Loop Condo Deconversion Offer Unnerves Residents

An unknown investor’s $95.8 million offer to purchase an entire condo building in Chicago’s Loop is rattling its residents, some of whom are resisting the attempt to turn their homes back into apartments.

The transaction, known as a condo deconversion, requires at least 85 percent of the ownership of the 47-story, 309-unit building at 200 North Dearborn Street to vote in favor of the deal. Condo owners were told they could start mailing in their ballots last month, and if they did so swiftly with a “yes” vote, they would get a $20,000 bonus on top of the price for their unit, if the sale closes.

The offer, which hasn’t yet reached a decision, is also the latest sign Chicago’s condo deconversion wave is still rolling, even after a 2019 move by the city to rein it in. Officials upped the percentage of ownership required to vote in favor of a sale to 85 percent with a local law, increasing it from the 75 percent state law permits. Such deals have the potential to unroot people against their will from homes they’ve owned for years, should the investor reach the target and gain control of the rest of the property to switch it back into apartments for rent.

“I’m just so firm on not letting it happen, however I can,” Margerita Humolli, a resident opposed to accepting the offer, told The Real Deal. “It has been a jarring experience for everyone, myself included.”

Illinois rental housing buildings have become worth about 40 to 70 percent more than comparable ones operated as owner-occupied condos, after a condo craze crashed during the Great Recession in the late 2000s. The market shift motivated investors to switch condo buildings — some of which, including the Dearborn property, were converted from apartments during the boom and left investors with units that never sold — back into rentals.

Since Chicago raised the percentage of a building’s ownership that investors must win over, condo deconversions have swept through the suburbs, where the lower approval figure is still intact. Deals are still possible to make in the city, though they frequently spark controversy.

“They’ve slowed down a little bit, but the ones that proceed are often more abusive than they were in the past,” said R. Kymn Harp, a Chicago real estate lawyer with experience on condo deconversion projects. “It takes more to get to 85 percent.”

He said condo board members often fail to look out for all unit owners when fielding a deconversion offer, and sometimes assist the offering party by providing contact information for unit owners that they shouldn’t under condo association bylaws. Deconversion contracts are also often designed to intimidate unit owners into voting in favor of a sale, including with bonuses for quickly accepting the offer — as with the Dearborn property — and can come with warnings about losing even more money on the price of a unit if you object to the sale, he said.

“They write contracts in ways that are really designed to get the 85 percent approval, rather than to put the objective question before the unit owners as to whether they want to proceed with a sale,” Harp said. “They pass it off as if it is a foregone conclusion and there is no chance you’re going to be able to stop it.”

The investor behind the offer is North Dearborn Property LLC, according to a copy of the offer viewed by The Real Deal. Residents believe it is tied to Finchley Investments, a mysterious company the Chicago Tribune reported spent $38 million on 144 condos in nine different buildings in less than a year in 2019, including more than $4.6 million for 19 condos in 200 North Dearborn.

Finchley also spent $10.2 million for 35 units in the 51-story Ontario Place tower at 10 East Ontario Street, a property whose $190 million condo deconversion sale to Strategic Properties of North America last year set a Chicago record and ended up contested in court. People the newspaper reported have ties to Finchley, including Yitzky Klor of Strategic Properties of North America, Ari Shulman of Skokie-based Special Assets and Alex Turik of Lincolnwood-based HAN Capital, did not return requests for comment.

Deconversions are “challenging unless it’s a huge windfall for everyone,” Chicago-based Essex Realty Group’s Kate Varde told The Real Deal earlier this year. “It’s a challenge to get to [85 percent] and it’s a challenge to get to closing.”

Condo board members for 200 North Dearborn declined to comment, and attorneys at the firm representing the condo association, Chicago-based KSN, did not respond to requests for comment.

It is unknown when the condo board will call the vote to tally the percentage of ownership in favor of the sale versus those opposed, and the uncertainty of its outcome is weighing on the condo building’s residents. While the unit owners have been instructed to mail their votes on the sale with the chance to receive $20,000 extra on top of their unit price, the deadline to return the vote and remain eligible for the bonus has been extended from the initial March 11 date, Humolli said.

“There is a lot of distrust with our board now,” Humolli said. “Why are you being so shady and not putting a date on this vote? I’ve been here for five years. I know I’m young and haven’t settled my life, but there are people that have. There are people who have said this is their forever home. Even for myself, I cannot move, I don’t want to move.”