Investors take over condo boards, vote to terminate the associations, and force remaining owners to sell at their condos at low prices
By Deborah Goonan, Independent American Communities
Fifteen years ago, real estate professionals were touting the benefits and affordability of condo living. So thousands of first-time home buyers and retirees puchased a condominium as their primary residence.
But buyers did not realize that their condo corporation was subject to a hostile takeover by real estate investors, or the changing needs and desires of a developer.
The Cook County Record highlights what is essentially an eminent domain issue for condominium owners.
As with any hostile corporate takeover, in River City Condominium, new investors acquired a sufficient number of units, along with their respective voting interests. When they owned at least 75% of the voting power, the investment company, Marc Realty Capital, decided to take over the board. It was easy — owners representing Marc Realty simply voted for themselves. Then they promptly changed all the condo documents to suit their own interests.
Of course, the group had long ago decided that River City would create a lot of profit as rental apartments. Since they happened to own most of the voting interests in the condo association, the investors voted to terminate the condominium and ‘deconvert’ to ordinary rental apartments.
However, that leaves a few remaining owner-occupants, such as Dan Pepper, with no choice but to sell his home and move elsewhere.
The problem is, the new owners of the River City building, Marc Realty Capital, have presented a lowball appraisal for his condo unit, and they expect Pepper to accept their offer, complete the sale, and move on without a fight.
That’s not happening.
A similar scenario is playing out at Huntington Residences, where owner Jeffrey Grimm is battling with Rockwell Partners over a fair appraisal of his condo.
Pepper, Grimm, and several owners in other condo deconversions are hiring attorneys, resisting pressure to sell their homes for a fraction of what they believe they’re worth. The owners hope to negotiate a more fair selling price for their properties, so that they can purchase something comparable in the Chicago metro area.
Investors prefer to buy out owners for a low price, because that increases their profit margin. They choose the appraiser and often obtain estimated resale evaluations of each condo unit. Not surprisingly, market prices tend to be low when condos aren’t selling.
Condo owners expect to get enough money from the sale to pay off any mortgage they may owe, and still have money left to buy a comparable home in the area. They expect the buyer to split up the sale price of the entire building and grounds, according the a unit owner’s percentage interest in the association. Multifamily buildings are in high demand when they can be converted to rental properties.
Unfortunately, Illinois state law is vague in terms of how to determine fair appraisal values for units of a terminated condominium association. So the only option for condo owners is to engage in an expensive, time-consuming lawsuit, in hopes of getting a better payout from investors.
Is this what most condo owners expect when they buy into the dream of owning their own home?
Converting Values: Condo owners on wrong end of deconversions lament lack of legal protections
Dan Pepper would prefer not to head to court over the value of the condominium he would prefer not to leave.
But as a Chicago real estate firm and his condo association push forward toward completing what would be the largest condos-to-apartments conversion in Chicago to date, transforming the South Loop’s River City complex to rentals, Pepper said he and other owners may be left with no other option under Illinois law.