Chicago's Condo Foreclosure Capitol: The Sterling in Downtown Chicago

Crain's Chicago Business reports:

The sign out front says, "The Sterling Private Residences," but the 50-story tower at 345 N. LaSalle St. recently has earned a less distinguished title: condo foreclosure capital of Chicago.

Over the past three years, lenders have filed 95 foreclosure suits, accounting for about $40 million in loans, on condominiums in the 389-unit high-rise, fueling a big drop in condo values throughout the building.

Completed about six years ago, the Sterling has emerged as the most prominent symbol of the excesses of the downtown condo boom.

"What a nightmare," says Michael Fields, owner of Jax Realtors & REO Group, a Berwyn-based brokerage that specializes in foreclosures and has two units for sale in the Sterling.

The tower represents a worst-case scenario in a downtown condo market that is weak but so far hasn't seen the falling prices and rising foreclosures that have afflicted once-hot markets like South Florida. The real test for condo owners will come over the next two years, when downtown developers are expected to complete more than 10,000 condos, an unprecedented jump in supply.

"For run-of-the-mill (condos), it's going to hold down prices," says Gail Lissner, vice-president of Chicago real estate consultancy Appraisal Research Counselors.

On a per-square-foot basis, resale prices at the Sterling fell 17.4% from 2005 to 2007 as a wave of foreclosures swept through the building, according to Appraisal Research. That's the biggest decline among 10 newer downtown condo buildings recently surveyed by the consultancy. Prices were flat on average, falling in four buildings and rising in six.

With a good location and nice views, the Sterling may seem an unlikely poster child for the downtown condo slump. The tower's original developer, Royal Imperial Group Inc., designed it as an apartment building but agreed to sell it in 2001 to American Invsco Corp., a Chicago developer known for converting apartments into condos.

American Invsco is also known for attracting investors — condo buyers who either rent their condos out or try to make a quick profit by flipping them — and its conversion of the Sterling was no exception. To sweeten the deal, the developer agreed to pay property taxes and assessments, in some cases for as long as two years. The firm also promised to rent out investor-owned condos in the building, guaranteeing a revenue stream for investors.

It was too good to be true for some buyers. As the incentives wore off, many buyers saw their monthly payments soar to unsustainable levels, say brokers familiar with the building.

A trickle of foreclosure suits in 2004 grew to a flood over the next three years. Nearly a third of the suits involve owners with multiple units in the building.

An American Invsco spokesman blames the Sterling's troubles on the depressed market: "It has nothing to do with our program."

Whatever the cause, "it's just a horrible situation," says Sandra Halliburton, owner of Halli Enterprises LLC, a South Side brokerage hired by banks to sell real estate taken over through foreclosure. "At one point in time, I had five listings in the Sterling that were all in foreclosure."

She has one listing now for a three-bedroom unit on the 33rd floor priced at $479,700. The owner paid $801,000 for the unit in January 2005.

The Sterling has a lot going for it.The lack of free parking around the building.High property taxes,because after all you are in Chicago.Half you property tax bill is going to Chicago's infamous public schools.Should you go shopping around The Sterling, you'll be paying the highest retail sales tax in the country,over 10%.At least you'll know,that your hard earned tax dollars are going to some government worker who might retire at 48 years old.Chicago lost 62,000 between 2000 and 2006 but the real estate lobby tells you 10,000 new condos are needed.Ok.