW
     –   New South Loop Metra facility at 11th St.
                     Barriers to Entry

   Available land to purchase
   Ability to acquire building permits
   Ability to comply with zoning laws
   Ability to achieve financing for development (project scope)
   Environmental factors (i.e. gas station sites)
   Olympics?
         Impact on Business Strategy

   Developers are building retail projects to accommodate the strong
    demand in residential properties in the South Loop
     – “Retail Follows Residential”
   When difficult to purchase a parcel of land, firms will rehab, convert
    and renovate existing structures
     – In 2005, 3,965 units were converted in the South Loop
   Developers will look for the next “up and coming” neighborhood to be
    built
   Developers will cease building as the housing market continues to
    slow down
     – Housing starts and building permits have decreased
Current & Possible Strategies

Outlook
Monopolistic Competition
Pricing Strategies
Market Power
                             Outlook
   Around half of new residential development in the City of Chicago is
    taking place in the South Loop.
   Development dominated by new construction.
   Very few rental buildings up for sale. Downtown rents continued to
    climb in 2006, with overall occupancy rates averaging more than 95
    percent. (Decrease in rental supply)
   This brisk pace will continue in 2007.
   Future projects will represent a wide variety of price points to
    maximize sales in what promises to be a highly competitive year.
            Monopolistic Competition
   In downtown, 80,000 units currently and 100,000 by 2010 (not
    including for-sale-by-owner and those builders who don‟t market
    through agents)
   13,600 private residences in South Loop this year and 18,500 by 2009
   Looking southward, about 2,000-3,000 new or rehabbed housing units
    are expected to hit the market in the next 7-10 years in the area
    between McCormick Place and Hyde Park

Long-Run Supply Curve
 Influx of competition will shift the industry supply curve to the right.
  Ultimately, this will lower profits for each individual developer.
 The long-run supply curve is upward sloping as more developers will
  be building new properties and rehabbing old buildings, but will flatten
  on a marginal basis in the long-term
                    Pricing Strategies
   Developers of new construction have a huge advantage when pricing
    the units. They can offer units that offer the same (if not better)
    features than many other Chicago neighborhoods. Since the area has
    not completely gentrified yet, these developers can set prices
    considerably lower than other more popular and developed Chicago
    neighborhoods like Lincoln Park, Gold Coast, and River North.
   Attract first-time buyers
   However, this pricing strategy will be short-lived once more retailers
    move to the South Loop and the and an increase in the price of land
    will limit flexibility.
   In addition, if Chicago wins the bid to host the 2016 Summer
    Olympics, then this will accelerate economic growth even more
    quickly than its current pace.
   Since market is highly competitive, firms will have to be more creative
    to differentiate themselves from the competition.
                        Market Power
       How Are Firms Differentiating Themselves from the
                         Competition?

   Newest developments are now offering a wider array of amenities and
    finishes to compete. Resales tend to be inferior to this enhanced
    product and offer a lower-priced alternative.
     – “Spadominiums” offer a long list of spa amenities, services and
        experts (Selling a lifestyle with spa element and social areas for
        residents
     – Hardwood floors, stainless steel appliances, spacious balconies,
        high ceilings, plasma tv, etc. (New standards)
     – Trend is to build new high-rises with a wide variety units that
        range in size, price, and features.
               Market Power (cont.)
Example
 Roosevelt Collection of properties will draw mostly from other city
  locations
 By 2009, when construction is scheduled to be completed, a surge of
  6,500 new condos will have come onto the South Loop market.
 Marketing edge with small shops and entertainment within walking
  distance.
 Obstacles include higher interest rates and low Chicago rentals.
 Develop a unit for about $185,000 and sell it for perhaps $350,000
 Market mainly for young professionals working downtown and
  suburbanites who desire a city hideaway.
Aspects likely to affect the industry

Other factors besides supply and general housing demand will affect
price within the South Loop housing market. In turn, Supply and
Demand will also be affected by these outside factors.
              Governmental Influence
   The Fair Housing Act

   The Affordable Housing Planning and Appeal Act and the IHDA

   The State and City offers a number of programs to assist builders and
    buyers with financial assistance in the production and purchase of a
    home
     – Chicago Partnership for Affordable Neighborhoods (CPAN)
     – The Building Green/Green Roof Initiative
     – The City Mortgage program
     – TaxSmart
                     Neighborhood
   Safety-
     – Intelius
     – Neighborhood watch programs
     – National Sex Offender Registry
   Environmental
     – Scorecard.com
     – Chicago Department of Environment
   Urban Planning and Parks
     – Zoning Laws
     – Community beautification programs
     – Building Committees
     – Local businesses
   Transportation
     – Travel to place of employment
     – Future Olympics in Chicago?
                Impact of Olympics
    Mayor Daley announces intention to bring XXXI Olympics to
    Chicago, Washington Park as primary site, 95,000 seat stadium,
    (original plan along lakefront, between McCormick Place and
    Soldier Field)
                       Potential Pros:
   “Create urban legacy that outlives Games”, similar to impact of
    World Fair to Jackson Park, 1893
   Improved street condition, better lighting, security measures, new
    pedestrian and bicycle paths (project plans by Skidmore, Owings
    and Merrill –Freedom Tower at Ground Zero, Sears and Trump
    Towers)
   Better access to Washington Park (Lakeshore Dr. and I-90-94,
    improve dilapidated Green line
   New jobs, housing and boost to Hyde Park merchants and
    surrounding neighborhoods
Proposed Olympic Site
                     Potential Cons:
1.   Landmark issue: Washington Park. part of historic South Side
     landscaping plan, by Frederick Law Olmsted (Central Park, NY).
     Because of Landmark status, federal $ cannot be used
2.   Residents worried about eminent domain for expressway extension
     (construction of United Center forced many residents out)
3.   Residents would be deprived of use of Park, currently focal point for
     festivals and community sporting events, what about after Games?
4.   Residents trying to have City sign Community Benefit Agreement,
     to guarantee that a portion of Games‟ profits remain in
     neighborhood
5.   Aftermath of Games? In Atlanta, grassroots organizations were
     eliminated, people displaced
    “Friends of the Parks” urges City to
    relocate proposed stadium to other
    underdeveloped parcels that could
      make for better stadium venues
•   The USX Site. 580 acres at 79th and Lake Michigan which used to house
    the U.S. Steel plant. Same travel time to Washington Park., cleared of
    buildings, cleaned of toxins, ready for development
•   Illinois International Port District. At 89th and Michigan, adjacent to
    Calumet Park., the port has little activity currently.
•   Both parcels would benefit from influx of capital a temporary Olympic
    stadium would provide and from construction of necessary public transit
    links, as well as benefits form the lasting legacy of new parks, housing
    and businesses after the Games
                Zoning: going green

1.   Baum Development LLC waiting on city zoning approval for
     250,000 sf, mixed-use property, The Green Exchange, at 2545 West
     Diversey (to meet LEED standards), 1st in Chicago
2.   Property to be leased to tenants that make or provide sustainable
     products only. Ex. Green Maker Supply, distributor of sustainable
     building materials, Consolidated Printing, eco-friendly printer
3.   Project calls for new type of building designation: “work-live”. If
     approved by the city, the new code will permit the addition of a
     small kitchenette and bathroom in portions of the commercial
     building. Tenants with valid business licenses will then be allowed
     to live in their workspace, increasing the flexibility and appeal of
     the building