Almost six years after buying a condominium building in Chicago’s Gold Coast and converting it to 250 apartments, a New York-based investor has sold it at far less than what was spent.
ESG Kullen early this month sold the nine-story Oliver on LaSalle building at 1140 N. LaSalle Drive for $31.5 million, according to Cook County property records.
It is an example of a losing investment in the condo deconversion trend that has gained popularity over the past several years in Chicago amid continued high demand for rental units.
ESG bought the property for $38 million in December 2018 and spent an undisclosed amount fixing up the property for renters.
Condo deconversions, rarely seen outside Chicago and South Florida, involve buying condo units from all the owners in a building at once, and then converting them to rental units, often their original use. The trend has been seen in large buildings throughout Chicago and the suburbs after a period of condo overbuilding — which included many rental buildings converted to individually owned condos — leading into the Great Recession.
Deconversion deals in Illinois require 75% approval of unit owners. In Chicago, the threshold is 85%. For owners of an outdated building in need of costly repairs, they often can sell for a far higher price than they could get on the open market, with developers still finding upside from continued rent growth.
Some deconversion deals have been lucrative for developers, including a Brooklyn, New York-based investor that sold a 188-unit building on Chicago’s North Side for $43 million in 2021. That was far above the approximately $32 million the firm spent to acquire the building and make upgrades, CoStar reported at the time.
Prominent properties that have been converted to apartments in recent years include the 448-unit River City complex that was designed by architect Bertrand Goldberg. It was put on the market for sale last year, but it never found a buyer amid rising interest rates and other challenges that have pushed down deal volume and property values.
The buyer of the Oliver on LaSalle was local investor Andrzej Karwowski.
He declined to comment on the deal. ESG Kullen did not respond to a request to comment from CoStar News.
Karwowski’s purchase was backed by a loan of just over $24.3 million from JPMorgan Chase Bank, according to property records.
Built in 1924 as a hotel, the property later became apartments and eventually condos before being switched again to rental units by ESG Kullen, Crain’s Chicago Business reported in early 2022 when it first went up for sale.
ESG Kullen made major renovations, including adding a roof deck, new elevators, and upgrades to the lobby and units, according to the report.