Ken Griffin’s $14.65M Losses Just the Tip of the Iceberg: Chicago Condo Market Slide Continues in November
Citing recent transactions, J.D. Busch provides five reasons why he believes Chicago condo and coop values are dropping off a cliff
Citadel CEO and hedge fund manager Ken Griffin recently packed up his prop shop and moved his headquarters (and hundreds of highly paid jobs) to Florida. The combination of the woke brainwashing of his children in Chicago schools and violent assaults on his employees (including stabbings, carjackings, and multiple robberies at gunpoint) are no doubt things he wants to forget about his final years in the Windy City.
But even after departing, Griffin received a parting “equity” present from the invisible progressive hand governing Chicago, Cook County and Illinois when taking a $14.65 million loss on his penthouse at No.9 Walton (representing a 44 percent loss from his $34 million purchase price in 2017).
These losses align with the downtrend in other recent November sales of mid-to-high-end condos and coops in downtown Chicago, a market in which homeowners and investors continue to take enormous haircuts from previous transactions, all while continuing to shoulder monthly carrying costs for assessments and taxes larger than most mortgages in the suburbs.
A 50 percent loss on East Lake Shore Drive over 30 years!
The losses are steep.
Recent Chicago transactions suggest condo and coop buildings, including those on East Lake Shore Drive, where people have not made significant capital improvements, have lost 50 percent or more of their value in the past 30 years.
Consider a Gilded Age ultra-luxury unit (in need of some updating, yet on the historically most desirable street in Chicago), the price of which was cut by half in 30 years. 219 E Lake Shore Drive, Apt 9CD is a four-bedroom, four bathroom, complete with a “kitchen, with high-end stainless-steel appliances, stone countertops, custom cabinetry [and] eat in bar [which] is completed by a separate breakfast nook and walk-in butler's pantry” along with two valet parking spaces."
This unit sold for $1.05 million in November, down from $1.97 million in April of 1995 (nearly 30 years ago!) Taxes on the unit are $39,000 per year, and the monthly assessment is $5,642.
For those who have made capital improvements to Chicago condo and coop properties, the losses may not appear as bad in the real estate transaction records (but sting equally as hard). 25 East Superior, Apartment 4401, sold for the seemingly princely sum of $1.6 million on November 27th. But the 4,800 sq. ft. unit actually traded for a discount off of its previous transaction price of $2.55 million in 2017 (a near 40 percent slide).
What does $1.6 million buy in Streeterville these days? This “sunny penthouse perched on the 44th floor of "The Fordham" provides “oversized windows and four private balconies provide panoramic views of the city and lake” along with a “rare private two-car garage, along with a dedicated wine cellar and a humidor.”
Sound like a deal by historical standards? It may be, but the monthly carrying costs on the unit before a mortgage or down payment are nearly $10,000 a month (based on taxes and assessments).
It’s not just vintage and turn-of-the-century buildings taking a hit. At 550 N Saint Clair Street, a recently built luxury condo unit, the “exquisite top-floor penthouse” that “redefines urban living,” unit 2602, recently sold for $1.25 million on Halloween, representing a spooky price decline of 30 percent since the unit last sold three years ago for $1.76 million.
In this residence, “every detail has been carefully considered-from the wood floors and top-of-the-line Hunter Douglas motorized shades to the smart home technology throughout.” It also includes two parking spaces, and the building features “an array of top-tier amenities,” including “a serene lobby with 24-hour door staff, an urban garden terrace overlooking Michigan Avenue, a lap pool, sauna, fully equipped fitness center, storage lockers, and bike storage.”
Why are prices sliding?
Since losing money myself in recent years on Chicago condos as a side business speculator (after gains in previous decades), I’ve become fascinated with the comparative condo real estate market between here and other major cities, including Miami, New York, and San Francisco. Incidentally, the single-family market is an entirely different game, one I’ll tackle in a future column (the Chicago market ostensibly appears stable on the surface, but underneath, it is showing strains).
It’s my theory that five things are happening simultaneously that are collectively destroying condo and coop value, none of which are reversible in the near term.
