After extreme controversy and resistance to the original plan to Cap Rentals at the John Hancock (175 E. Delaware) the Hancock board has decided to bring a new proposal to the table.
The Hancock board earlier this month proposed a “soft cap” according to Crain’s Chicago Business which would limit rentals to 160 units, or roughly 23% of the building’s 705 condos. Furthermore, this plan also has exceptions in the rule which would permit leases to family members or another owner during a renovation, for instance. Ballots for this measure were recently passed out to each owner in the Hancock. Two-thirds of the Hancock’s owners must vote in favor of the proposal in order for it to pass and have it be added to the association bylaws.
Currently the Hancock has 20.8% of the condos leased, which is 147 units. While many owners may be upset about a rental cap some renters have questions about whether or not they’ll be able to stay in the building.
More than likely all currently rented units will remain grandfathered in and will allow the unit owners to continue to rent their units. Of course all leases stay in place 100% and are fully enforceable.
The one thing to remember, however, is that the owners do not have to vote on this issue within a certain time frame. The ballots have no deadline to be returned which means it might be a very long while before we have an answer. In the meantime another building is trying to pass a rental cap; The Chandler, 450 E. Waterside.
Paul Blackburn is a licensed Illinois Realtor and Associate Broker with @ Properties. He can be reached anytime via e-mail at Paul@PKBlackburn.com
Well the dispute continues at 175 E. Delaware, the John Hancock regarding capping rentals in the building. It apparently has gotten so bad that many of the board members are not even spoken to in the building. Yes, that is right – it is civil war time in the Hancock. So with all this talk about rentals in the Hancock what do units actually rent for? Well, lets take a look shall we?
Right now there are 14 units listed on the MLS for rent. The cheapest is a studio listed at $1500/mo and the most expensive is a furnished 3 bedroom at $3,990. In the middle there are 1 Bedrooms starting from $1850 and 2 Bedrooms from $2,600.
The Hancock does have great amenities from a large gym to a great pool (amazing views from both). The issue with the gym is that it is a bit dated, but it is cared for very well. My favorite convenience in the building is Potash Grocery Store. Not only is this great on cold days, but you can get everything from Breakfast to a great bottle of wine.
If you want to rent in the Hancock you might be out of luck or on a waiting list after next months Condo Board Meeting for the John Hancock Condo Association. It appears that the board has decided to vote on a measure to limit the number of rentals the building may have. Currently the building is comprised of 705 residential units, 142 of which are currently rented. The condo board seeks to cap rentals at 145 units, an action which 2 residents say violates the condo board bylaws. Such a measure, according to the 2 residents’ attorney, must be put t0 a vote by the entire association and a 2/3 majority would need to be reached in order to pass.
The question remains however, is it healthy for a building to limit the number of rentals? Most owners don’t want renters in their building because they claim it “changes the lifestyle and brings down the value of the building.” While this may be true in some cases, there is actually a bigger concern which is the finance-ability of units. When a building has a large number of rentals, the risk is inherently higher for a lender, therefore many lenders have specific requirements which state the building cannot have the number of rental units exceed 20%, 25%, etc. The thought behind the “rental cap argument” is simple – limit the number of renters, keep the quality of the resident high, the ability to finance to remain stable and therefore we will preserve the value of everyone’s units.
Here is the problem with this thought. Imagine you have just received a new job offer in another state, or perhaps you just lost your job and can no longer afford your mortgage payments. What do you do? Well, if your building allows you to rent out your unit you have the option: Either Sell or Rent. In this current marketplace is it not advantageous for many owners to sell, especially if they bought or refinanced in the past decade. If you need to sell NOW, meaning in the next 60 to 90 days would you price your home to get the price you WANTED? Or would you price it below everything else (that is comparable to your unit) in the building in order to ensure that your unit sells in the next 60 days? You would price it low; plain and simple.
The problem with limiting rentals is exactly what I stated above. For those who need to get out of their unit, they are no longer left with the option of renting, they must sell. This can increase the supply on the market in a specific building. Furthermore, such desperate sellers will NEED to lower their price in order to move their unit quickly, thus pulling down the values in the building. Even though other sellers may not be as desperate a precedence has still been set by the other units that sold quickly. Buyers who will be looking at the building will say “Unit 5507 sold for 550k, therefore I’m not going to pay more than that for 5407 which is on the market at 625k.”