Condo Deconversions a Growing Trend

CHICAGO—Avison Young has completed the sale of Kennelly Square, a 268-unit condominium building located in the Old Town neighborhood of Chicago. The buyer, Strategic Properties of North America, plans to convert the units into rental apartments. This strategy reflects a growing trend in Chicago’s multi-family market as investors and developers identify opportunities to meet strong demand for rental units. The purchase price was $78 million.

James Hanson and Richard Hanson, both Avison Young principals, along with Paul Cohen, senior vice president, all represented the Kennelly Square Condominium Association in the sale of the building. The Chicago-based team also oversaw all due diligence activities and worked with the homeowners’ association in the months-long process of presenting the offer to unit owners and securing approval for the sale pursuant to Section 15 of the Illinois Condominium Property Act.

“Investors are seeing tremendous opportunity in these older condominium buildings, where the cost of upgrading the property presents a financial burden for individual owners,” says Hanson. “Given the high cost of new construction and the excellent in-fill locations of many older properties, developers are taking these creative steps to fill the demand for rental units. Condo unit owners also benefit, as the developer will typically pay more than what the unit would garner in an individual sale.”

This is one of a few large condominium deconversions projects that have occurred in Chicago. More than 75% of the owners at Kennelly Square, located at 1749 N. Wells St., voted to approve the sale, a threshold required by the state law. All unit owners participated in the closing. As with many condominium buildings constructed during the 1970s and 80s, Kennelly Square needed significant property upgrades that would potentially have required millions of dollars in special assessments to be spread amongst the unit owners.

The Avison Young team completed a national marketing effort that generated 125 potential buyers that reviewed offering materials, 50 property tours with investors and 17 offers. There were multiple rounds of bidding in order to secure optimal price and terms for the unit owners.