First, rising labor costs in buildings (for engineers, doormen, custodians, etc.), insurance, and property taxes create a situation where the monthly unit carrying costs can exceed a typical mortgage payment. This is an unsustainable death spiral for property values, even if many of Chicago’s historically notable condo buildings -- from 3400 Lakeshore Drive in Lakeview to the exceptional lineup of buildings on East Lakeshore Drive -- represent a great value relative to New York and other cities.
Second, many of Chicago’s significant buildings are nearing (or past) the century mark, and special assessments, even for newer buildings built in the 1970s, 80s, and 90s, are something all condo and coop buyers fear. Having to write a check for (or borrow) $20,000, $50,000, or $100,000 with no notice for tuckpointing, window replacement, or other unbudgeted expenses, knowing you will never get that money back at a sales price, is a big deterrent for buyers. Special assessments sting like nothing else (and the loss aversion of their looming potential keeps many potential buyers sitting on the fence and, increasingly, running as far away from it as possible).
Third, those who can afford to spend a million bucks (leveraged or otherwise), along with paying the assessments and taxes that go along with these units, are increasingly deciding to buy in the West Loop, which is the only desirable place left to live downtown.
There are simply fewer buyers in Lakeview, Lincoln Park, Gold Coast, Streeterville, and the Loop for this reason, putting downward price pressure on units. Part of the reason here is that it used to be you could walk out of your door in all of these Chicago neighborhoods at most hours of the night and day and head to a great restaurant or retailer without fearing for your life or personal belongings. Today, well, I would not recommend it, especially when the sun goes down.
This brings me to my fourth point. Crime remains a massive issue for (many) buyers. I was recently at an annual LP meeting for a private equity fund in Chicago and caught up with an old friend and mentor I had not seen in years who still lives in Streeterville (he could live anywhere in the Chicago area or the world, for that matter). Still, people like him who remain are few and far between -- individuals who put up with the shootings, carjackings, “wildling” teenage flash mobs, and automotive takeovers of downtown streets.
The fifth reason prices are dropping so quickly is that buyers are getting smarter in terms of the regional financial crisis. They realize they will be on the hook to pay for the fact no one is coming to bail Chicago (and Illinois) out.
The COVID relief funds that Chicago spent to “keep going” are entirely gone. The city, Cook County, and state face a true crisis of rich people leaving (leading to declining revenues), out-of-control operating costs with no checks and balances (e.g., CTU), and a pension crisis in which the can is somehow kicked down the street every year. Indeed, the city's four primary pension funds — for police officers, firefighters, municipal employees, and laborers — collectively face an unfunded liability of approximately $37.2 billion as of 2024.
Smart money knows that these economic musical chairs can’t go on forever (and the pension crisis is only part of the financial tornadic headwind for the region). Indeed, what is happening is that “musical chairs” will become a version of real estate Russian roulette, with property owners risking capital loss and financial suicide if they remain -- in fact, this game shift may have started, which is why we are seeing 30-50% declines in values in November real estate transactions.
A final bonus reason prices are dropping: Unlike other cities in North America (I count Vancouver as part of this), there is a very limited supply of Russian, Chinese, Latin American, or other monied individuals coming in and buying up second, third, or fourth homes on a speculative basis. For a while, Chicago was just about on this list of elite cities for global buyers — some argue it was — sort of like a stock teetering on the edge of being cut from the S&P 500 (the 500 largest stocks by market capitalization of North American companies, which rebalances/updates quarterly, with some stocks being added and some dropping off every so often). But today, Chicago residential condo and coop real estate is delisted from analogous major indexes in the capital markets -- it is clearly a “small cap” stock on the stage of global affluent buyers, and that’s a problem.
Working class jobs are at risk
Above all, the great tragedy of Chicago’s condo buildings is not the losses many of my progressive friends are taking — heck, they deserve what they voted for with Toni Preckwinkle, Lori Lightfoot, and Kim Foxx (even if they opposed Brandon Johnson) — but the people who work in these buildings who may be out of work in the future, or face reduced shifts and overtime, as buildings look to cut costs.
The custodians, engineers, and doormen are some of the finest people I ever met in Chicago. They were true family when I lived in one of these buildings for two decades. I worry about their future as buildings cut shifts and reduce amenities (e.g., doormen) to save costs which we know is coming.
