A multifamily landlord in Chicago faces growing opposition to plans to buy suburban condo buildings and turn them into rentals after a two-year housing boom left few affordable options for condo unit owners who sell.
Cunat, a suburban landlord and multifamily developer, has a pending offer of just under $34 million on a condo complex of about 300 units named Prairie Point in the village of Lake in the Hills, a distant northwest suburb. That’s an increase of almost $4 million from a previous offer that condo owners rejected. It also follows Cunat’s offer of $11 million for a condo complex in nearby McHenry, the Greens of Irish Prairie, that was supported by the required 75 percent of condo unit owners but is now being challenged in court.
“These are never easy deals to do,” said Gail Lissner, managing director of Integra Realty Resources in Chicago. “It really takes a buyer with expertise in the field. It’s not like buying a stabilized apartment asset.”
Successfully – and profitably – converting condos to rentals is complicated even further by Chicago’s housing boom, which has driven prices up by more than 10 percent. Some of the biggest gains have come in the suburbs as buyers seek better accommodations to work from home during the pandemic.
While Cunat’s offers might look good on paper, in practice, the unit owners would struggle to find comparable housing. At least one owner says the law entitles sellers to funding for replacement housing on top of what they get for a sale. That could amount to tens of thousands of dollars per condo owner and further upend the market for deconversions.
Cunat, which owns properties with thousands of apartment units throughout the Chicago suburbs, is seeking to buy condo complexes it developed with hundreds of units each in McHenry and Lake in the Hills to turn into units exclusively for lease.
Cunat didn’t return requests for comment.
The company made its offer for the McHenry complex in September, and it was approved by its owners, who included a large portion of votes that were already held or acquired by Cunat through individual condo unit purchases within the last 18 months.
Two residents who objected are now being sued by the property’s condo board, which has alleged they refused to comply with the terms of the sale by not signing closing documents and continuing to live in their condos, and seeks to compel them to accept the sale and move out or lease their units back.
“Next month it’ll be a year I’m in limbo land, paying for a condo that’s going to be stolen from me,” said Ken Dill, one of the holdout owners in McHenry. He would get just $66,500 for his unit, down almost 28 percent from the $92,000 he paid in 2007, if the Cunat deconversion deal closes.
Dill says that under a 2018 amendment to the Illinois law governing condo building sales, he’s entitled to receive replacement housing costs from the proceeds of the sale in addition to what he gets for his individual unit.
His argument may have merit, according to R. Kymn Harp, an Illinois real estate attorney who doesn’t represent Dill. There’s little case law involving the amendment, Harp said.
Hearings in the lawsuits against Dill and the other McHenry holdout are set for Feb. 10.
Median home prices in Chicago’s nine-county metro area, which includes the condo projects Cunat is eyeing, gained 8.7 percent in December 2021 over the same time the previous year, rising to $288,000, according to the trade group Illinois Realtors, and the supply of homes hitting the market has tightened, a trend Coldwell Banker’s Dawn McKenna told The Real Deal she expects to continue to drive prices up in the suburbs in 2022.
With condo units selling for about $100,000 in Lake in the Hills and less than that in McHenry as part of the proposed deconversion sales, there would be little else owners could buy for similar prices in the suburban market, where condo deconversions are generally trickier to complete because residents have fewer replacement housing options, said Andy Friedman, director of Kiser Group, a mid-market multi-family brokerage in Chicago.
Even if the prices were 30 percent higher, residents would still have little available to them at that price, and may have to enter the rental market if they intend to stay in the suburbs, he said. For that reason, Cunat, if it completes the deconversions, would be “feeding its own rental market” with any displaced condo unit residents, Friedman said.
“I can’t buy anything nearby with that $130,000,’’ Friedman said. That’s not something a broker can fix. I can solve a lot of problems through a deconversion, but I can’t create available condo housing in the suburbs.”
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