2 downtown condo projects may switch to apartments

By Alby Gallun, Oct. 28, 2009

(Crain’s) — With the condominium market stuck in a funk, two more downtown condo developers are considering replacing “For Sale” signs with ones that say “For Rent.”

The Mondial, a 141-unit condo project in River West, and the 100-unit Trio high-rise under construction in the West Loop could go rental in the coming months, a switch that has become increasingly attractive in an overbuilt and cutthroat downtown condo market.

“We’re just trying to figure out how fast all the other guys who are dumping units will clear the marketplace,” says Jack Berger, the developer of the Mondial, a nearly finished 15-story building at 900 W. Huron St.

Mr. Berger says he recently canceled about 50 purchase contracts for condos in the project and gave the buyers their deposits back. Yet he hasn’t given up completely on condos, saying he expects to make a final decision by the end of the year on whether to switch over to apartments.

“Do you think someone who has a contract for a $450,000 unit that they signed two years ago is going to close?” Mr. Berger asks. “They aren’t going to close, so why alienate the marketplace? We have to do the responsible thing.”

Many condo buyers nowadays can’t get a loan to finance a new condo purchase, one reason downtown developers are sitting on so many unsold units. Switching to apartments could make sense for projects close to completion, allowing developers to trade a risky condo market for a more stable, albeit still sluggish, downtown rental market.

The largest downtown condo project to go rental in the current downturn is the Roosevelt Collection, a 342-unit development in the South Loop.

Related story: South Loop condo project switches to apartments

“If the (condo) market stays in these doldrums, the rental option will look better and better,” says Robert Mosky, president of RDM Development & Investment LLC, the developer of the Trio project at 650-670 W. Wayman St.

RDM has completed two mid-rise buildings there, and had sold 82 out of 109 units in the buildings as of the second quarter, according to Appraisal Research Counselors, a Chicago-based consulting firm. Mr. Mosky says he doesn’t expect to complete the third building — the high-rise — until February at the earliest.

Buyers have signed contracts for about 30 of the 100 units in the 20-story tower, he says. He expects a decision on whether to go rental in the next 180 days.

Trio’s lender, Bank of America, will play a key role in that decision. A construction loan from the lender in the original amount of $30 million comes due about a year from now. A switch to apartments would require the bank to modify the loan, allowing RDM to service the debt using rental income rather than pay it off as the developer books condo sales.

Mr. Mosky says Charlotte, N.C.-based B of A is open to the rental option. A bank spokeswoman declines to comment.

Mr. Berger also says he’s talking with his lender, Wells Fargo Bank, about a switch to apartments at the Mondial. A $42-million construction loan from the San Francisco-based bank comes due in mid-2010. A Wells Fargo spokesman did not return a phone call late Tuesday.