Chicago Sees Resurgence in Condo Conversions

- The current trend is a counter-movement to the more dominant "condo deconversion" wave, where entire condo buildings are bought and converted back into rental apartments. This deconversion is often driven by the high value of rental units in Chicago's strong multifamily market, where the price for a building as a rental asset can be 25% higher than the total value of its individual condos. - A key driver for the scarcity of for-sale condos is low inventory; in January 2025, the number of condos for sale was down 28% compared to the previous year, leaving only about 1.5 months of available supply. This supply crunch is exacerbated by a decade-low number of new construction starts in 2025, caused by elevated costs and tax uncertainty. - This conversion trend is occurring alongside a much larger boom in adaptive reuse projects, particularly office-to-residential conversions. In 2024, Chicago led the nation with 880 new apartment units created from conversions, a 400% increase from 2023. - Historically, Chicago is the birthplace of the condominium conversion movement, which began in the city in 1964 with a 16-unit building in Hyde Park. The city has since experienced several waves of "condomania," including the conversion of vintage low-rise apartment buildings in the 1970s and industrial lofts in the 1990s. - For investors, the Midwest multifamily market is showing stronger fundamentals than other U.S. regions, with a Q1 2024 average cap rate of 6.0%, the highest in the nation. The region benefits from low vacancy rates and a more limited construction pipeline, positioning it for outperformance. - Neighborhoods seeing recent, small-scale apartment-to-condo conversions include Lakeview, West Lincoln Park, and Buena Park, where developers are testing the market to meet intense buyer demand. Conversely, deconversion activity is most prevalent in areas like Bronzeville, South Shore, and Rogers Park, where rising property taxes and large special assessments pressure condo owners to sell. - The city's government is actively encouraging some forms of conversion through initiatives like the LaSalle Street Corridor program, which uses Tax Increment Financing (TIF) to help fund office-to-residential projects, aiming to add approximately 1,800 new residential units to the downtown area.