investingfromtheright

I am retired and take educated guesses on all things financial.

September 27, 2006

September 27, 2006: Real estate impressions

I returned a few hours ago from what was a very interesting and productive trip to Chicago to visit a few friends.

Here is my take on real estate in that corner of the world. First, I was surprised at the intense level of activity in apartment conversion to condo and new construction in neighborhoods that have been literally torn down by the City of Chicago to make way for expanded middle and upper middle class condo, single family home and business construction. The expansion of the Roosevelt Road (12th Street) corridor from Michigan Ave. west has been remarkable. No more crack houses,closed, graffiti-covered rows of shops and 1960s-built and trashed government housing. New construction and - prairie (yes, prairie)land ripe with subsidies to be developed. I invested in a new condo complex that will be built near Ashland, on the fringe of the corridor. This 128-unit, six-story complex will have businesses on the first floor and 2/3 bedroom condos overhead, priced in the 250-575g range when completed in 2008.

Second, rehabilitation development is occurring on the Burlington/Santa Fe route west of Chicago beginning in Berwyn (an old, near west suburb) and continuing at train station (local stop) gate intersections towards Aurora. Commuter trains are thriving, and communities are using train stops to develop shops, restaurants and housing along the track street areas. Old buildings are being leveled on intersections and other adjacent plots with non-subsidized development commencing.I advised an investor group to proceed with a restaurant/business/apartment scheme in Berwyn and Riverside (another suburb that is known for its plethora of Frank Lloyd Wright homes...$$$). Third, the apartment to condo conversions that made Oak Park, IL. a mecca for urban comfort living is continuing there and in similar mature suburbs - even in some where deterioration in the quality of life was deemed irreversible a few years ago. The benefit is threefold - apartment owners that have been ineffective landlords make a nice profit selling out to condo converters, who make a killing rehabbing and then re-selling as excellent condos near main transportation, entertainment and shopping hubs, then the condo buyers who are thrilled to be near the action of the Chicago area and closer to their jobs in the loop, etc.My stake is on the rehabilitation side in one apartment conversion.

Bottom line: Although the coasts are definitely experiencing a real estate downturn, Chicago and desirable mid-west locales (I have been told by "one who knows")have plateaued a bit, but remain vibrant real estate centers of activity, at least in the three areas of real estate I have mentioned above.

I do not recommend REITs in this environment, as they tend to not do well with these three types of rehabilitation development. I do recommend that you look at investment banks, as they appear to be much more selective with their approved projects and are keeping LTV (loan to value) ratios conservative.

It is always nice having unexpected pleasures occur on a relaxed jaunt to Chicago. I am blessed to have good friends there, going back over forty years.

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