ESG Kullen Sells Condo Deconversion for 17% Discount

ESG Kullen took a substantial loss on a 250-unit property in Chicago’s Gold Coast that was converted from condos to rental apartments.

The New York-based investment firm, headed by Eric Granowsky and Thomas DelPonti, sold the nine-story Oliver complex at 1140 North LaSalle Drive to Chicago-based investor Andrzej Karwowski for $31.5 million ($126,000 per unit), CoStar reported. Karwowski’s purchase was backed by more than $24 million in financing from JPMorgan Chase Bank.

The sale comes after ESG spent an undisclosed amount on extensive renovations to convert the building.

It added modern amenities such as a roof deck, new elevators and upgrades to the lobby and units. But the 250,000-square foot property sold for 17 percent less than its $38 million ($152,000 per unit) purchase price in December 2018.

Condo deconversions, which are rare outside of Chicago and South Florida, involve acquiring all units in a condo building, often from owners seeking to avoid costly repairs or looking for higher payouts than they would receive on the open market.

These deals require the approval of 85 percent of unit owners, a threshold that has enabled Chicago’s developers to capitalize on the city’s growing rental market. However, as the case of Oliver on LaSalle shows, not all deconversions result in profitable outcomes.

While some developers have seen lucrative returns from these types of deals, ESG’s sale highlights the financial risks involved.

A deconversion that saw more success was the sale of a 188-unit building on Chicago’s North Side in 2021. The property fetched $43 million, far exceeding the $32 million the Brooklyn-based investor spent on acquisition and renovation.

— Andrew Terrell