Apartment buildings have seen their rents sky rocket over the last five years and with that so have the prices of those apartment buildings. Individual condo units on the other hand have not seen the same price growth. To capitalize on that price difference, developers and investors have been reaching out to condo associations to buy each individual unit in a bulk purchase so they can then “deconvert” the building back to apartments. In doing that, they have found that they can pay each condo unit owner a substantial premium for their individual unit while still achieving the returns they need to justify the investment.
How much of a price premium can an individual condo owner expect by selling in a Condo Deconversion versus selling their condo individually?
We have seen premiums range from 20% to 100%. Every building is different and each condo’s percentage ownership differs, so premiums can vary from one unit owner to the next even in the same Condo Association
We can help you maximize that premium for condo owners. In addition to being the Chicago area market leader in apartment building sales, our team at CBRE has successfully brokered the sale of the largest and most high profile condo deconversions in the city to date. We have found that on the condo deconversion deals we’ve brokered, we have been able to achieve substantially better pricing and terms for the condo association, over and above what they received in their unsolicited offers from developers and investors.
If our Condo Association chooses to sell in a Deconversion are we required to move out of our units?
No. We have always negotiated favorable lease back agreements for the Condo Associations we represent. We have negotiated short term and longer term lease back agreements so that owners have the choice and flexibility to stay in their units.
I am an investor owner. What happens to my tenant if we choose to sell?
The same fees/cost categories that would be associated in a regular sale apply, however due to the bulk nature of the transaction everyone benefits from the economies of scale. We generally see substantial discounts on attorney fees, broker commissions, and title company fees. In many instances we are able to negotiate that the buyer pay these fees for the unit owners.
How many owners have to vote "yes" for the sale to proceed?
Per the IDFPR - The deconversion process encompasses the sale of the property under Section 15 of the Illinois Condominium Property Act (“Act”) and the removal of the property from the Act in accordance with Section 16 of the Act. While a condominium association’s declaration may contain a more stringent requirement, Section 15 of the Act sets forth the minimum approval requirement to sell the property. Its requirements are as follows:
Number of Units
Majority of unit owners
66 2/3% of unit owners
4 or more
75% of unit owners
What happens to the money in our reserve and operating account?
The reserve and operating account can either go to the buyer or be redistributed back to the owners. it is up to the Condo Association. The net effect is the same in either scenario. If the buyer takes the reserves and operating then the offer is increased by the balance of the accounts, cash for cash. If the unit owners keep the reserves and operating funds then the balance of the accounts is distributed to unit owners at closing.