Home

Search

Browse

About IPO

Staff

Links

Condo conversion: The human factor

FOR THE landlord, it can be an escape hatch. For the developer, it can be a gold mine. For some tenants, it is the beginning of the end of their lives.

It is condominium conversion -- a phenomenon which is sweeping the country. Nearly every major city is experiencing "condomania," but nowhere is it hotter than in the Chicago area.

What is happening? It starts with the landlord. His taxes have gone up, and so have his utilities and other operating expenses. It has become less and less profitable for him to own an apartment building. He would like to get out from under it.

Along comes the developer. He has money. He sees potential in the building. He offers the owner a fat price (typically about 130 percent of what it is worth as a rental); spends more to fix the place up; and sells off its units one by one. His profit is terrific --usually 10 to 20 percent.

So far, everybody's happy. The landlord and the developer did well, and the community benefits from the renovation of its housing stock. But we haven't mentioned the tenants.

You're 70 years old, and you've lived in your apartment for 15 years -- in the neighborhood for 40. It's a nice place, you know all the neighbors, it's close to the supermarket. Then one night an envelope is slipped under your door. They call it a "letter of intent (to convert the building to condominiums)". It is a note from the new owner of the building (you may not have even known it had been sold) inviting you to buy your unit. It is a friendly letter, but there ought to be a P.S.: "By the way, buy or get out."

"Many people, faced with such an ultimatum, scrape up the money and buy. They don't want to move, and even if they did, it is hard to find an apartment to rent these days. And as a matter of fact, some of them wind up quite happy with the arrangement. They get an income tax deduction; they build equity; the value of their new condo may increase substantially; they have a voice in how the building is run. There are many advantages.

But many people simply cannot scrape up the money. It is a double whammy: a down payment, plus monthly mortgage payments that usually are much higher than the rent was. So they move. Often they must leave the neighborhood. In too many cases, elderly persons who were getting along fine wind up in nursing homes because there seems to be nowhere else for their children to put them. Then they fade away.

"It's so tragic," said one woman active in a tenants' group. "These people have nowhere to turn, and they are too old to cope. That letter of intent [from the developer] is a death warrant for some of them."

What in the world can be done about it? Like so many problems of our society, this problem involves a tradeoff. Condominium conversion is good for some people, bad for others. The government must weigh the good and the bad, and legislate, as best it can, to protect the interests of both sides.

The city of Chicago and the state of Illinois, thanks largely to the strong real estate industry lobby, have had weak laws regulating condominiums. When it appeared during the winter that the Chicago City Council might toughen its law or impose a moratorium on conversions, developers went on a spree delivering letters of intent.

At this writing, the council is still wrestling with the issue. The city cannot ban conversions, nor should it do so. There is no doubt that condo conversion is good for Chicago in many ways. The challenge for the aldermen and for the new mayor of Chicago is to deal with the human dilemma. A great city is not just pretty buildings; it is people.

June 1979 / Illinois Issues / 33