Have you been watching your neighbor’s house sit on the market with a price tag that’s maybe $50,000 too high? Does this make you nervous about the future value of your own home?
The bad news, according to one report, is that the Chicago market (Chicago-Naperville-Joliet) is overvalued by 8.6 percent.
The good news: We don’t even come close to many other markets, some of which are overvalued by 30 percent or more, according to the PMI U.S. Market Risk Index put out last week by PMI Mortgage Insurance Co. For details, see Kenneth R. Harney’s column above.
In fact, half of the nation’s 50 largest housing markets are overvalued by 10 percent or more, according to the quarterly report.
The same report’s Risk Index measures the probability of an actual price decline in two years in the 50 top markets. Nationwide that probability stands at 21.8 percent, up from 21.3 percent in the second quarter.
The index puts the Chicago area’s chance of a price drop in the next two years at 10.4 percent. In other words, nine chances out of 10 overall prices won’t drop here. If you’re a betting person, try Las Vegas-Henderson, Nev., which has a 19.7 percent chance of such a decline. Its homes are overvalued by 25.5 percent.
A new face on 4 plus 1’s
If you have been around Chicago for a while, you probably know about four plus one buildings. Often considered the ugly ducklings of the neighborhood, the unadorned brick boxes from the mid-1960s consist of four stories of modest-sized apartments over a lower, open level of parking.
The North Side is full of the buildings. They sit alongside very expensive houses and condos in Lakeview, and line the streets of Edgewater, where major gentrification is under way.
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But they aren’t teardown material. In fact, they are major money earners for their longtime owners. So, what’s the incentive to turn the ugly ducklings into swans? Neighborhood beautification? Tenant retention? Or condo conversion?
Take 512 W. Barry Ave. in Lakeview. The facade on that four plus one so radically changed that it now appears to be two classically designed buildings that blend in well with the grand early 20th Century condos and houses and the mid-century modern townhouses that are its neighbors.
The changes were based on the concept of the developer, Kevin Kroupa of REM Homes, according to Jay Stover of Coldwell Banker, who marketed the 48 condos, which are sold out.
Prices ranged from $165,000 to $195,000 for junior one-bedrooms, and the $240,000s to the $260,000s for one-bedrooms with den, Stover said. All units have one bath, and the 24 parking spaces were reserved for buyers of the larger units and cost $19,000 to $27,000 extra, he said.
Kroupa also redid the interiors with cherry molding and interior doors and granite countertops, and the electrical and plumbing systems are new, Stover said.
The developer plans another such project in Lakeview.
In Edgewater, a neighborhood that has seen considerable rejuvenation, three such buildings have benefited from a city pilot program, according to Greg Harris, chief of staff for Ald. Mary Ann Smith (48th). The buildings are a source of affordable rentals in Smith’s 48th Ward, where the emphasis for “people who own rental buildings is maintaining a stock of well-managed, well-maintained housing,” Harris said.
Though city budget woes have sidetracked the facade program, Harris pointed us to 5423 N. Winthrop Ave., a four plus one owned by Vranas & Chioros that remains a rental building.
“We totally tore off the front,” said Mike Chioros. “We changed windows, configuration of windows, installed juliette balconies” and improved handicap accessibility.
“We accentuated the vertical elements by using different colored bricks and different elevations. We took three vertical elements, built them out so they were in line and used different colors of bricks to get a sense that it kind of looks like a vintage building,” Chioros explained.
Inside, the kitchens, baths, light fixtures and hallways were modernized, he added.
“It’s an idea I’ve had for 20 years, having invested in these properties,” Chioros continued. “They were very utilitarian. They’re boxes. No distinguishing features. That worked against them in rentability.
“The units themselves aren’t bad, but the sound insulation could always be better,” Chioros said, adding that there are about 65 of the buildings in Edgewater alone.
The spread of noise is a common complaint from residents of and visitors to four plus ones. Standing in four-plus-one hallway, it seems you can hear every known TV channel blaring at once. At 512 W. Barry, REM Homes installed R30 insulation between the floors and units to muffle noise.
The price to buy a four-plus-one building can range from $50,000 to $60,000 per unit, Chioros said, adding that in Lakeview that can rise to $100,000 per unit.
But the economics of the facade improvement worked for Vranas & Chioros, even though rents at the 56-unit Winthrop building did not rise more than those at other neighborhood buildings, Chioros said. Studios range from $550 to $600 a month, and one-bedrooms are $725.
“We had more [financial] room because we have owned [5423] for a while,” Chioros explained. “A new buyer will say, `I can’t put $200,000 in the facade of a building.'”
But the city-aided improvements at the Winthrop building have had benefits beyond a more pleasant appearance.
“Our tenant retention is better in that building,” Chioros said. “The quality of tenant has improved.
“Since we did the facade,” Chioros said “occupancy has gone from one of the worst [among the Vranas & Chioros buildings] to one of the best.”
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Wayne Faulkner is editor of Real Estate. You can contact him at [email protected] or write to him at baiduhai, 435 N. Michigan Ave., Chicago, IL 60611.