In a record-breaking month, Kovitz Shifrin Nesbit attorneys overcame significant obstacles to close on the sale of 900 condominium units in less than two weeks in December 2018. This included the sale of Flats on LaSalle Condominium Association, Surfside Condominium Association, and 449-units in the River City Condominium Association.
The sale of all 900 condominium units at Flats on LaSalle, River City, and Surfside were approved by a vote of the unit owners in each respective association as specified in Section 15 of the Illinois Condominium Property Act. The “Section 15 sale,” also known as a condominium deconversion, is a process where a buyer makes an offer to the owners to purchase all the units in the association and, with few exceptions, requires the approval of no less than 75% of the ownership of the common elements.
KSN attorney Kelly C. Elmore, working with Associate Omar Malik as well as KSN’s sophisticated condominium deconversion closing team, closed 188 units in the Surfside Condominium Association on December 13, 2018 with a final sales price over $27 million.
Shortly after Surfside’s complex funding and closing was completed, KSN’s deconversion closing team immediately prepared for the monumental closing of River City Condominium Association; an iconic, 449-unit South Loop neighborhood building located at 800 S. Wells. At the time of this writing, River City represents the largest deconversion in Chicago’s history with a final sales price over $90 million.
Concurrently, KSN completed the sale of Flats on LaSalle Condominium Association; a 250-unit building located at 1140 N. LaSalle. The near North Side Chicago building was purchased by ESG Kullen, LLC for a purchase price of $38 million.
The River City and Flats on LaSalle closings comprised of 699 units. Both transactions occurred on the same day (December 21, 2018) as many businesses were closing for the holidays.
River City Condominium Association
The River City Condominium Association closing is one of the most widely publicized deconversion deals in Chicago history. Marked by a tumultuous three-year process, River City endured several transactional, administrative, and regulatory complications throughout the sales process.
The Association faced several hurdles in consummating the record-breaking sale, including last minute emergency litigation filed by a small group of unit owners who were intent on preventing the sale. After the litigation was resolved with a judgment in favor of the Association and remaining claims were settled, the River City Condominium Association moved forward immediately with scheduling the anticipated sale. KSN’s team completed the closing within weeks after the litigation was filed and ultimately dismissed.
River City unit owners voted twice to approve the sale to Marc Realty Capital, LLC, The Wolcott Group, LLC, and a leading East Coast-based investment fund. With a final approving vote representing over 75% of the 449-unit ownership, the final sales price (including additional payments for upgraded units) fell just under $92 million.
The sale of River City is the largest condominium deconversion in downtown Chicago, closing ten months after the second largest deconversion sale of all 296 units of the Century Tower Private Residences Condominium Association to Golub & Company in February 2018. KSN advised on several legal issues including litigation, code violations, and owner disputes to successfully close the Century Tower transaction.
The Condominium Deconversion Trend
In the past few years, the demand for rental units has increased due to several factors, including: rising home prices, declining homeownership among seniors, increased single-person households, and tougher mortgage lending standards. Accordingly, a new phenomenon has emerged where all the units in a condominium building are sold to a third party who then de-converts the condominiums to apartments.
The transformation of condominium associations into apartment buildings that can be rented at steadily increasing market rental rates is an incredibly profitable venture. Consequently, developers and investors are jumping on opportunities to purchase small to large residential complexes and convert them into profit-generating rental properties.
The trend has continued into 2019 as several buyers have emerged in the market, presenting offers on properties located throughout downtown Chicago and neighboring suburbs.
KSN’s Condominium Deconversion Team
To handle these complex deconversion negotiations and ensure that associations can close on these bulk transactions, KSN has developed a skilled condominium deconversion department. Dedicated solely to navigating the entire Section 15 sales process, the department provides guidance, legal assistance, and administrative support throughout the entire transaction.
KSN is distinctively set up to handle condominium deconversion transactions due to its knowledgeable staff, dedicated resources, and full-service departments. This involves KSN’s:
- Section 15 Deconversion Department
- Deconversion Closing Team
- Condominium Corporate Practice Group
- Litigation Department
- Corporate/Real Estate Practice Group
The KSN condominium department advises board members and unit owners during the contract negotiation. Simultaneously, the KSN closing and real estate legal teams prepare all the necessary documentation for the closings, facilitating the execution of the individual unit closings.
As of April 2019, KSN has completed thirty-three condominium deconversions in Illinois, including:
- River City – a downtown high rise-condominium association with 449 units, closed in December 2018
- Flats on LaSalle – a downtown condominium association with 250 units, closed in December 2018
- Surfside Condominium Association – a high-rise association located on N. Sheridan with 188 units, closed in December 2018
- Century Tower – a downtown high-rise condominium association located in The Loop with 296 units, closed in February 2018
- 625 Wrightwood – a Lincoln Park condominium association with 98 units (residential and parking), closed in January 2017
- Clifton Village – a Northside Chicago condominium association with 38 residential units, closed in August 2017
- Loyolton – a Northside Chicago condominium association with 42 residential units, closed in December 2017
- 2625 N. Clark Street – a Northside Chicago condominium association with 272 units (residential and parking), closed in November 2016
KSN is actively working on a number deconversion transactions that are scheduled to close in 2019.
If your condominium association has been approached by an interested buyer, your association is in the middle of a potential sale or de-conversion, or you are a buyer interested in converting income property into condominiums, please contact Kovitz Shifrin Nesbit today to discuss your legal needs. Visit ksnlaw.com or call our law firm at 1-855-537-0500.
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