Condos will soon become rental units at River City
October 5, 2018

Photo courtesy HaSt
River City condominiums will become rental units, after nearly 80% of owners agreed to accept a buyout offer.

After a three-year condominium deconversion negotiation at River City, owners finally agreed to a $90.5 million offer by Marc Realty and partner Wolcott Group.

The buyers will sweeten the offer for the 448-unit residential portion of the mixed-use building at 800 S. Wells St. by $1 million if all owners produce their units’ closing documents before the building closing, expected to occur within 90 days of the Aug. 28 sale ratification.

On Aug. 28, 77.9% of owners agreed to the sale. Under Illinois law, at least 75% of owners must ratify a deconversion deal.

Kelly Elmore, attorney at KSN, a Chicago-based condo specialty law firm, said the River City deconversion ranks as one of the more challenging deconversions she has seen. A typical deconversion concludes within about a year, she said.

Negotiations began in 2015 with offers of $81.47 million and $92.2 million, neither of which gained the required 75% owner approval. Owners did accept a $100 million offer, but the buyers terminated it in May because of the building’s condition. Marc Realty and Wolcott Group then countered with a $90.5 million offer.

“It’s not unusual to have the buyer do this after doing their due diligence in inspecting the property,” Elmore said. She compared the process to home buying negotiations predicated on discoveries made during in an inspection.

At the time of the offer withdrawal, Michael Wax, owner of one of the River City units, said deferred maintenance had affected the roof’s and mechanical systems’ conditions. He characterized the three-year process as “frustrating” and feared the buyer had moved on to other properties.

Representatives of Marc Realty and Wolcott Group declined to comment on the ratification.

Deconversions offer an attractive investment, said Doug Imber of Essex Realty. He noted the high demand for housing without a long-term commitment, especially in an area near downtown. He also noted a continued slow condo market.

“A lot of people are attracted to downtown, including young professionals just starting out and those who are older who don’t want the same level of responsibility they had in their homes,” Imber said.

That same attraction to rental units, Elmore said, may be why some absentee unit owners resist deconversion. They may prefer renting their condos themselves.

These experts also acknowledge that rental unit values are increasing in the South Loop, where a river walk is emerging. The City broke ground in 2016 for the Riverline project with development partners CMK and Lendlease.

Josh Ellis, a board member of the Greater South Loop Assn., said, “River City is an iconic building, and its transition is natural in the grand scheme of things. The Riverline will involve the construction of multiple buildings, and it will be a mix of condos, apartments, and townhomes. I generally feel it is good for the neighborhood to have a diverse range of residential units that attract those who are single, couples, and families. There are a lot of options.”

—Rick Romano