An Insider's Guide to Commercial Real Estate In Chicago

Banks Unloading Commercial Investment Property in Chicago???

Not so fast. As banks look to restore their balance sheets they have been able to hold off on unloading investment property at 12 caps in Lincoln Park. We all have been waiting for that killer deal but I have yet to hear about it. Yes, it's true that investors are buying notes/bricks and mortar for pennies on the dollar. Does that mean the investor has made a killing? Not always. I recently received a listing to sell a 87 unit in the South Shore neighborhood of Chicago. The loan is over $3MM. We have it listed for $600,000. Even if somone paid asking price that would amount to .20 cents on the dollar. It sounds like a good investment but lets dig deeper. The entire building needs to be rehabbed which would cost a minimum of $1MM. It's a 2 year project which means carrying costs are high. Now you are into the building for $25,000/unit and you still need to find tenants.

My experience is that banks follow strict guidelines when it comes to chicago commercial investment property dispositions. They receive BPO's and appraisals and the bank is required to hit a certain percentage of that BPO/appraisal. If it's below that number then no deal.

Just Because you're buying a building for pennies on the dollar does not mean you're getting a great deal.

Peter Lynn & Dan Rosenberg
		Building Equity Chicago Commercial Real Estate Web:: buildingequityre.com Email:: solutions@buildingequityre.com Phone:: 773.292.5188

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December 18, 2010

If I'm a retail owner/developer in Chicago why would I choose the same companies to lease out my space? 99% of the time the landlord rep is Baum, Mid America, Jameson. The tenants are all the same: Starbucks, Chipotle, GNC, Super Cuts, etc. Are the landlord reps really representing the landlord or the tenant? The landlord can only own so much real estate but tenants are always looking for the perfect space to lease. Starbucks, Chipotle, Jimmy Johns, Potbelly etc. will be long time broker clients.

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December 16, 2010

Cook County Commercial Investment Property: Tax Issues

An out of state bank recently hired us to sell 4 commercial investment REO properties scattered across Cook County. After analyzing the listings the investor motto ABC (Anything But Cook) became clear. Add up the 4 asking prices and it comes to $400,000. Add up the taxes and you get $130,000, or around $33,000 a building.
With an asking price of $100,000 per listing the mortgage payment would be roughly $750/month while the taxes would amount to $2,700/month. Yes there is something wrong with this picture. We have received a ton of interest in the 4 commercial investment buildings, however, after the taxes are discussed that ends the conversation.
Another tax disaster involved a note sale secured by a 4 unit mixed use building in the Lakeview area of Chicago. After a month of dialogue between bank and investor the second tax installment came out at $27,000. The estimated taxes for 2010 = $36,000. With a potential gross income of $90,000 the taxes would eat up 40% of the gross. The buyer backed out of the deal.
Once a building becomes REO it is common that the financial institution that owns it has not appealed the taxes. The taxes are partially based on a previous sales price well above the new REO price. I recommend talking to a lawyer that specializes in tax appeals to determine what, if any, tax relief you can expect.